Everything Hershey makes is going to get more expensive

Seven is often seen as a lucky number, but not this time. The consumer price index is up 7% in December from December 2020, that's the highest rate of annual increase in inflation in almost 40 years since June of 1982. Even core prices, if you exclude volatile items like food and energy, Even then still the fastest pace of increase in almost 31 years. And what today's report tells us, I think just validates what millions of households already knew and that is inflation is a problem. Prices are going up and they're going up pervasively and they're going up at a rate that outpaces growth and household income. In many cases, food prices are up over 6%. Energy prices up over 29 And shelter costs, which tend to lag already up over 4% year over a year. And I think that's the one to watch in the months ahead. The Federal Reserve had what I would describe as a very lazy faire attitude toward inflation in 2021 and only at the end of the year did they really get the memo that this is a problem. And as a result, we've seen them pivot very quickly in terms of how they view it and how they plan to address it specifically. We will see the Feds start to raise short term interest rates. They're likely to start that as soon as March and around that time or shortly thereafter, they will not only stop buying bonds and adding to their portfolio, they will start letting the size of that portfolio shrink, letting it run off. That has the effect of pulling liquidity out of the system. So even though that happens behind the scenes, I think that's arguably the more significant item. Both of those will slow the demand side of the economy over time, but they're not going to address nor fix the issues with the supply chain.

Stress eating is about to get more expensive: Hershey is raising prices this year."Pricing will be an important lever for us this year and is expected to drive most of our growth," Hershey CEO Michele Buck said in prepared remarks discussing the company's financial results Thursday.In its 2022 financial forecast, the chocolate company behind Reese's and Kit Kats said it is planning "list price increases across all segments" as a way to drive sales growth.The price hikes should help offset higher ingredient and labor costs, said Steven Voskuil, the company's chief financial officer, during an analyst call Thursday. Hershey is hiring to help relieve the pressure on overworked employees. Voskuil also noted sugar, dairy, packaging materials and specialty ingredients prices are all surging.Still, Hershey finds itself in a relatively good spot two years into the pandemic.In 2020, demand for candy and snacks grew as consumers bought comfort foods and hunkered down at home. Retail sales of Reese's grew close to 25% over the past two years, according to Buck.And Hershey's sales growth didn't stop in 2020. Last year, retail sales of the company's top candy brands grew more than 12% on average, Buck said. And Hershey's snack brands also performed well last year. Skinny Pop's retail sales grew 22%, and Pirate's Booty sales jumped more than 26%.Altogether, net sales grew 10.1% for the year.Some of that success can be attributed to COVID-19 restrictions as consumers are still spending more on grocery items as they continue to work from home. But some of those changes could be permanent, noted Buck, especially as workplaces continue offering remote options.Still the company faces challenges. Demand is still outstripping supply, and Hershey is ramping up capacity to meet it.Strategic price hikesThe candy maker has already raised prices, and consumers have accepted them. Higher prices contributed to sales growth in the fourth quarter, according to the company."Historically, our category has successfully been able to execute price increases and we expect that to be the case this year as well," said Buck.Hershey thinks customers will continue to accept the higher prices because of loyalty to its products. "They don't want to switch to another brand," Buck said during the analyst call Thursday.But Hershey is planning to tread lightly, she added. "We want to carefully keep our eye on the potential impact of a broad inflation on the consumer."The U.S. consumer price index, a key inflation gauge, rose 7% last year, before seasonal adjustments, the Bureau of Labor Statistics reported. That was the biggest spike since June 1982, and it was higher than economists predicted. Grocery prices rose about 6.5% last year.So far, other companies have been able to raise prices without scaring off consumers.Starbucks said on Wednesday that it would increase prices this year, after hikes in October and January. "With those pricing actions, we still saw incredibly strong demand through the holiday season," CEO Kevin Johnson noted.And McDonald's increased menu prices by about 6% last year to help offset higher food, packaging and labor costs. Still, sales at U.S. McDonald's stores open at least 13 months jumped 13.8%, last year, the largest annual increase since McDonald's started reporting comparable sales in 1993.

Stress eating is about to get more expensive: Hershey is raising prices this year.

"Pricing will be an important lever for us this year and is expected to drive most of our growth," Hershey CEO Michele Buck said in prepared remarks discussing the company's financial results Thursday.

In its 2022 financial forecast, the chocolate company behind Reese's and Kit Kats said it is planning "list price increases across all segments" as a way to drive sales growth.

The price hikes should help offset higher ingredient and labor costs, said Steven Voskuil, the company's chief financial officer, during an analyst call Thursday. Hershey is hiring to help relieve the pressure on overworked employees. Voskuil also noted sugar, dairy, packaging materials and specialty ingredients prices are all surging.

Still, Hershey finds itself in a relatively good spot two years into the pandemic.

In 2020, demand for candy and snacks grew as consumers bought comfort foods and hunkered down at home. Retail sales of Reese's grew close to 25% over the past two years, according to Buck.

And Hershey's sales growth didn't stop in 2020. Last year, retail sales of the company's top candy brands grew more than 12% on average, Buck said. And Hershey's snack brands also performed well last year. Skinny Pop's retail sales grew 22%, and Pirate's Booty sales jumped more than 26%.

Altogether, net sales grew 10.1% for the year.

Some of that success can be attributed to COVID-19 restrictions as consumers are still spending more on grocery items as they continue to work from home. But some of those changes could be permanent, noted Buck, especially as workplaces continue offering remote options.

Still the company faces challenges. Demand is still outstripping supply, and Hershey is ramping up capacity to meet it.

Strategic price hikes

The candy maker has already raised prices, and consumers have accepted them. Higher prices contributed to sales growth in the fourth quarter, according to the company.

"Historically, our category has successfully been able to execute price increases and we expect that to be the case this year as well," said Buck.

Hershey thinks customers will continue to accept the higher prices because of loyalty to its products. "They don't want to switch to another brand," Buck said during the analyst call Thursday.

But Hershey is planning to tread lightly, she added. "We want to carefully keep our eye on the potential impact of a broad inflation on the consumer."

The U.S. consumer price index, a key inflation gauge, rose 7% last year, before seasonal adjustments, the Bureau of Labor Statistics reported. That was the biggest spike since June 1982, and it was higher than economists predicted. Grocery prices rose about 6.5% last year.

So far, other companies have been able to raise prices without scaring off consumers.

Starbucks said on Wednesday that it would increase prices this year, after hikes in October and January. "With those pricing actions, we still saw incredibly strong demand through the holiday season," CEO Kevin Johnson noted.

And McDonald's increased menu prices by about 6% last year to help offset higher food, packaging and labor costs. Still, sales at U.S. McDonald's stores open at least 13 months jumped 13.8%, last year, the largest annual increase since McDonald's started reporting comparable sales in 1993.

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