Hershey assures chocolate supplies are stable while Nestlé tackles raw material shortage

02 Aug 2022 --- As Halloween is on the horizon and supply chain disruptions within the confectionery space are being reported internationally, Hershey has backtracked after saying candy supplies could be running short, now claiming they are “well positioned to deliver” now and into the fall period and build-up to the Halloween season.

“We actually anticipate high single-digit growth for our Halloween and holiday seasons and will have even more seasonal product available to the consumer this year than last year,” says a Hershey statement.

At the same time, Nestlé is experiencing some issues with confectionery supply.

“We see shortages across a variety of items, including raw materials and packaging materials with significant differences across ingredients, products and geographies over time,” Christoph Meier, global head corporate media relations at Nestlé, tells FoodIngredientsFirst.

“But we have limited the impact on supply at the consumer level relatively well. For example, we have mitigated through alternative suppliers, product reformulation, SKU rationalization and increasing inventory of raw materials and finished products,” he highlights.

According to Meier, constraints on production capacity are due to high demand, with the company expecting to boost its international production later this year and in 2023.

Chocolate supply is secured for this Halloween, according to Hershey.Fast takeback
Hershey initially caused a stir when, during a recent company earnings call, representatives said Halloween could be disrupted.

“We had an opportunity to deliver more [for] Halloween, but we weren’t able to supply that. And we were really producing,” Michele Buck told investors.

“We had a strategy of prioritizing everyday on-shelf availability, that was a choice that we needed to make.”

“It was a tough decision to balance that with the seasons, but we thought that was really important,” she adds.

“This strategic decision was made not due to the reasons some outlets are reporting (i.e. the war or ingredient scarcity), but rather due to everyday and seasonal production occurring on the same lines and having to balance our everyday and seasonal portfolios,” a spokesperson for Hershey explains. 

“These capacity constraints we referenced during Thursday’s earnings call are due to a tremendous increase in consumer demand the past few years,” the company clarifies.

However, during the earnings call, Buck explained that the war in Ukraine put “certain strains on the business” relating to the scarcity and issue with ingredients. 

“We’re now starting to see bigger concerns relative to scarcity of ingredients needing to leverage different suppliers at higher cost and price points in order to secure production,” underscores Buck. 

Volume vs. prices
According to Innova Market Insights, confectionery manufacturers in the US will benefit four times more from pricing than from increased volume in sales. While the CAGR of chocolate sales will advance by 4% per annum until the end of 2023, the volume is not going to reach even a 1% yearly increase.

This will not further constrain the supply of most chocolate manufacturers. However, Hershey is outperforming the general market in volume while also being a dominant player – having 43% of the US chocolate market share, according to the market researcher. 

Hershey announced that net sales increased 14.1% in the second quarter of 2022 compared to last year. This was driven by a 9.5% price growth and a 4.6% volume growth. Hershey’s production, therefore, is growing over 4.6 times faster than the general market rate. The US chocolate category is going to grow at 4% CAGR per year until the end of 2023.

This increase in volume will delve into Hershey’s inventory. However, Hershey explains its solution to cover for Halloween.

“Moving forward, with higher inventory levels and more capacity, we believe we’ll be well positioned to deliver for the consumer whether they’re reaching for everyday or seasonal products.”

Hershey explains that its investments – amounting to US$800 million – will result in about a 15% increase in its internal volume production capability.

Gas supply constraints
Meanwhile, Nestlé also notes how the company is not highly reliant on natural gas, which should not be a major cause of concern in the case of a cold winter.

“We use it [gas] primarily for steam and heat generation and to a lesser extent in some of our production processes. We are working on contingency plans, including using alternative sources of energy and building inventories before the winter,” explains Meier.

In addition, Hershey, which business is 91% in the US, is experiencing problems with European suppliers.

“More recently, there have been additional restrictions from Russia on the EU relative to natural gas. Germany will be impacted. That’s an area where we source a lot of equipment, supplies as do many of our suppliers,” concludes Buck.

By Marc Cervera