This year's Halloween has been somewhat challenging for U.S. chocolate manufacturers.

According to market research firm Circana, American candy companies are reducing Halloween chocolate inventory on their shelves and instead doubling down on the sales of cheaper candies like sour gummies and licorice, such as Mondelez's (MDLZ.US) Sour Patch Kids and Hershey's (HSY.US) Twizzlers Ghost Candy. Circana reports that while sugary non-chocolate candies are still cheaper than chocolate, their price increases have also reached double digits.

As chocolate manufacturers shift towards gummies, licorice, and flavored chocolates, they are facing shrinking profits and slowing sales. Consumers have been suppressing their cravings for expensive chocolates, and candy companies themselves are facing a double whammy of costs, first the chaos in the supply chain during the COVID-19 pandemic, and now a cocoa bean shortage.

Dan Sadler, head of customer insights at Circana, which primarily researches candy, said, "There isn't much chocolate candy on every retailer's shelf. We're seeing double-digit growth in the sales of non-chocolate products."

Advertisement

Candy companies took a similar approach during Easter, launching new products with lower cocoa content. However, executives from Hershey, the top U.S. chocolate maker, told investors on a conference call that the sales results for Reese's cups were disappointing, and the company's spring holiday product sales declined; they linked this to the early arrival of Easter and a shortened selling season. A spokesperson for Oreo maker Mondelez said that Halloween shoppers are looking for more limited edition and special flavored Oreos; Mondelez does not have a major chocolate brand in the U.S.

A spokesperson for Hershey said that the company's main new product for Halloween is Reese's Werewolf Tracks, which has vanilla chocolate on top instead of milk chocolate, and KitKat Ghost Toast, which features cinnamon toast-flavored chocolate. The spokesperson said that Hershey believes non-chocolate candies have greater growth potential. Last month, Hershey launched two new non-chocolate candies, Jolly Rancher Ropes and Shaq-a-Licious gummies, inspired by former U.S. basketball star Shaquille O'Neal.

The spokesperson said that Hershey plans to launch more candies in the coming months. It is certain, the spokesperson added, that Halloween chocolates make up a larger proportion of the candy category than everyday consumption.

Candy manufacturers and retailers, such as grocer Kroger (KR.US), have started selling Halloween candy earlier than ever this year, indicating the importance of the holiday to their sales figures. According to the National Confectioners Association, Halloween was the holiday with the highest candy sales last year.

Candy companies are increasingly relying on special occasions like holidays and birthdays to boost sales growth, as consumers find everyday chocolate consumption unaffordable. A spokesperson for Kroger said that as soon as students returned to school, Kroger began selling Halloween candy, the earliest ever; the spokesperson said that the company has also seen an increase in demand for non-chocolate candies.

The spokesperson said that Hershey expects its Halloween sales to be in line with the company's total sales for this year. Hershey has revised its annual sales growth forecast down to 2%. Hershey announced more price increases this summer to offset the rise in cocoa prices. A spokesperson for Hershey said that these price increases do not affect current Halloween candy sales.The Halloween chocolate candies in the stores are not only fewer but also more expensive. Sadler pointed out that the prices of seasonal chocolate candies have increased by 7.5% compared to last year.

David Branch, the manager of the Wells Fargo Agricultural Food Research Institute, noted that chocolate manufacturers faced the risk of rising cocoa prices when planning this year's holiday, leading to increased prices for retailers. Chocolate companies typically hedge against the volatile commodity costs of cocoa and the like for a period of six months to a year.

According to NielsenIQ data, the average unit price of chocolate has risen by more than 40% since 2020, outpacing the overall pace of food inflation, which has already begun to slow down.

Sadler noted that candy companies have raised the prices of non-chocolate candies by double digits. Sadler said, "Non-chocolate is catching up. When you compare the price per pound of non-chocolate and chocolate, it still has a premium."