Wednesday, August 27, 2008
Rising Cost of Candy - A Brief Study of Hershey Prices
It was big news this month when Hershey Co. announced that it was raising its wholesale candy prices by 11%. This is the second price jump for them this year, in January they raised prices by 13% for select products in their line as well.
Most of this is due to increased cost across the board. Rising fuel prices in all sectors means that it costs more to buy energy to operate their factory candy kitchens, air condition their warehouses and drive trucks around. Add to that the biggest change, the raw materials cost more because of their vast distances from the Pennsylvania confectioner on top of their actual costs which have risen 20% - 45% this year alone.
The falling value of the dollar hasn’t helped much either, as all cocoa products are imported and there is more competition for quality cocoa beans. Even though they’ve trimmed their workforce within the past 18 months, rising health care costs are a huge burden for companies lately as well.
The change in the wholesale price for Hershey Co. is different than their tactics in the past when dealing with this sort of volatility. It seems kind of quaint now how Milton S. Hershey tried to lock down his costs by entering into long term buying deals for cocoa beans and even building his own sugar plantations in Cuba (and a community named Hershey there too, complete with schools, libraries and a railroad system). Back then attempts were made to keep the price of the candy the same, so they would change its size as needed.
The green line at the top represents the size of the chocolate bars (shown in grams). It’s easy to see that through the early years the price of the bar increased steadily (though slowly) but the size of the bar sold was volatile, even when taking the price per ounce into consideration. Oddly enough, the bar did become a better value quite often, both growing in size and dropping in price, though that trend ended after WWII and shortages and price swings in raw materials normalized.
Often though when the price went up, so did the size of the bar as a way to offset the perception of poor value.
The trend more recently, in the past 20 years though, has been to keep the bar the same size but simply raise the prices as needed. This means that things like slots in store shelves, wrappers, nutrition panels and manufacturing equipment stays the same.
While the icon of Hershey’s Milk Chocolate is fun to use as a benchmark, what is important to recognize is that Hershey’s doesn’t just play with the size and price of their products. They also change the manufacturing process (Hershey’s no longer roasts their own beans or processes them into chocolate liquor, they’ve subcontracted that to Barry Callebaut), alter how long products are conched and lately have even started substituting substandard ingredients. In 2006 Hershey’s began using PGPR, which is an emulsifier and extender, in some of their milk chocolate products, but it wasn’t until this year that it finally appeared in the formula for the Hershey’s Milk Chocolate bar.
To demonstrate how else Hershey’s has begun to cut corners, I only needed to look at Hershey’s classic Hershey’s Miniatures to discover that two of their iconic and early chocolate brands, Mr. Goodbar and Krackel, are no longer chocolate bars at all. Hershey’s was a strong and vocal supporter of The Grocery Manufacturers Association’s attempt to change the definition of chocolate from its present and not terribly stringent one (chocolate must contain cocoa solids and cocoa butter and no additional vegetable oils). In order to get chocolate products from Hershey’s now, consumers have to opt for their premium lines like Bliss and Cacao Reserve or pay true premium prices for their Dagoba or Scharffen Berger product lines.
Other changes to Hershey’s products over the past three years include:
Other products which have never been real chocolate (so you’re not confused):
Hershey’s has not completely made this switch over and their website still contains erroneous graphics and text that mislead consumers (UPDATE: I’ve documented more of that here), as an example, the 5th Avenue bar has not been made with a milk chocolate coating since at least early 2007, yet the main product listing and the product page still say that it is a milk chocolate & crunchy peanut butter. I cannot say if this is intentional, but based on my experience with calling Hershey’s customer service hotline and emailing them, they do not seem to understand that consumers should get up-to-date and accurate information when contacting a manufacturer.
While Hershey’s seems to be concentrating a great deal of effort on honing their efficiency, based on the fact that they’re subcontracting, eliminating factories and a percentage of their workforce while manufacturing more in Mexico, they seem to have neglected their primary mission: making good chocolate. Milton Hershey was often derided for not embracing advertising for his products. He said, “Give them quality, that’s the best kind of advertising in the world.” But presently they’re advertising quality with their new Pure Chocolate campaign but neglecting to actually deliver it.
Meticulously photographed and documented reviews of candy from around the world. And the occasional other sweet adventures. Open your mouth, expand your mind.