Hershey (HSY) said this week it’s going to raise prices by 9.7%, a move that many people expect competitors to follow. The entire industry is facing huge price increases for raw ingredients — the cost of sugar has more than doubled in the past year — and can no longer absorb the higher expenses.
In addition to its signature chocolate bar, Hershey makes Reese’s Peanut Butter Cups, Twizzlers, Kit Kat and Hershey Kisses. It’s not just the cost of ingredients that are rising. Hershey also said it’s paying more now for fuel, utilities and transportation. Shares of Hershey were up less than 1% Thursday to $54.72.
Now the industry is waiting for similar price hikes from Mars, which makes M&M candies, and Kraft (KFT), which owns Cadbury. Kraft has already raised prices on some of its other products in the past year.
I wouldn’t be surprised if we heard competitors taking similar actions,” a Morningstar analyst told Reuters. One Swiss chocolate maker, Lindt & Spruengli (COCXF), has said it may raise prices in the second half of this year.
That’s because soaring prices for ingredients show no signs of slowing. One firm predicts that coffee, sugar and cocoa prices will rise five- to 10-fold by 2014, according to Bloomberg. And there isn’t enough farmland to keep up with the demand.
Food prices are rising worldwide. A United Nations index of global food prices hit a record last month, Bloomberg reported. The cost of cocoa, another key ingredient for Hershey and Kraft, has been extremely volatile over the past few years.
“There’s a tremendous shortage of food, there’s a tremendous shortage of arable land,” an analyst told Bloomberg. “Any kind of food products are going to increase.”