As cocoa costs rise, Hershey says goodbye to some of its products. Hershey Co. told the Wall Street Journal it will stop selling certain sizes and varieties of candy in order to save money. According to the article, Hershey claims it has become too expensive and complex to manufacture and deliver its wide range of brands, especially with today’s cocoa prices. The main products to be cut from their lineup are Hershey’s holiday assortments, most of which will be discontinued.
“There can be excess items that are not driving incremental, profitable growth,” CEO Michele Buck told the newspaper.
Special- edition launches increase sales whilst gaining consumer attention, though this isn’t ideal for the companies profit growth when thinking long term. Manufacturing these special products during the holiday season can cost the company, with Hershey highlighting Halloween as a prime example of this. The company had five new releases during the most recent Halloween season. To go with the holiday theme they included: Hershey’s Cookies ‘n’ Crème Skulls Hershey’s Miniatures and Reese’s Peanut Butter White Pumpkins.
However, due to the rise in cocoa price, manufacturing chocolate has become more expensive. According to the Financial Times, in 2010, chocolate prices in North America were at $11 per kilogram; that number has now jumped to $14 per kilogram. Focusing on core brands could be the best way Hershey can control its profits.
Currently, Hershey is delivering 500 different display styles to specific retailers, however Buck told the newspaper that the company could cut that number in half for efficiency. Kit Kat, Reese’s and Hershey are the core brands the company will be focusing on, which could be a good way to avoid consumer burnout.
Despite the good idea, the company is aware that this plan will have an impact on sales in Q3 and Q4 of 2018. Hershey is now expecting annual sales to rise about 5 percent instead of 7 percent, which was a previous projection.
The North American cocoa grind fell 1.1 percent in 2016, which collates cocoa processed from 17 companies, including Hershey. According to Euromonitor, weaker consumer spending will continue to hinder the cocoa market in the US. Hershey isn’t the only company taking a hit in sales; Swiss chocolate giant Lindt & Sprungli posted a 1.6 percent decline in US sales for 2017. According to the Wall Street Journal, companies can stay alive by branching out into trendy snacks.
Hershey plans to do this by buying Amplify Snack Brand. The company will capture consumers with the addition of Amplify’s products, including Tyrells potato chips, Oatmega protein bars, Paqui tortilla chips and Skinny Pop popcorn. This can possibly reimburse the loss due to chocolate sales.