Chilling Thing Hershey Just Said About American Consumers

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When sweets-maker Hershey reported third quarter earnings on Wednesday, it left a bitter aftertaste: for the fifth quarter in a row, it cut its forecast. As JPMorgan analyst Kenneth Goldman put it during the call: “It feels like every quarter, something unexpected starts to bite.”

Sales were down slightly, though year-to-date sales were still up 1.2%, a sign the trend is getting more “challenging.” Versions of that word cropped up eight times during the call.

“Headwinds” cropped up four times, “tough” or “tougher” three times. “Macroeconomic” was dragged out eight times, usually in conjunction with “environment” – as in “given the macroeconomic environment” – but also with “challenges” and “winds,” as in CEO John Bilbrey’s elegant, “It’s been unusual in 2015, been some macroeconomic winds.”

CFO Patricia Little was able to put them into one sentence (earnings call transcript via Seeking Alpha): “Lower consumer trips and the macroeconomic environment continue to be a challenge within the retail environment….”

Upon these kinds of encouraging words, shares plunged 6.5% for the day and are off 20% from their high in January.

Citigroup analyst David Cristopher Driscoll vocally doubted Hershey’s earnings-per-share projections with some frustration:

“It’s like a tsunami of negatives. You guys say US sales are weaker. China chocolate sales are weaker. Shanghai Golden Monkey negative $0.35 versus $0.15, worse than before. Tax rate is worse. These are large numbers….”

Hershey blamed the usual suspects: China, Brazil, the dollar. But it could hardly blame them for the disappointing results in the US.

So it blamed the American consumer, or rather the “bifurcation” between the small number of well-off consumers who can buy whatever “premium” chocolates they desire, and the many who can’t afford chocolates and have to make do with cheap sugary sweets (the “value segment”).

Alas, Hershey is “under-represented” at the premium end, which is less than 10% of total category consumption, Bilbrey said. “And in the low end” – for the 90%-plus of the folks who can’t afford chocolates – “we need to work on the sweet side.”

American consumers got blamed for another problem: they weren’t going to the store as often. “Consumer trips,” as Hershey calls them, were down 4% in Q3, though year-to-date they were down only 2%, another trend that is deteriorating. Grocery stores saw a drop-off in the “low single digits.” Drug and convenience stores took the biggest hit, down 9%!

So trips are down just when fuel prices have plunged? In normal times, you’d expect the opposite as people would drive to the store more often. But not in this retail environment.

“It’s that kind of choppiness that we historically haven’t seen,” VP of Investor Relations Mark Pogharian told the analysts. But it’s the company’s “everyday business” that gets hit hard by these declining “trips,” as each trip to a store gives consumers a chance to make an impulse purchase of sweets lined up enticingly by the cash register.

And that has been “a drag on the business overall here over the last 12 to 18 months,” Bilbrey said. “2015 hasn’t unfolded the way that we’d planned.” But the company would “remain focused.” Then came the big however, the new American reality of “income bifurcation,” as he called it:

While overall consumer confidence is trending up, lower income consumers continue to be fragile as income and wage growth has been minimal.

Higher income and more confident consumers are driving premium growth [the chocolates], while cost-conscious consumers are driving the value segment [the candy].

In this economic environment where “consumer bifurcation has been an important driver,” as Bilbrey said, “there are some macro issues that are impacting retailers as well as our business. And so we’ve got to operate within that environment.”

He also admitted that price increases – inflation – accounted for about half the revenue growth of the segment, historically, and that volume accounted for the other half. The price increases are still coming through, but the volume, hit by the infamously declining “trips,” is falling off.

Hershey has put its corporate finger on an increasingly bedeviled American economic reality where businesses are confronted with this “bifurcation”: Selling to those few who benefited from the Fed’s monetary policies and the asset bubbles these policies have engendered; and trying to sell to the middle class whose stagnant incomes are being eaten up by the soaring costs of housing (result of Housing Bubble 2), healthcare, college, cars, and a million other things.

These people have gone into debt to keep their head above water and thus have become the over-indebted modern-day proletariat that lives from paycheck to paycheck, without savings or emergency funds, struggling to make ends meet, and they simply have trouble spending money they don’t have. And businesses are now catching the drift: it’s going to be tough out there in this Fed-engineered economy.

The impact is already cascading through the economy. Read… And Now Trucking Is Suddenly Slowing Down

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  36 comments for “Chilling Thing Hershey Just Said About American Consumers

  1. Kreditanstalt
    October 29, 2015 at 11:50 am

    Sometimes it seems that just about EVERY retailing company is now desperately trying to sell “premium-priced” and “luxury” products to the richest 20%…

    Anything to avoid having to actually compete on price and quality and sell in volume to the rest of us.

    Anything to avoid a deflationary reality.

    • VegasBob
      October 29, 2015 at 1:14 pm

      The only people with any discretionary income are the wealthiest 10-15%. The remaining 85-90% of the population has no discretionary income with which to buy overpriced chocolate bars.

      About a year ago, I had the unpleasant experience of shopping in a Walmart in Vancouver, Washington. It was near the end of the month. Three people in front of me tried to buy just a few dollars’ worth of food with their EBT cards. All 3 had their cards declined.

      That is a microcosm of what this country has become.

      Economic recovery? Hogwash!

  2. PrototypeGirl1
    October 29, 2015 at 12:40 pm

    Hershey lost my business when they moved to Mexico.

    • Petunia
      October 29, 2015 at 2:46 pm

      Years ago I lived in PA near a Mars plant in NJ. The Mars employees owned the nicest houses in my area.

    • Jack
      October 29, 2015 at 9:04 pm

      Ditto !

  3. michael
    October 29, 2015 at 1:10 pm


    Great article. I am handing fruit out on Saturday not chocolate.

  4. Gee
    October 29, 2015 at 1:15 pm

    “Drug and convenience stores took the biggest hit, down 9%!”

    This isn’t hard to figure out. The low end of the US consumer spectrum is increasingly strapped. Sure they get a bit of gas price savings, but the medical industrial complex eats it. Tight budgets mean price sensitivity, and any shopper by now should know that there are a host of items you would never by in convenience in drug stores. By definition, these places are where you pay more. So, of course, they are down 4x the rate of other declines.

    Why it has taken Hershey so long to realize they should have made a move upmarket is beyond me. (Kreditanstalt, you arent wrong. Just about every one is…but Hershey failed to see this as the proper offset to what was eventually a trend that would hit them.) Chocolate is one of those little discretionary luxuries. They may not have realized it would come to them, because they didnt realize people were trading down bigger luxuries for these little indulgences. But as the budget squeeze continues, even the low end of little lux gets hit.

    Taking this to the bigger picture, it makes you wonder how much longer the C part of C+I+G+NX can hold up. Im sure the new wave of health insurance non-compliant policy cancellations and resultant surge of new policy price increases will only help.

    But that is another inevitable failure that will have to run its course. In the meantime though, the looting will continue.

    • VegasBob
      October 29, 2015 at 5:16 pm

      Don’t even get me started on the ripoff that is Obamacare. I pay over $6K a year for a bronze level policy that basically pays nothing until I hit a $5K deductible.

      I went without insurance for years because I have no significant health issues.

      Paying for Obamacare is a complete waste of my money as far as I’m concerned. But it does mean that I’ve cut $6K of discretionary spending from elsewhere in my annual budget so that I can pay for Obamacare.

      I’m not even sure if it’s a good thing or not, but I go on Medicare in a little more than a year and a half, after which I can give Obamacare the upraised middle finger it deserves.

      • V
        October 31, 2015 at 2:43 pm

        Do you understand the economic principles of insurance? It doesn’t just protect you, it protects the rest of society from incurring the bills from the health emergency you gambled wouldn’t happen…

        • RV
          November 2, 2015 at 1:45 pm

          The economic principles? What color is the sky in your world? You’re talking about an industry that HAS NO PRINCIPLES. From another Wolf Street article

          “So health-care expenses are eating up 17.4% of the US economy, or they’re generating 17.4% of GDP, the highest proportion in the world. Whichever way you look at it, this portion of GDP comes out of your pocket directly or indirectly, one way or the other.

          “But life expectancy in the US is only 78.8 years, three years less than Canadians’ whose health-care system is vilified in the US. According to the World Health Organization, the US is in 37th place, between Qatar and Barbados and only a rounding error ahead of Cuba. You’re not paying for extending your life expectancy. You’re paying for the health-care industry’s soaring revenues and profits.

          “In 2015, the health-care sector in the S&P 500 will likely see revenues soar by 8.3% and earnings by 11.3%, according to FactSet, even as all S&P 500 companies combined will have zero earnings growth and suffer revenue declines for the fourth quarter in a row. But don’t blame Obamacare – this has been going on for decades.”

          Except in the emergency cases you mention, insurance isn’t protecting anyone from anything. As has become the norm in America, the fox is guarding the henhouse.

    • Jungle Jim
      October 29, 2015 at 6:51 pm

      Moving up-market won’t help companies like Hershey. The market segment that actually has discretionary income is much too small to carry the burden for the economy. The money has been going up for years now and the folks who have it are NOT spending it. Money is the blood of an economy. And, like blood, if it does not circulate the organism dies.

    • Gerald Smith
      October 30, 2015 at 2:15 am

      I suspect that everybody trying to move “upmarket” in chocolate is that millionaires + are at best only going to buy a limited amount of chocolate. Hershey makes their money by selling large amounts of chocolate to the great mass of consumers. They really are not in a good position to try competing with Godiva et al for the affluent consumer. Nobody high class is going to take Hershey seriously when it comes to chocolate. The high market is gradually shrinking and Hershey’s will most certainly go under if they try competing with the established players there.

  5. Phil
    October 29, 2015 at 1:48 pm

    The elephant in the room is that people are not eating as much crap like chocolate anymore…oh course Hersey won’t admit this but c’mon people this is the same macro-trend that is killing the Coke’s of the world.

    • Peepot
      October 29, 2015 at 10:30 pm

      Really? Sounds like they are jamming even more garbage down their fat clogged gullets…

      27.7%: Percentage of Obese Americans At Its Highest Level

      McDonalds is crashing not because people are suddenly dumping junk food… it’s because they cannot afford to eat there…

      So they take their 20 bucks to the discount grocery store and stock up on the cheapest junk food money can buy…

      Pink Slime Pizza etc..

    • Gerald Smith
      October 30, 2015 at 2:22 am

      Aww come on! That might be true in Manhattan and the West Coast but that does not apply to the great majority of the people of the U.S. For them, the elephant in the room is their ever increasing poverty. Besides, natural dark chocolate has acquired an enviable reputation for being healthy (for humans, not dogs).

  6. Petunia
    October 29, 2015 at 2:42 pm

    The last time I tried to buy a chocolate bar at the drug store it was a couple of years ago and the price was shocking, just under $5. Didn’t buy it.

  7. NotSoSure
    October 29, 2015 at 3:09 pm

    Economic professor speaking: Obviously this is due to Amazon Prime which promises to deliver stuff to your doorstep in two hours in cities like San Francisco.

    • Petunia
      October 29, 2015 at 4:12 pm

      Actually, I stopped going to the drug store regularly when my son insisted we buy razor blades online for a fraction of the price. The blades are a big savings and every thing else I buy in the discount store.

  8. CrazyCooter
    October 29, 2015 at 4:27 pm

    Something y’all might not know about Hershey.



    October 29, 2015 at 4:43 pm

    The problem is wagers haven’t gone up and real inflation has people are poorer .the zero sum game. The rich getting richer .the government is to blame for the uneven distribution of wealth with there mismanaged policies.

  10. Red Flag
    October 29, 2015 at 5:59 pm

    Hershey made a LOT of mistakes. They cheapened their chocolate by removing all the cocoa butter and it tasted waxy and nasty, right when the Boomers wanted better, higher cacao chocolate. Then, they kept the prices too high, and as said above, moved to Mexico. Screw Hershey. It’s lousy chocolate.
    Also, at my gas station store, they’ve been offering 2 for 1’s on candy bars, which I won’t buy. So, it’s getting pretty desperate.
    Congress and House passed CISNA, though, so they must really think they have everyone under control.

  11. J P Frogbottom
    October 29, 2015 at 6:07 pm

    Why are hershey sales down? Probably a combination of things. The costs of confections has gone up. We are more attuned to what we eat, and candy is NOT a high priority. Lastly, well – the economy is just not allowing as much room in most people’s budgets for extras. While I like a hershey bar every so often, it is a costly indulgence (even at .89 for the nickel bar of my youth). Still my pedestrian chocolate bar of choice.

    Perhaps, had we had a “public option” in healthcare it might have been different.

  12. Nick Kelly
    October 29, 2015 at 7:47 pm

    Had a Kit Kat made with 70% cocoa -very good -reminded me of the difference between a chocolate bar and a candy bar.
    Haven’t seen any more though.

  13. Julian the Apostate
    October 29, 2015 at 8:46 pm

    We still buy a few bags of the Hershey sugar free dark chocolate small bars, but if the store has the Russell Stover sugar free stuff we opt for it although a little more expensive it’s just better chocolate. I eat virtually no candy on the road anymore… I think it’s just a function of getting older. Same thing with soft drinks. You’d think some fast food chain would give me a break and have some other choice than Diet Coke (once in a great while I can get diet Dr. Pepper) the convenience stores aren’t very convenient for me when everything is sugary. Just sayin

  14. Mark C.
    October 30, 2015 at 4:00 am

    5 years ago I wrote to Hershey, about the #1 ingredient in their ‘Chocolate Syrup’ HIGH FRUCTOSE CORN SYRUP. Many companies were already jumping on the bandwagon and losing it from their products. Hershey retorted that ‘we are working to make the customer happy, blah blah blah’

    Since 90% of their ‘customers’ are children.I would have thought they would take it more seriously. Take a sip from a can-tastes like chocolate-flavored corn syrup-
    Since most uses of it (HS) are for chocolate milk and on ice cream for children-I would think they would act with more speed-but the last i read-they were thinking about researching into it in 2016;

    I currently buy the $5 bottle stuff: Chocolate, sugar, water, vanilla, salt.
    (Don’t have any right now and can’t remember the name-NOT Ghirardelli;)
    if you have kids that partake of this GMO food, call the dullards at Hershey-and give them hell

    • Gerald Smith
      November 2, 2015 at 5:03 pm

      It’s really quite easy to make your own. It’s cheaper and tastes better. I make a lot of stuff from scratch both for economy and for better flavor.

  15. PrototypeGirl1
    October 30, 2015 at 6:00 am

    The lower/middle wage earners are the ones who buy hersheys, right now they are poor, their jobs, hours and opportunities been cut severely. I know janitors who are only getting 28hrs a week in what used to be full time job. They are also threatened with losing the job if they are caught doing other work in their workplace. The middle people are spending lots of money on seemingly endless vacations, expensive purses, casinos, and health insurance. They have no food in their homes, no cash, and a few have mentioned they drive around on a 1/4 tank of gas. My opinion is they should be thinking food storage, water filtration, health supplements, cash, guns, ammo and full gas tanks, but they’re not.

  16. Oneyedjack
    October 30, 2015 at 6:44 am

    American chocolate is sugary,salty,and sometimes gritty.I prefer Ghirardelli.The very opposite.There is a distinct difference between American and European chocolate .A few years ago Hershey petitioned the FDA to lower Cacao or illuminate it all together and still call their bars chocolate.They were turned down.

    • Red Flag
      October 31, 2015 at 6:41 pm

      So there it is, Hershey doesn’t want to make chocolate. They want to only make money. High fructose, whatever else is all about profit. They deserve to fail. Interestingly, foreigners don’t like US candy because it is toooo sweet and has no other flavor. It’s just like our GMO wheat & corn, no market outside the US. It will be fun to watch them fail.

    • Mike G
      November 2, 2015 at 3:38 pm

      Hershey is bland and waxy compared to European chocolate — even the low-cost grocery store homebrand chocolate in Switzerland tastes way better.

  17. Hazel
    October 30, 2015 at 2:29 pm

    When I want premium I don’t think of Hershey.

  18. October 30, 2015 at 10:30 pm

    I get “fine” French Made Chocolate (74% Dark 3.5oz) at the 99 cent store!

  19. Greg S.
    October 30, 2015 at 11:41 pm

    Hershey is a good example of a company that deserves to die. Their products are low quality crap, filled with artificial ingredients and preservatives. They don’t even taste that good next to the real thing.

    If Americans ever become smart enough to read labels, Hershey is done for…

  20. Alex
    October 31, 2015 at 8:53 am

    There was a time when Hershey’s chocolate was considered in the top five of the world; not their consumer product, but their 10 or 20 lb bar used by professional chocolatiers. Indeed, times have changed and Hershey’s went on the garbage bandwagon of corn syrup, a product which is used in over 85% of all products in your average supermarket. It really doesn’t matter if you are talking about education, healthcare or chocolate: corporate America has gutted every conceivable aspect of our existence.

  21. Paul
    November 1, 2015 at 7:32 am

    They should be blaming themselves and the stuff they like to call chocolate they sell. It’s terrible. Disgusting. A Hershey bar really does give you the Hershey squirts. It’s not even real chocolate anymore. They’ve killed cadbury, the brand they purchased by changing The recipe – Dairy Milk doesn’t taste the same anymore. Sales are tanking in England and they don’t blame themselves. They should do. Sell something people want and they will buy it. Sell the terrible stuff they are forcing on us and watch your sales plummet. Hershey as a company deserves it.

  22. Tom H
    November 3, 2015 at 8:46 am

    GMO Poison. I refuse to buy anything from any company that knowingly and wittingly poisons me or my family. The science is pretty clear that GMO HFCS is toxic. Hershey knows this yet they continue poison us. Has anyone seen how much children’s candy has aspartame these days? I will never buy from any of these companies again, even if they take it out, because the damage is already done. Would you hire a child molester to babysit your kids if he assured you he did not molest children anymore? I am glad Hershey is dying, can’t wait until they are all gone for good.

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