No. of Recommendations: 4
majority of hershey's products are candies with minimal cocoa.
It's true that it's far from being the majority of their cost base, but it does matter.
They bumped prices last year (along with everybody for everything), and volumes were down 5% in the fourth quarter. It was probably price--it's not as if everybody suddenly became chocolate connoisseurs.
From WSJ---
"At Hershey, the goal is to raise prices enough over time to cover higher raw material costs. This year, though, it forecasts “relatively flat” earnings as higher cocoa and sugar costs bite.
...
evaluating potential changes to product sizes designed to attract more price-sensitive shoppers..."
The bigger problem is that there is no quick fix for scarce and expensive supplies. It's hugely labour intensive to grow, and the people who grow it don't make enough money even to maintain current production. Even though Hershey will do OK, cranking profits by cranking volume will be very hard to manage because of elasticity: at any given price point, there is a limit to demand.
Jim
