Mondelēz and Hershey CEOs: Snacks are an ‘affordable’ luxury amid inflation

Top executives at Mondelēz International and Hershey said confections and snacks remain an “affordable” luxury for consumers as they face higher prices for a wide array of goods and services in addition to food.

“We see more and more signs that consumers continue to see or increasingly see our categories as an affordable indulgence,” Dirk Van de Put, Mondelēz’s CEO, told analysts last week during the company’s third-quarter earnings. “We see consumers saying that chocolate is really something they cannot live without.”

Consumers are facing higher prices for everything from gas and travel to apparel and medical care. Food is no exception. Food-at-home prices have increased 13% during the past year, according to the Bureau of Labor Statistics’ Consumer Price Index for September. Candy and chewing gum prices have mirrored that rise, climbing 13.1% during that period.

Mondelēz, which owns brands including Oreo, Chips Ahoy! and Cadbury, said strong consumer loyalty to biscuit and chocolate brands in developed markets has made shoppers less likely to switch to private label offerings. The Chicago-based company, which is facing higher costs for ingredients, transportation and packaging, plans to implement a third round of price increases in the U.S. next month, Van de Put said.

Last week, Mondelēz increased its full-year organic net revenue growth forecast to 10% or more, up from a previous forecast of 8% or more. Mondelēz also raised its full-year adjusted earnings-per-share forecast from “mid-to-high single digits” to 10% or more, on a constant currency basis.

Meanwhile, Hershey raised its 2022 net sales growth forecast to 14% to 15%, compared to an earlier outlook of 12% to 14%. It also increased its adjusted earnings-per-share growth to 14% to 15% versus 12% to 14%.

Hershey CEO Michele Buck, who has moved aggressively to turn the confectioner into a snacking powerhouse through acquisitions, told Wall Street the company is closely watching for when consumers “could hit a breaking point” on higher prices. The company increased confectionery prices in North America by 7.7% during the three months that ended Oct. 2, with additional hikes on the way.

So far, Buck said while the maker of Kisses, Reese’s and Jolly Rancher has noticed some changes in how people are spending — value packs and value channels are performing especially well — Hershey’s products remain “an affordable treat” for shoppers who want to reward themselves and relieve stress. 

“Historically our category has tended to fare pretty well during these times because it is an affordable indulgence when consumers can’t afford a lot of other things,” Buck told analysts during the company’s third-quarter earnings call.

As demand for its sweets and snacks increases, she said the company is moving aggressively toward increasing its manufacturing capacity. Hershey is planning for five new manufacturing lines to start in 2023, including three for the Reese’s brand.