The Hershey Company will bump up prices next year by an average of 2.5%, it said in its third quarter earnings call Thursday. The confectionery maker warned in the previous quarter’s earnings call that commodity and shipping prices were putting pressure on its profit margins.
Chocolate has been subject to volatile price swings for decades in part because small-holder cacao growers, who make up the majority of producers, can have a hard time synchronizing their production with worldwide fluctuations in demand. But Hershey’s and other big producers usually smooth out those prices via hedging and futures contracts.
Instead, Hershey’s blamed the U.S. economy for the factors leading to this price rise: it has to compete with other buyers for limited shipping capacity and supermarkets negotiated to keep prices down this year.
The new prices will come into effect at the start of 2019, because many of its customers had orders scheduled 6 months in advance. “We don’t want to wreak havoc on them by changing things up last minute,” Hershey’s CEO Michele Buck told the Wall Street Journal.
The company is simplifying its logistics by cutting down on the number different sizes and seasonal candies. It is also looking to better manage its shipping needs to prevent costly last-minute orders.
Hershey’s has also been expanding away from chocolate toward savory snacks, including by purchasing Amplify Snack Brands late last year and investing in more ethical chocolate production for its famous Kisses.
Investors were disappointed in Hershey’s gross margins of 44% for the third quarter, and Hershey’s (hsy) stock price fell 4.9% Thursday.