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Hershey to Raise Prices of Chocolate Products

Hershey to Raise Prices of Chocolate Products

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The price rise is in response to soaring costs of cocoa beans

Expect to start paying more for your Hershey's Kisses.

Hershey, the number one candy producer in the United States, raised its prices on Tuesday for all of the chocolate products they offer. This is the first time in three years that the candy company has raised its prices, which is a sign that the rising price of cocoa beans is starting to affect profits.

The price increase, which will be about 8 percent, is to go into effect everywhere the candy is sold immediately. The increase is meant to tackle rising costs of commodities such as dairy, nuts, and cocoa beans, but customers who buy directly from the company can still buy at pre-increase prices until August 12th.

The last time Hershey raised their prices was in 2011 by 9.7 percent for all wholesale products. Hershey has admitted to Reuters that they don’t expect the price increase to affect profits until the end of this year.

Hershey to raise chocolate prices in early 2019

On Thursday, The Hershey Co. reiterated prices on a fifth of its products will go up by 2.5 percent, reported CNN. The price hikes won't go into effect until early next year.

In its quarterly report released today, Hershey said it is getting squeezed by rising commodity and shipping costs and the price increases are designed to offset those costs. The Derry Township-based company reported third-quarter profit of $263.7 million, an increase of 2.3 percent.

Over the summer, Hershey Preside and CEO Michele Buck said the company would have to raise prices.

Chief Financial Officer Patricia Little on Thursday said the company had felt the impact of higher freight and logistics last year, according to CNN.

"I don't expect that to change going forward into next year," she said.

In the meantime, Hershey expects net sales to increase as it ends the year with holiday sales from Halloween through Christmas.

In addition, it has acquired several snack brands this year including a recent proposal to purchase Pirate Brands, the maker of Pirate's Booty cheese puffs.

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Hershey Is Making These 3 Major Changes to Its Chocolates

In an effort to be more health-conscious, Hershey is launching better-for-you organic, zero sugar, and plant-based chocolates and candies this year, the company just announced.

Things like thin versions and miniature sizes of your favorite chocolates are already available, but now Hershey is adding more reduced sugar, organic, and plant-based candies to its lineup. It will use more rare and natural sugars, as well as new technologies, packaging, research initiatives, partnerships (including one with sweetener company ASR Group), and innovations to create four organic chocolates (Organic Reese's and Reese's Dark and Organic Hershey's and Special Dark), and even Zero Sugar Jolly Ranchers and York Peppermint Patties, according to a statement. (Related: The 7 Healthiest Foods to Eat Right Now.)

"Our sugar-free platform has been performing well and we believe this will enable us to reach more households and provide consumers with more great tasting ways to enjoy their favorite Hershey brands," Michele Gross Buck, the chairman, president, and CEO of The Hershey Company said in a pre-recorded call about the financial results of 2020 on Feb. 4. "And while the organic chocolate market is small, it is growing rapidly, and we are excited to bring consumers great tasting organic versions of Reese's and Hershey's through this targeted launch."

Some new products may be available sooner rather than later. Organic Reese's are already listed on Instacart through Safeway, although it says the item is not in stock yet. And although the company is adding more to its inventory and saw $8.15 billion in sales in 2020, it is still planning to raise prices for its top-performing foods this year. There's no word yet on what the prices will be, but expect them around the holiday season.

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Ingredient changes to reduce production costs [ edit | edit source ]

The formula was modified in 1995 to add more peanuts. The Hershey Company began to change the ingredients of some of its products in 2008, in order to replace some of the relatively expensive Cocoa Butter with cheaper oil substitutes. This was done to cut costs, instead than having to raise prices in the marketplace for products containing cocoa butter. That would cause a large loss by the consumer. The result of this change was a tremendous reduction in flavor.

Hersheys changed the description of the product and altered the packaging slightly along with the ingredients. Though the new formula contains chocolate, according to United States Food and Drug Administration laws, these modified recipes that do not contain cocoa butter cannot be legally described as Milk Chocolate [2] The product is currently labelled as "MADE WITH CHOCOLATE AND PEANUTS".

Chocolate makers adjusting recipes for success

In 92 years, See’s Candies has never shied away from being old-fashioned.

At the factory on La Cienega Boulevard, some octogenarian workers measure their decades of employment in hip replacements. Quaint floral details are still hand-piped onto chocolate eggs.

An inexorable march of candies heads through tubes the length of a football field, where they’re drenched in layers of chocolate — a traditional practice known as enrobing. Like cars merging out of highway toll lanes, they appear from cooling tunnels into employees’ waiting hands.

“Old Time” is part of See’s slogan. But the South San Francisco company is evolving along with the rest of the chocolate industry, forced by predicaments far more severe than “I Love Lucy” conveyor-belt hijinks.

Chocolate is a huge business, pulling in $90 billion in global sales annually, $19 billion of it in the U.S., according to market research company Mintel Group Ltd. Price increases and product innovation helped the industry grow 16% from 2007 through 2012, the firm found.

But scientists predict a looming cocoa bean shortage, intensified by climate change and botanical disease.

The International Cocoa Organization said that global production in the last growing year fell 6.1%, and it forecasts a 1.8% slide this year. That would probably cause a cocoa shortfall of 45,000 metric tons in the current marketing year ending Sept. 30, the group said.

Tighter supplies as well as rising sugar and manufacturing costs are adding to the price of truffles and bonbons. Sugar prices have risen 11.6% on average each of the last five years, influencing Kit Kat maker Hershey Co.'s decision in 2011 to raise wholesale prices on most of its candy products 9.7%.

In addition, health-minded U.S. consumers, increasingly wary of sugary snacks, are nibbling on fresh fruit 10 times more over the course of a year than they do on chocolate, according to research firm NPD.

“Chocolate is an impulse item, an indulgence,” said Marcia Mogelonsky, an analyst at Mintel. “But consumers have become price-sensitive to chocolate — the economy is so bad that people are actually cutting back on their consumption.”

So what’s an Oompa Loompa to do? Switch up the chocolate strategy.

Companies are looking to countries not known as major cocoa producers, such as Vietnam and China, to boost production. Mondelez International Inc., owner of brands such as Cadbury and Toblerone, said it would invest $400 million over the next decade to improve cocoa farming communities and help boost productivity other massive candy sellers have taken similar steps.

In the U.S., advances in technology and equipment contributed to layoffs, causing chocolate employment to slide 2.2% a year on average since 2007, according to research firm IBISWorld. Simultaneously, chocolate companies are trimming wages to cut costs and boost profit, according to researchers.

Manufacturers also are creating innovative new chocolates and manufacturing methods to try to differentiate themselves from competitors.

British brand Cadbury last year unveiled a new form of the sweet that’s resistant to melting, even at 104 degrees Fahrenheit. TCHO Ventures Inc., a San Francisco chocolate company, makes chocolate by controlling its machinery with an iPhone app.

Companies are also trying to entice body-conscious consumers, which IBISWorld believes will give organic and dark chocolates a boost in coming years. Brands such as Russell Stover have significant sugar-free chocolate selections others are branching out into gluten-free and dairy-free offerings.

And candy sizes are shrinking.

By the end of this year, all of Mars Inc.'s chocolate brands — Snickers, Dove and M&M's among them — will be available only in 250-calorie pieces or less. That means smaller slabs of chocolate and multiple to-go portions where there once were single mega-bars.

Brands are adjusting their marketing efforts, especially during holidays.

This year, companies launched more seasonal products instead of holiday-specific candies, which usually head straight to discount racks once celebrations are over. Hershey introduced an array of candies in spring colors rather than wrapped kisses emblazoned with the word “Easter.”

“The move is to stretch the occasion beyond a day,” Mogelonsky said. “Companies have to extend the salability of the product or they’ll lose money.”

At the Los Angeles factory of See’s, the air is thick with the smells of chocolate and caramel.

Workers in hairnets, white coats and gloves prepare chocolates destined for the chain’s more than 200 company-owned stores, primarily in the West, as well as online and catalog customers. The company also operates a factory in the San Francisco Bay Area and a packing facility in Carson.

For 41 years, See’s has been a tiny but reliable part of investment guru Warren Buffett’s Berkshire Hathaway Inc. The candy maker, which Buffett bought for $25 million in 1972, belongs to the Oracle of Omaha’s wide-ranging retail stable, which includes home furnishings, jewelry, cooking equipment and party supplies.

At its kitchens and stores, the company employs some 1,500 workers during its slower summer season, expanding to 8,000 workers during the holidays. It’s recently been adding to its stores outside its Western territory, venturing into Texas, Ohio and Indiana. It plans to move into other states as well. Licensees manage six shops in Asia.

See’s has done well enough for Buffett to praise it to shareholders as a “dream business.” In 2011, the company posted pretax profit of $83 million on sales of $376 million. See’s current annual sales are in the $400 million range, the company said.

Buffett has said that See’s has been such a steady performer that it has helped finance some of his other purchases over the years.

“ ‘Buy commodities, sell brands’ has long been a formula for business success,” Buffett wrote in 2011. “It has produced enormous and sustained profits for Coca-Cola since 1886 and Wrigley since 1891. On a smaller scale, we have enjoyed good fortune with this approach at See’s Candy since we purchased it.”

But even at a stalwart such as See’s, efforts are apparent to adapt to the less-than-sweet changes facing the industry — although not on public display because the candy maker rarely offers tours.

As with the company’s Bay Area kitchen, which rivals the L.A. factory in size, some tasks that once were performed manually are now delegated to machines to improve efficiency and cut costs. There’s a machine nicknamed after the Looney Tunes canary Tweety Bird because of its yellow mechanical arm, which slices and flips sheets of peanut brittle near vats of butter on the factory floor.

Managers said the new technologies have caused a gradual reduction over the years in the Los Angeles facility’s workforce, which currently numbers about 150 people — a tally that doubles around Christmas as the company adjusts for seasonal demand.

Plenty remains to be done by hand, such as the painstaking decoration of tender chocolates and the removal of imperfect candies from the production lines. The company still uses matriarch Mary See’s original recipes but has raised prices in recent years to offset soaring ingredient costs.

There’s also a rebranding effort underway at See’s. Internally, the effort is dubbed Polishing Our Gem.

The website underwent a face lift to draw more online shoppers. A new catalog, with less clutter and new fonts and images, debuted around Valentine’s Day.

And See’s, which had focused on grandmothers and great-grandmothers, is now targeting young mothers in their 30s. The company says it needs the broader demographic to beat out intense competition.

“We just know that for growth, we need to onboard a new fan base,” said Tracy Cioffi, See’s vice president of marketing and advertising. “It’s a difficult dance, but it’s one we have to do.”

Hershey's new supply chain recipe

A modern Hershey is an expensive Hershey, but as long as sales are growing execs still say things are sweet.

Hershey is at an inflection point. Or is it a new normal?

Impulse buys, a third of Hershey’s business according to U.S. President Todd Tillemans, are down. The company has made multiple acquisitions in the snack category to diversify its offering. And a major foray into digital sales is underway. All of these add up to a fairly big shift for the company and CEO Michelle Buck is looking to come out a winner on the other side.

The watchword is "growth," Buck indicated at an August meeting. Analysts had questioned whether Hershey’s “investment mindset” of the past few years is coming to an end in the service of easier comparative sales gains.

The answer from Buck and CFO Patricia Little was a resounding "no."

"I always like it when there are really good places to invest. When I see us investing in ERP and I see us investing in core capacity here in the U.S., I think we’re really lucky to have great places to invest" said Little.

And invest, they have. After all, in order to become a modern, 124-year-old company, Hershey needs a supply chain to match.

The Pennsylvania company has invested $150 million in enhanced supply chain capacity in the last year, said Buck on last week’s earnings call. Hershey also began to onboard a new SAP ERP earlier this year, plus all the small changes needed to support selling partners and even facilitate some direct to consumer fulfillment online. And further supply chain improvements are on the way.

On a recent visit to Hershey’s Old West Chocolate Avenue plant, Supply Chain Dive spoke to executives about what all of these efforts to modernize — with a focus on digital expansion — means for the company’s supply chain.

Fulfillment dictates strategy dictates fulfillment

Hershey takes a holistic view of the relationship between digital and in-person sales, believing a strong e-commerce presence can generate in-store sales.

"There’s no real hard science yet about the offline attribution, but everyone knows that online sales are scaling. They’re now only about 2% of consumables, but we think they will go 5-7% over the next three or four years," Tillemans told Supply Chain Dive.

Working with retail partners, Hershey has learned consumers require the in-store assortment and the digital assortment at each retailer to be identical.

"A lot of people are 'web rooming' — where they get information and might even build a shopping list and then they’re filling those in physical tripping," Tillemans explained.

Keeping those assortments the same, especially with the high pressure of selling through seasonal items (another third of sales) require a higher level of coordination and more precise execution to make sure that the online experience sets up an accurate and exciting expectation for what shoppers will find in-store.

"Not only does our everyday product have seasonality, but we also have seasons and that takes a lot of collaboration and work upfront to monitor how this current season is doing," said Tillemans. On the product side, Hershey is now designing packaging to pop on phone screens, with the important information in larger type legible in thumbnail images.

The assortment itself is somewhat driven by the type of fulfillment available from each retailer, adding even more complexity.

"Depending on whether it's pickup in store, ship to home or instant consumable, they’re all different models. You can’t think of digital as one model," he said.

If only shipping is offered, average price point goes up since retailers and vendors like Hershey prefer a higher price point. But if buy-online, pickup-in-store (BOPIS) is offered, lower price points may be available.

To run it all, Hershey brought in Doug Straton as chief digital commerce officer — the author of this symbiotic strategy.

Though its still a tiny fraction of overall sales, executives are excited by the growth. Market share, said Buck on last week’s earning call, increased 1.8% online.

"Our initiatives are paying off in 2018. We are increasing trips online. We are trading consumers up to higher price points. And we are driving larger basket sizes, while maintaining our margin profile," said Buck last week, reporting that digital sales were up 60% for the quarter.

Learning to drop ship

But in order to keep growing e-commerce year-round, Hershey had to crack a problem that the candy industry has faced in its home state of Pennsylvania and beyond since the dawn of time: summer.

"Up until about a year ago, basically what would happen is that the summer would go dark for one portion of our portfolio," said Straton in August. "That was one of the things that was holding candy back in terms of e-commerce sales."

Offering chilled drop shipping direct to the consumer has allowed Hershey to advertise "worry-free summer shipping" and brighten up the dark spots in the calendar.

"We’re taking away a barrier and enabling year-round growth and this summer was the first time we’ve been able to do that," said Straton.

Making the numbers behind cold-shipping direct to consumer can be a challenge, but Buck insisted in August that margins for digital sales are “quite comparable” to the company's overall gross margins. "We are laser-focused on margin," she said.

The cost of growth

With more manufacturing capacity, software upgrades, substantial M&A, dedicated resources for just a few basis points of overall sales and direct-to-consumer fulfillment, it’s no wonder the Hershey company is raising prices.

It’s been widely reported that next year, the Hershey Company will increase prices on one-fifth of its products by 2.5%.

Margins have been under pressure for about a year, said Little at the August meeting, and largely from rising freight costs.

"We started to feel the impact of that about a year ago. And that has certainly continued, and I don't expect that to change going forward into next year, because the structural reasons that freight costs are higher are not going to go away, in terms of some of the cost pressures that those give us," said Little.

Whether driven by permanent "investment mode" or rising freight cost with no end in sight, a price increase is coming. As Buck and Little said, to them it will all be worthwhile if these changes lead to growth.

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Mars North America Raises U.S. Chocolate Prices by 7%

M&Ms come down a factory line at a Mars Inc. factory in France. Mars raised prices for its chocolate products on Thursday by about 7% to offset rising costs.

Leslie Josephs

NEW YORK—A unit of Mars Inc. has raised prices for U.S. chocolate products by about 7% to offset rising costs, the M&Ms and Snickers maker said Thursday.

Mars Chocolate North America's announcement comes a week after Hershey Co. raised its prices by 8% due to higher costs for cocoa, milk and other commodities.

"Mars Chocolate implements price increases only after careful consideration," said spokeswoman Ampy Vasquez said in an emailed statement. "In the three years since our last price increase, in March 2011, we have invested significantly in the category and have experienced a dramatic increase in our costs of doing business."

Cocoa-bean prices have risen 18% this year as demand for the key chocolate ingredient surpassed traders' expectations. On Thursday, the most actively traded cocoa contract on the ICE Futures U.S. exchange hit $3,234 a ton, the highest price since July 6, 2011.

Cocoa grindings, a gauge of demand for chocolate, have surged, particularly as consumption in emerging markets has risen. In the second quarter of the year, the latest data available, cocoa processors in Asia ground 161,805 metric tons of beans, up 5.2% compared with the same period of 2013, the Cocoa Association of Asia said. The report followed a 4.5% increase in North American second-quarter grindings, which topped market expectations of a 2% to 3% increase.

The Price Is Right? Companies Like Hershey’s Are Raising Prices—But It Is A Delicate Balance

The Price is Right is TV’s longest running game show for reasons going beyond the charisma of its host. The show’s producers figured out a way to turn the store (and even the supermarket) into a game. But food and beverage companies from Hershey to Mondelez lately have been playing their own version of The Price is Right. Faced with a strong economy and growing costs, many companies are hiking prices in a process that’s bigger than any game show.

Hershey has been pushing up prices for a wide range of products, while Mondelez International hiked prices on Fig Newtons, Wheat Thins, Triscuits and other items. Nestlé, Unilever, and Coca Cola all announced the need to raise prices due to rising costs. Meanwhile, restaurant prices climbed faster than inflation. The Consumer Price Index in July was up 1.8% over last year, but restaurant prices were up 3.2%. After price cuts, Amazon raised and then cut prices again at Whole Foods.

Food and beverage companies know getting the price right is almost as important as getting the product right. But how are they doing it, and is it working or driving consumers to competitors?

Faced with a strong economy and growing costs, many companies are hiking prices in a process that’s . [+] bigger than any game show.

Let’s take a look at Hershey, where CEO Michelle Buck talks about “price realization” as a “strategic focus.” Back on June 30, she said price increases announced last summer are “on track” with more set for Halloween. She announced hikes representing one-third of overall sales. Buck prepared retailers and customers and didn’t hit them with sudden price tag shock. Pricing is ongoing, not a fixed thing, and increases are being done gradually as the company grows revenues (in part through acquisitions) and fattens margins.

Why are companies like Hershey hiking prices now? They think they can and need to because of a strong economy and increased costs. There are serious increases for many companies in trucking costs and drivers’ salaries, because of the shortage of drivers. Prices of ingredients often are going up because of different market conditions, such as scarcity, drought and fuel costs. Companies face conditions that make it difficult to maintain margin. Raising prices sometimes is a way to pass on rising costs, although there are big risks.

While a good economy may soften impacts, customers are price sensitive, regardless of the economic situation. Studies show most consumers opt for a lower price over variety and selection. With brand loyalty on the decline, consumers are more likely to jump ship. Many restaurants and other eating and drinking facilities are offering loyalty programs to retain customers. These draw the customer back through price reductions. “If you buy ten cups of coffee, the next one is free,” for example. These loyalty programs impact prices by effectively creating discounts.

What Is Inflation And How Does It Work?

Raising prices also can be riskier with private labeling on the increase. People went to the brand, selecting products based on name and reputation. Now they may look at private label as retailers step up in the pricing game.

Manufacturers these days may face higher costs due to tariffs, which increase pricing pressure. But some retailers are taking charge. Target told suppliers it won’t allow them to pass on tariffs. It was a preemptive move by a retailer concerned about a wave of increases. Clamp down and find savings rather than pushing up prices. They reminded suppliers that stores can be the host in this game of The Price is Right. They want power when it comes to pricing. If you want to play on their stage, you play by their rules.

We typically focus on unit “price,” but that’s only part of the story and strategy. While companies may increase prices, many give it back to the consumer or retailer through incentives. They raise the price on a product and then offer free product through “bogos” (buy one, get one free) and retailer rebates. Hershey, in some cases, offered bigger candy bars. If people focus on the fact that they’re getting more, they may not pay as much attention to the fact that they’re also paying more. It’s a sort of sleight of hand and pricing strategy: The more you give, the more you charge.

There’s one immediate benefit to companies raising prices, beyond more revenue per unit. They may boost unit sales as retailers stock up. Hershey CFO Steven Voskuil said his company “increased internal inventory levels” because of “more demand from our retailers… as we transition to the new prices.” The candy company has been hiking Halloween candy prices. People will wish each other a happy Halloween this year as usual, but Hershey is also hoping the holiday will be a little bit happier for the company. For trick-or-treaters, the price won’t change: The candy will be free to them at the door. We’ll see how Hershey does and whether they walk off a winner from a move where the stakes are much higher than on any game show.

Snacking Portfolio Expansion Continues To Fuel Hershey’s Growth

CHICAGO, IL - JULY 16: Hershey's chocolate bars are shown on July 16, 2014 in Chicago, Illinois. . [+] Hershey Co., the No.1 candy producer in the U.S., is raising the price of its chocolate by 8 percent due to the rising cost of cocoa. This is the company's fist price increase in three years. (Photo Illustration by Scott Olson/Getty Images)

The increasingly diversified portfolio with high-growth snacking brands has helped Hershey grow its profit over the past year, although premium jerky sector remains a drag.

The U.S. chocolate maker recently reported growth in both Q4 and full-year 2019 revenues.

Its consolidated net sales in Q4 increased by 4% year-over-year to reach $2.07 billion, while its full-year net sales grew 2.5% annually to nearly $8 billion.

The core U.S. confections business was the main contributor to Hershey’s profit increase with brands, such as Reese’s and KitKat growing 6% and 2.3% year-over-year in Q4 sales, respectively.

Hershey’s candy, mint and gum retail sales increased by 2.6% annually, resulting in a category share gain of approximately 10 basis points in 2019.

CEO Michele Buck noted during an earnings call, while Easter has helped to drive the category, “we also finished the year strong with retail sales growth of 2.8% and a category share gain of approximately 20 basis points in the fourth quarter.”

Hershey expects the momentum of its core confections business growth to continue as several new products will be on shelves soon.

“In addition to our KitKat Duos innovation, we are excited to announce the expansion of our THiNs platform in 2020,” Buck said. “York THiNS and Reese’s White THiNS will launch in March and will be available in both the take-home and peg formats.”

Key learning lessons for future snacking M&A

As the war on sugar marches on amid increasing health concerns, Hershey and other large confectioners are adding more snack brands to lure wellness-oriented shoppers through M&A.

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Hershey, in particular, has made several prominent deals over the past few years to include brands such as SkinnyPop, Pirate Booty, and most recently, ONE Brands which manufactures a line of low-sugar and high protein bars.

These brands have largely fueled the growth of Hershey with the retail sales of SkinnyPop delivering a 13% annual increase in Q4, resulting in a popcorn category share gain of 170 basis points.

Pirate Booty’s performance also accelerated as Hershey successfully recaptured its distribution loss in early 2019 and promoted the brand through a partnership with Disney.

Buck said: “Our most recent acquisition, ONE Brands, grew 35% in traditional measured channels, with additional strength in non-measured channels, such as e-commerce.”

However, the recent slowdown of the premium meat snacks category has dragged the performance of Krave, a jerky brand Hershey acquired from serial entrepreneur Jonathan Sebastiani in 2015.

Meat snacks remain a growing category in the U.S., but their volume has been mostly driven by mainstream and value brands, Buck explained, noting Hershey will take the learning lesson to its future M&A strategy.

“If we’re going into a newer category or segment within snacking, Krave, in particular, was an acquisition that did not meet either of those relative to adequate scale nor adequate gross margin,” she said.

“I think that’s the single biggest learning was that piece of what fits our business model and staying true to that.”

Coronavirus’ impact on business

Buck noted Hershey’s International business has made significant progress over the years by focusing on branded, high-margin products, streamlining operating model and rightsizing investments.

“Since we began this journey at the beginning of 2017, we have increased our segment income by $125 million over the past three years, while continuing to grow our organic constant currency net sales,” she said.

Hershey’s international and other segment sales in Q4 increased by 5.8% year-over-year to reach $255.4 million.

Revenues from India, in particular, have grown 16% and 4.9% year-over-year in Q4 and full-year 2019, respectively. Hershey’s Kisses launch in India remains on track and the company continues to see the country as a strategic growth market for its overall business, Buck noted.

While China posted 9.2% annual sales growth in Q4, the coronavirus outbreak has caused concerns over Hershey’s business in the country.

Buck said Hershey is carefully tracking the situation, and is not anticipating a big impact on its business in China.

“We are a predominantly North American-based company, so not as big an impact as we may see from some others,” She said. “We have not built in nor anticipate something significant there, but we’ll keep a close eye on that.”


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