Mon, Apr 01, 2002 page19

• Chocolate bunnies lay eggs for candy companies this Easter

  With cocoa prices going up and consumers lacking interest in sweets, even the biggest confectioners, such as Hershey's Chocolate are losing money this holiday season

  • BLOOMBERG
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  The Easter Bunny isn't being generous this year to chocolate manufacturers during their second-biggest sales season.

  "Our Easter sales are flat," said Patrick Zachary, executive vice president of Zachary Confections Inc, a Frankfort, Indiana-based chocolate maker that sells through drug store chains such as Duane Reade Inc. "It just doesn't feel like spring after the warm winter." Easter candy sales, consisting mostly of chocolate products including more than 60 million chocolate bunnies, are projected to total US$1.82 billion this year. That would be little changed from last year and below the record US$1.86 billion reached in 2000, according to the National Confectioners Association. Easter is second to Halloween in US chocolate sales.

  Stagnant candy sales are bad news for chocolate manufacturers such as Pennsylvania-based Hershey Foods Corp, whose sales of Hershey's Kisses and Reese's Peanut Butter Cups help make it the nation's biggest chocolate seller.

  

  A saleswoman adjusts a display of Easter candy at the Woolworths store in Edgware Road, London, England.

  PHOTO: BLOOMBERG

  Hershey, Mars Inc, Nestle SA and Kraft Foods Inc together accounted for 72 percent of Easter chocolate sales last year, according to Information Resources Inc, a market research firm in Chicago.

  Hershey alone made up 44 percent of the total and privately held Mars, maker of M&Ms and Snickers, had a 21 percent share.

  Easter candy sales in 2000 jumped 5.7 percent, according to the McLean, Virginia-based confectioners association. Sales this year, if they meet projections, will still be up 25 percent from levels in 1995.

  Part of the reason sales weren't higher was that there are fewer days between Valentine's Day and Easter this year, Zachary said. There were 45 days between the Valentine's Day and Easter this year compared with 60 last year and 69 days in 2000.

  Even so, chocolate executives say sales would be slow even with more selling days.

  "We're all trying to grapple with the slowdown in seasonal sales," said Edmond Opler Jr., chief executive officer of Chicago-based World's Finest Chocolate Inc, which makes about 130,000 pounds of chocolate a day at factories in Chicago and Canada.

  "Chocolate has to compete with so many other gift options." While sales are little changed from last year, raw material costs are soaring. Cocoa prices are 42 percent higher than they were a year ago on the Coffee, Sugar & Cocoa Exchange in New York.

  The futures on March 14 reached US$1,566 a tonne, the highest price since September 1998.

  The manufacturers did benefit, though, when prices fell to a 28-year low in December 2000.

  "Cocoa costs are moving up and the whole candy-category growth has slowed a bit," said Eric Katzman, an analyst at Deutsche Bank Alex Brown in New York. "People are concerned how it might ultimately impact profits."

  Hershey was able of protect itself from the higher prices by buying contracts on the futures exchange, Katzman said.

  Hershey spokeswoman Christine Dugan said the company wouldn't comment.

  Northfield, Illinois-based Kraft, maker of Toblerone chocolate, said in a Securities and Exchange Commission filing in mid-March that it also hedges against price changes in cocoa, though it didn't reveal details. It said cocoa is a "significant cost item" in its chocolate products, which also include Oreo and Chips Ahoy! cookies, Siesta chocolate snacks sold in Africa and Gallito chocolate snacks marketed in Latin America.

  In January, Hershey said it had a fourth-quarter net loss of US$45 million. The company said it had costs associated with eliminating jobs and closing plants. It also spent more on marketing. In the year-earlier period, the company had net income of US$116 million.

  At least one retailer is reporting higher sales.

  Great Atlantic & Pacific Tea Co's candy sales in the fiscal year ending this month are up 1.5 percent from a year earlier, said Patti Councill, communications manager for the Montvale, New Jersey-based operator of 366 A&P, Waldbaum's and Super Fresh stores along the East Coast.

  Chocolate sales are still robust outside of the holidays, Zachary said. "The every-day stuff is what's driving our business. People still think of chocolate as comfort food."

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