The Hershey Company West Hershey Plant

The Hershey Company West Hershey plant. Hershey's kisses move through a hopper system before bagging. 09/14/2012 DAN GLEITER, The Patriot-News

You might not see an immediate rise in the price of a Hershey chocolate bar for your s'mores or even a bag of Halloween candy, but it's coming.

The Hershey Company announced an average eight percent increase in wholesale prices this week due to rising prices of raw cocoa, dairy, nuts, packaging, fuel, utilities and transportation.

Cocoa butter alone rose more than 200 percent since the beginning of 2012, said Jeff Beckman, Hershey Company spokesman.

When shoppers will start seeing price increases will depend upon retailers, who set prices for their products, Beckman said.

"Most Halloween retailer orders are already in at the old prices," Beckman said. "It is up to retailers to decide how much they will charge for their Halloween candy this year. "

Direct buying customers such as distributors and wholesalers have four weeks (until Aug. 12) to continue buying at the old prices, Hershey said this week.

As a result, Hershey doesn't expect to see the fruits of the price increase until Halloween 2015, after a year's worth of higher prices is reflected in profit margins.

Beckman also said the size of candy bars won't change.

Retailers aren't ready to say what the impact will be on candy prices in the near term.

At Wegman's, spokeswoman Jo Natale said it's too early to speculate about the impact the Hershey price increase will have immediately.

A wholesale price increase of eight percent doesn't necessarily translate to an equal increase at the shelf, Natale said. "This is a very competitive business. We are mindful of what our competitors are charging, and we always want be equal to or lower than other supermarkets," she said.

At Giant Foods, spokesman Christopher Brand said "It's no secret that cocoa prices have been on the rise for the last year, and we will continue to work with Hershey to mitigate price increases to the best of our ability."

As to whether it will mean higher price stickers on bags of Halloween candy, Brand said, "It's too early to tell. Halloween is our number one candy event, and chocolate is a big part of that."

"We understand that family budgets are tight, and our goal remains to provide as much value as possible to our customers," Brand said.

This was the first Hershey price increase in three years, said Erin Lash, a senior equity analyst with Morningstar Inc. in Chicago.

It comes on the heels of a price increase by Nestle, which Lash said was quietly mentioned by the company in an interview three months ago with Confectionary News.com.

The reason given for the price hike was rising commodity prices and unfavorable exchange rates.

Another major player in the candy industry, M&M Mars, hasn't yet announced an increase, Lash said. "In the past, competitors tend to move in lockstep when it comes to price increases," she said.

M&M Mars wouldn't comment on whether it is experiencing similar price increases. "We are constantly reviewing market dynamics, and do not have further information to provide," said a spokesman.

Lash doesn't expect the price increase to cause a big pushback in sales.

"Confectionary tends to be considered a more affordable luxury," she said. In the last Hershey price increase, which was about 10 percent in 2011, she said there was a small blip in sales the first quarter of 2012, but sales resumed growing later that year.

There is also significant brand loyalty in the chocolate industry, Lash said. Rather than change brands, consumers are more likely to trade down to a smaller size of product.

Cocoa prices are a big factor driving the price increase.

According to Euromonitor International, the demand for chocolate in new markets in India, Saudi Arabia and China is sparking a rise in cocoa prices.

The International Cocoa Organization also said a rise in cocoa futures in June was sparked by concern that supply could be affected by El Nino weather conditions affecting growing conditions in West Africa over the coming year.

Susan Smith, spokeswoman for the National Confectioners Association, said cocoa prices have increased "partly due to actual rising worldwide demand and partly due to predictions of worldwide rising demand along with predictions that cocoa supply may not be able to keep up with demand."

"There is a lot of effort going into helping cocoa farmers increase supply, but with millions of cocoa farmers around the world growing cocoa on very small farms it's difficult to know how soon or what effect the on-the-ground efforts will have," Smith said.

Cocoa prices aren't only affecting the big players like Hershey.

"It finally caught up with them – it was just a matter of time. It's no shocker to me," said Peter Matangos of Matangos Candies in Harrisburg, of Hershey's price increase.

"It won't stop them from selling a candy bar," Matangos said. "It's happy food – chocolate is a comfort food."

As a specialty chocolate-maker, Matangos has also seen an uptick of about 10 percent in the cost of cocoa he uses to make his chocolate, but he is able to absorb it without passing it onto customers.

"The cocoa bean crop – there's too much demand and not enough supply," he said. Prices have been going up every year, but this is the biggest jump, Matangos said.

Hershey has such good "grab and go" product placement at grocery checkouts that it probably won't make a difference, he feels. "For a $1 chocolate bar, it would go to $1.08, big deal. If it would be a 50 percent jump, yeah – people might start thinking about it," Matangos said.

Matangos doesn't think the price impact will have a big impact on holiday sales. "It's a seasonal thing. If people don't buy it the rest of the year, they will buy at Halloween and Christmas," Matangos said.

Lee Zimmerman of Zimmerman's Nuts & Candies in Harrisburg said he had an 8-10 percent increase two months ago in his new contract with one of his suppliers, Wilbur Chocolate in Lititz. Other vendors are increasing prices as well, he said.

"We knew it was coming actually years ago," Zimmerman said, after a year with no fluctuation in 2013.

"The rumor mill has it there were speculators in the cocoa market hedging prices upward," Zimmerman said. In the past, events like war or change in governments in the equatorial countries where cocoa is grown, or some type of blight, were to blame.

Zimmerman also thinks it's due to demand. "We can't produce it fast enough," he said of chocolate.

"We feel we can absorb these increases – our margins are still okay," Zimmerman said, unless there would be a dramatic change. The last increase he passed on to customers was about two years ago, in dark chocolate, he said.

Zimmerman doesn't believe the eight percent price hike is enough to cause people to reduce their purchases of Hershey products.

"I don't think they'll notice it. On a 24-count snack size item, eight percent to the customer might be a nickel pushed along," Zimmerman said.

Bottom line is people want chocolate, Zimmerman said. "It's still a very affordable product for what it is, what it has to go through. It's an amazing product - we can't do without it."

Louise Kramer, spokesman for the Specialty Food Association, which represents smaller craft chocolate producers, said chocolate remains number one among specialty products.

"Consumers appear to be wiling to pay a little more for fine chocolate that stands out from the rest – the idea of an affordable luxury or indulgence," she said.

But small specialty producers could find it difficult to absorb cocoa price increases. "They are more artisanal - they are not going to compromise on quality because quality is their calling card. They won't put less cocoa in their dark chocolate," she said.

"These are consumers already willing to pay $6 for a chocolate bar with ginger and quinoa in it, or something super dark. Nevertheless, it will be tough on these smaller manufacturers because energy prices are rising, and there are new requirements for health care, taxes – it all goes into the mix," Kramer said.

Hershey has said it expects sales growth for 2014 to be on the low end of the projected 5-7 percent target. Likewise, earnings per share are expected on the low end of the anticipated 9-11 percent.

Last year Hershey had a 9.3 percent increase in net sales, which totaled $6.6 billion, and it has 43 percent of the domestic chocolate market.

At the April stockholders' meeting, CEO J.P. Bilbrey said China is being targeted by the company to become Hershey's second-largest market after the U.S., calling China "our No. 1 priority."