Hershey Price Hike Tests
Theory That Americans
Love Chocolate At Any Price
By Alexandra Wexler
and Annie Gasparro
The Wall Street Journal
Your chocolate fix just got a little pricier, but you’re probably going to keep eating it anyway, aren’t you?
Hershey Co., maker of the eponymous Kisses and Milk Chocolate bars, as well as other favorites like Kit Kat and Reese’s, announced an average wholesale price increase of 8% across the majority of its products this week, thanks to rising costs that include higher cocoa prices.
But chocolate consumption has historically been very inelastic, which means consumers tend to indulge in the treats even after price hikes. On Thursday, the National Confectioners Association reported that the amount of cocoa processed in North America—viewed as a proxy for chocolate demand—hit a near-record during the second quarter.
The 4.5% increase from a year earlier beat market expectations and points to robust demand for chocolate, even as cocoa prices were trading near three-year highs during the quarter. Cocoa grindings in Asia also rose 5.2% during the second quarter, the Cocoa Association of Asia said early Friday. Consumption growth in developing markets has been particularly strong.
Hershey has historically had success with price increases, says Barclays Capital analyst Andrew Lazar, giving investors’ confidence in the move.
Hershey has long called chocolate an affordable indulgence that consumers will splurge for even when money is tight. That’s partly why the company, and its stock, did relatively well throughout the latest recession. Hershey shares have more than doubled over the last five years.
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