Hershey's Strategy to Tackle Rising Input Costs and Workforce Changes

Current pressures on input costs for Hershey

Hershey is currently facing moderate input cost inflation but has managed to reduce its cost of sales slightly year-over-year. The company acknowledges the need to pass some costs onto consumers while striving for operational efficiency to mitigate these pressures.

"The Hershey Company | Q1 2024 Form 10-Q | Page 33 Cost of Sales and Gross Margin Cost of sales were $1,576.6 million in the first quarter 2024 compared to $1,605.3 million in the same period 2023, a decrease of $28.7 million, or 1.8%." --- (HSY, sec filing, 2024/Q1)

"Through the third quarter, we experienced a moderate amount of input cost inflation, and we expect inflation to continue to moderate throughout the remainder of 2024." --- (CPB, sec filing, 2024/Q3)

"The Hershey Company | Q1 2024 Form 10-Q | Page 31 TRENDS AFFECTING OUR BUSINESS Throughout the first quarter of 2024, the U.S. consumer continued to drive momentum within the economy; however, we expect some moderation in consumer spending throughout the remainder of 2024 as cost fatigue and labor markets restrict income growth and constrain consumer spending power and purchasing behaviors." --- (HSY, sec filing, 2024/Q1)

"We strive to deliver high quality products at affordable prices. We have a broad portfolio of choices across our brands and we also have robust processes in place to find ways to operate more efficiently to mitigate higher input or operating costs. But at times, we do need to pass some of these higher costs on to consumers." --- (HSY, event transcript, 2024/05/06)

Supply chain and sustainability strategies to manage costs

Hershey is investing $500 million in its Cocoa For Good strategy to build sustainable supply chains, enhancing farmer resilience and productivity. This approach, alongside long-term supplier agreements, aims to mitigate rising input costs and ensure a steady food supply, addressing both sustainability and cost management effectively.

"Our actions and progress are aimed at driving long-term resiliency for our business, sustainability for our planet and the well-being of our people. Building more resilient and sustainable supply chains Hershey's Cocoa For Good strategy, underpinned with a $500 million investment, includes initiatives to create a supply chain where farmers, and their children and families, can prosper. Today, Hershey has invested 51% of that commitment. Achievements include:" --- (HSY, press release, 2024/06/04)

"I'm working on a number of initiatives, Doug, things like long term agreements with our suppliers to make sure that they can make the investments they need to secure future food supply, working diligently in things like sustainability across the key stakeholder groups to equip farmers to make sure that our food supply is steady for years to come." --- (WMT, event transcript, 2024/06/05)

"Farmer prices have increased and that should enable the farmers to make more investments in fertilizer pesticides and other techniques to improve yields, which really helps to bolster the supply. Improving COCA resilience requires active engagement by a lot of key parties, the government, civil society and also industry." --- (HSY, event transcript, 2024/05/06)

"The 3 supply chains we had that were quite discreet are so blended together and even more becoming so that it's really almost it could become just a cost industry to manage TPNL." --- (WMT, conference, 2024/06/11)

"The increase was partially offset by higher supply chain costs, including higher logistics and labor costs, unfavorable product mix and increased business realignment costs." --- (HSY, sec filing, 2024/Q2)

Workforce strategies in response to industry changes

Hershey's workforce strategy focuses on enhancing productivity through targeted training and transformation initiatives. The company emphasizes the importance of developing its sales workforce to adapt to industry changes while maintaining a commitment to long-term growth and cost management.

"We don't anticipate the hiring of the new folks to change that dynamic. What the key to success for '25 will be is ramping up the productivity of that sales colleague workforce, providing them the training that they need.A lot of it is product training, to your point, depends on where they come from." --- (SYY, earning call, 2024/Q4)

"And so, as we look through the transformation work, as we look through the ongoing productivity work and even now moving past ERP and some of the savings we can leverage off the back of that, so all of those things are helping us focus on costs to help make some impact on what we can do from a cost savings standpoint." --- (HSY, earning call, 2024/Q1)

"Turning to Slide 7, it is important to underscore that despite short-term marketplace volatility, we remain focused on advancing our long-term growth strategy by reinvesting in our brands and people, driving strong execution, reshaping our portfolio, and scaling sustainable snacking. We continue to." --- (MDLZ, earning call, 2024/Q1)

"So our dispensers, for example, that are much easier for operators to clean, and it allows us to actually make sure that they reduce the amount of labor involved in the collecting and changing of the dispensers, they began shipping to customers now in Q2 and we believe that actually it's going to continue to improve distribution as we go into the second half of the year." --- (KHC, earning call, 2024/Q2)

"2,030 and are making steady progress. We have partnered with other confection manufacturers to develop, adopt and approve extended producer responsibility principles, and we are committed to investing in recycling infrastructure, including circular waste solutions." --- (HSY, event transcript, 2024/05/06)

Pricing strategies to offset rising input costs

Hershey is actively implementing pricing strategies to counter rising input costs, focusing on higher net pricing and various levers such as product reformulation and productivity improvements. These efforts aim to mitigate the impact of inflation on profitability while maintaining competitive pricing across all categories.

"On the other side, we continue to execute against our pricing strategies to offset input cost inflation, using both headline price and revenue growth management." --- (MDLZ, earning call, 2024/Q1)

"The International segment reported a $25.0 million profit in the second quarter of 2024, reflecting a decrease of $16.1 million versus the prior year period driven by volume declines and higher commodity costs, which more than offset higher net pricing realization." --- (HSY, press release, 2024/08/01)

"But in the end, our strategy remains yes, there'll be cost inflation, yes, we'll look to put it through. Yes, we'll work on productivity." --- (KO, earning call, 2024/Q2)

"Higher net pricing, driven by input cost-driven pricing actions, was reflected across all categories." --- (MDLZ, sec filing, 2024/Q2)

"And then just regarding the toolkit, where is the most effort being put right now as far as levers to offset inflation, whether that's product reformulation, price pack, incremental productivity, maybe even have some tax savings." --- (HSY, earning call, 2024/Q2)

Innovation in product offerings for competitiveness

Hershey is prioritizing innovation to enhance competitiveness, launching new products like the Reese’s Caramel Big Cup and focusing on seasonal sweets. Their strategy includes ramping up in-store activities and creative marketing to drive growth and market share amidst rising input costs.

"So, in addition to value playing a role, there are many other main drivers, I would say, that do make sweets appealing, and it's one of the reasons that we've really ramped up our innovation in that space with Shaq with the launch of a new form in the back half and continued investment in those brands." --- (HSY, earning call, 2024/Q1)

"Confection business through its next phase of growth and innovation. About The Hershey Company The Hershey Company (NYSE:HSY) is an industry-leading snacks company known for making more moments of goodness through its iconic brands, remarkable people and enduring commitment to doing the right thing for its people, planet, and communities." --- (HSY, press release, 2024/09/05)

"Secondly, the impact of season, that differential, also large and strong visibility into the sell-in for those seasons and then the sweets innovation is also one of the big drivers." --- (HSY, earning call, 2024/Q2)

"And I know last year there was more of a focus on capacity additions, but I guess I was -- I thought this year would mark a return to more innovation, more normal levels of sort of in-store commercial activity and such." --- (HSY, earning call, 2024/Q2)

"2024 is off to a strong start with improved market share across segments and consumer love for: 💡 Innovation like @Reese’s Caramel Big Cup 🎨 Creative marketing 💪 Strong in-store execution https://t.co/oAHCZJj38V" --- (HSY, Twitter, 2024/05/03)

Consumer sentiment's influence on pricing and strategy

Consumer sentiment significantly influences pricing strategies, as companies like Hershey adapt to rising costs and changing consumer behaviors. Transparency in pricing and a focus on value are crucial, especially as consumers seek budget-friendly options amid inflationary pressures. Hershey's price realization reflects these dynamics in the confectionery market.

"So I guess the question is and this is happening at a time when other retailers are maybe doubling down on opening price point and are not seeing a stable consumer. So I guess my question is, how do you maintain the balance of being known for price and value and convenience too, but also welcoming these higher income consumers? And is that a delicate balance that you think about?" --- (WMT, event transcript, 2024/06/07)

"We believe that pricing and value transparency will only become more important with time and that we can continue to grow awareness of the great value we offer across our assortment." --- (TGT, earning call, 2025/Q1)

"The net sales decrease was partially offset by a favorable price realization of approximately 1%, driven by higher list prices primarily within our North America Confectionery and International segments, partially offset by unfavorable price realization in our North America Salty Snacks segment." --- (HSY, sec filing, 2024/Q2)

"It's been great. We talked a little bit in some of the other questions. It's been touched upon, but I wanted to ask about pricing. I know there's been maybe some hesitation more recently from suppliers to negotiate on price just given the inflationary environment seems to be easing." --- (WMT, event transcript, 2024/06/07)

"While our team is always committed to value, it's particularly important in today's environment as consumers look for ways they can stretch their budgets in the face of suddenly high prices." --- (TGT, earning call, 2025/Q1)

Long-term outlook on cost management strategies

Hershey's long-term cost management strategy includes a targeted productivity goal of $140 million for the year, emphasizing their commitment to efficiency amidst rising input costs. This approach reflects a proactive stance in navigating financial challenges while maintaining operational effectiveness.

"So a business like in revenue management, we have delivered over $400,000,000 worth of benefits from having kind of a different agile part working on our revenue management systems." --- (KHC, conference, 2024/05/30)

"And I think that's important because as we had talked about previously, there were a few events in the back half of our fiscal year, which we thought would improve category performance and they did -- gradually they did, and that really is the lapping of pricing from a year-ago, lapping of SNAP benefits and the on-shelf availability of private-label and some other smaller brands." --- (GIS, earning call, 2024/Q2)

"We'll have our regular CI productivity that I think we said on the earlier calls about $140 million target for the full year." --- (HSY, earning call, 2024/Q1)

Competitive landscape and Hershey's market positioning

Hershey is enhancing its competitive positioning by committing to a deforestation-free supply chain by 2025, leveraging IT platforms for better retailer interactions, and strengthening its brand through strategic partnerships. These initiatives reflect its leadership in the snacks industry and commitment to sustainability and community.

"In 2023, Hershey accelerated its commitment by five years to achieve a deforestation and conversion-free supply chain for cocoa, palm oil, pulp and paper, and soy to December 31, 2025." --- (HSY, press release, 2024/06/18)

"They can just go onto the platform and add to the next delivery. So the data linked with the platforms on IT have vastly increased the potential to interact with the retailers in RGM and also to optimize what they're buying and the inventory they hold not just for us but for them." --- (KO, conference, 2024/06/20)

"The Hershey Company is an industry-leading snacks company known for making more moments of goodness through its iconic brands, remarkable people and enduring commitment to doing the right thing for its people, planet, and communities." --- (HSY, press release, 2024/06/04)

"(s24) About The Hershey CompanyThe Hershey Company is an industry leading snacks company known for making more moments of goodness through its iconic brands, remarkable people and enduring commitment to doing the right thing for its people, planet, and communities." --- (HSY, press release, 2024/08/08)

"This team will be known as MiltonONE and will be exclusive to Hershey. 'Publicis demonstrated leading expertise to accelerate key capabilities while unlocking value and growth for our brands at Hershey,' said Vinny Rinaldi, head of U.S. media, The Hershey Company." --- (HSY, press release, 2024/07/11)