Chocolate price hikes won't put off consumers, predict analysts

03-Apr-2011 - Last updated on 04-Apr-2011 at 14:49 GMT

Confectioners will probably get away with increasing prices on chocolate bars without significantly denting demand because they are generally low ticket items bought as treats in an area with high brand loyalty, analysts have predicted.

Their comments came as Mars joined Hershey in announcing price hikes for selected confectionery products in the US (although it has been less forthcoming about the level of increases it plans to make). The rises will not kick in until May, after the crucial Easter sales period.

Edward Jones analyst Jack Russo told FoodNavigator-USA.com that higher prices might impact demand in the short-term, but that the confectionery market was better placed than many grocery categories to withstand price increases given that chocolate was an affordable treat dominated by big brands.

‘Pretty hefty’ increase

He added: “Everybody is raising prices in this industry right now; the million dollar question is to what extent retailers will absorb rises or pass them on to the consumer. The consumer will ultimately decide whether he will pay. But while 10 percent (Hershey proposes a 9.7 percent rise) is a pretty hefty and aggressive increase, they will probably get away with it.

“Buying confectionery isn’t like buying Kleenex, people don’t trade down to private-label because the price goes up.”

Wells Fargo analyst Eric Serotta pointed out that volumes had rebounded fairly rapidly when major manufacturers last raised prices in summer 2008, while MorningStar analyst Erin Swanson said that shoppers might trade down from a king size to a regular bar, but were unlikely to spurn the candy aisles altogether.

Mars, which last raised prices in July 2008, will up prices on selected products in the US from May 23 on the back of significant increase in raw materials, fuel and labor costs.

A spokeswoman said: “In order to remain competitive and to continue to provide consumers with the high quality, great tasting products they expect, it is necessary for us to take this action."

Hershey, which announced a 9.7 percent price hike on instant consumable, multi-pack, packaged candy and grocery lines in the US, Puerto Rico and export markets, said it would work with retailers to try and minimize the pain by ensuring “that the implementation of the price increase is supported with customer trade promotions and merchandising that continues to grow the category”.

Overseas expansion

Hershey – which lost out to Kraft in its bid to acquire Cadbury – has not got the same global clout as rivals Mars and Nestlé, but has made strong gains in emerging markets in the last year, noted Serotta: “Clearly Hershey is at a disadvantage compared with competitors in faster-growing markets outside the US, but it is putting the resources in place in terms of ad spend and distribution and it is are looking at expanding its presence in China, Mexico and Brazil.”

Russo added: “They might have lost out in the Cadbury sweepstake, but they’re doing well, their new product development has been good, they have become more assertive and they haven’t been distracted by the integration issues affecting Mars (Wrigley) and Kraft (Cadbury).”

At a recent investor conference in Florida chief executive David West also said the global confectionery market remained fragmented, giving company bosses “room to capture growth”