“In 2022, The Hershey Company delivered one of its strongest years in history despite record inflation, continued supply chain disruptions and macroeconomic uncertainty for many consumers,” and “we expect to deliver another year of strong sales and earnings growth in 2023, as we invest in our amazing portfolio of brands, additional capacity and capabilities,” CEO Michele Buck told investors yesterday during the company’s fourth quarter earnings call.
Buck explained that while more than half of US consumers indicate inflation is having a major impact on their grocery shopping, she said chocolate and salty snacks remain resilient.
“Chocolate and salty snacks rank as two of the top three resilient treats that consumers are not willing to forgo. Chocolate moments are such a heavily integrated part of consumers’ weekly routines, from rewarding moments to stress relief to self-care, and everything in between, that they indicate they would rather cut back on other expenses to make room for chocolate because they love it so much and its affordable.
“Salty snacks are another regular companion that consumers are hard-pressed to cut back out of their grocery budget. Not only are they affordable compared to other expenses, but they are key parts of both parents’ and kids’ daily routines,” she explained.
One of the only things holding back The Hershey Company from seizing the full potential of these categories ahs been capacity constraints, which Buck says the company plans to increase in the low single-digits to provide “some ability to flex with demand as we see it.”
She added that fill rates already are improving as the company started executing against capacity and incremental lines.
“We’re seeing less network disruption than we’ve seen in the past. Not all the way back to the perfect situation it was before the pandemic, but it certainly improved,” she said.
‘We believe in advertising’
As capacity increases, the company simultaneously is able to ramp up advertising, which should help hedge against consumer pullback related to higher prices, allowing the company to expand market share in the coming year, Buck said.
“We believe in advertising. We’ve seen the impact and the returns that we get on advertising in terms of having very strong ROI. So, we take a very databased approach to media spending, and we invest where we see that incremental profitable growth. Over time, we do know that advertising builds consumer connectivity, and we know that consumer connectivity is part of what helps us to have the elasticities that we do. People are connected to our brands, and during the tough times we know that connectivity leads them to continue to buy,” Buck said.
She added Hershey expects to return to market share gains in 2023 thanks in part to this incremental marketing investment.
Investments in employees, supply chains
To further support its brands as it increases advertising and production, Hershey also will invest more in employees – particularly around its salty business.
“We are adding some increments of talent there to really make sure that we have the right skillset, and that we have all the employee base and talent needed to do that heavy lifting and the work … around improving our planning system,”Buck said.
“Then obviously, given a lot of the work across the business on supply chains, where we are continuing to invest to build capacity and resiliency in the network, we have made investments in supply chain talent as well,” she added.
A positive outlook
These investments are possible in part because of Hershey’s strong 2022, in which it achieved a milestone of more than $10b in net sales, led by double-digit organic sales and an expanded portfolio through acquisitions.
“While high inflation contributed to our sales growth, we were also able to grow volume, a testament to our brands and execution in a volatile market,” Buck said.
As examples, she called out at 10.5% increase in retail sales for Reese’s for the year on top of double-digit gains the previous year. The salty snack segment also saw organic growth of 18.7% with nearly half of the gain coming from increased penetration and usage occasions, she said.
For the fourth quarter, the company reports constant net sales increased 14% to $2.65b. For the year, they were up 16.1% to $10.4bn.
The company predicts it will build on these gains in 2023 with reported net sales projected to grow 6-8%, coming primarily from price with flat or slightly down volumes that are offset by its efforts around advertising and capacity.