With candy prices up 13%, cheaters get a lesson in economics

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We’ll pay 13.1% more this year for Halloween candy than last year, the biggest increase in candy prices on record. Cheaters will also likely notice that the chocolate bars they get will be smaller, providing them with an early lesson in how consumer products companies handle inflation.

The problem, of course, is that raw material costs have gone up. If you look at the contents of a Snickers bar from M&M Mars, ingredients like sugar, cocoa butter, peanuts, corn syrup, wrappers are rarer and more expensive this year. Palm oil, which is used in many sweets, saw fluctuations when the Indonesian government temporarily halted exports. And the Ghanaian government recently increased the producer price of cocoa by 21%.

Labor and the cost of transporting raw materials and finished products have all become more expensive. In September, Nestlé reported raw material costs rose 14% in the first half of 2022, compared to just 4% in the first half of last year. The company has seen steep increases in dairy, coffee, transportation and logistics, and energy costs.

All of this might be hard to explain to the ghosts, ghouls, and goblins that show up on your doorstep on Halloween. But the way confectionery companies are responding to rising costs is instructive.

Raise prices

Businesses don’t like to do this if they don’t have to because competitors may not follow and consumers may change their brand loyalty. Many people who buy trick-or-treat candy are quite price sensitive. After all, they give things away. If M&M Mars raises prices for Snickers but Nestlé doesn’t raise prices for Kit Kats, cheaters could possibly see a change in the mix of candy they take home in their bags.

Reduce bundles

According to M&M Mars, the serving size for a Snickers Mini bar this year is 17 grams (0.6 ounces). The one I weighed in my office weighed only 8.971 grams (0.316 ounces) including packaging – that’s half the size. A Milky Way Mini weighed 8.297 grams and a 3 Musketeers Mini weighed just 6.51 grams.

The packaging is so small that in some cases there is not enough space to print a full size logo. Granted, these candies come in larger bags that usually hold 40 pieces or more, but cheaters will likely notice that the candy bars have gotten smaller.

Maybe the candy makers can count on the kids not remembering last year’s size, or it’s usually the adults who pay for the candy, so whatever. I asked M&M Mars to discuss this trend, but they hadn’t responded by the time I posted this.

It’s inflation at work, and it’s also a standard response from consumer products companies. I regret the day Tropicana shrank their 64 oz. container of orange juice first at 59 oz. and now at 52 oz. Next stop will likely be 48 oz.

One way to maintain your retail price is to supply fewer products at the same price. The irony is that the cost of the packaging (the plastic bottle in this case) is a significant part of the overall cost of the product, so as they reduce the size of the packaging they become less efficient.

Cheaper materials

Cost reduction is a popular lever for most manufacturing managers, and material substitution is one way to achieve this. This means substituting a cheaper material, as long as it does not affect product performance.

For products like Snickers bars, material substitutions are difficult because M&M Mars has a very specific recipe. This usually means that the biggest opportunity to cut costs is in packaging – thinner wrappers or containers. We can see this effect in thinner water bottles and thinner foil seals on food packaging. That might not seem like a lot of savings, but when you multiply it by hundreds of millions of packages, it can add up.

Change your volume or mix, or do a good job subcontracting for raw materials

This concept can be a little harder for cheaters to grasp. Candy makers plan both the volume they produce, as well as the mix of different flavors or varieties. Some varieties may be more profitable, and how growers plan their production cycles and buy, hedge or forward buy their raw materials could influence their profitability. Thus, concentrating production assets on more profitable products is another lever companies can take advantage of.

Cheaters who collect free treats on Halloween will likely respond to these inflationary pressures by going for volume (perhaps staying out later) and mixing (seeking different treats from different houses). If the treats are smaller, children will just have to pick up more. This is an economic lesson in itself.

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