Trick or Treat

Shrinkflation, Inflation and Innovation for Halloween 2024

Have retailers accurately forecasted this year’s Halloween candy demand?

Last year, despite inflation, Americans spent $3.6 billion on candy, the equivalent of 23.5 million pounds of sweets. And of those sales, the most popular items were Reese's Peanut Butter Cups, M&Ms, Hot Tamales and Skittles with the average family budgeting about $30 for holiday candy. Most consumers probably haven't given the price of bulk candy too much thought until the last week or two, but retailers and manufacturers likely started making sourcing and formulation decisions two years ago in preparation for Halloween 2024.

Halloween accounts for the most candy sales of the year.? The pressure to get inventories right is big. Too much candy on the shelves and companies spent more than they earned. Not enough, or not enough of the “right” candy, and someone missed an opportunity. Adding to the complexity this year is the ever increasing price of chocolate, consumer perception of marketing tactics like shrinkflation, and a general decrease in consumer spending on holiday goodies.

Why is Chocolate so Expensive?

Earlier this year I did a full breakdown of why chocolate continues to get more expensive. Between aged trees, changing weather patterns, poor soil, a largely consolidated market and diminished access to pesticides, much of the world’s cocoa supply is in jeopardy. It’s a situation that won’t resolve itself overnight. Meanwhile, the demand for chocolate has only continued to grow.

The handfuls of mini chocolate bars your kids are about to fill their Halloween buckets with are made from cacao that was purchased more than a year ago. It's a commodity that manufacturers secure long in advance in order to avoid price fluctuations. But, supply has been declining now for years and purchase prices climbed so high that even the big buyers waited until the last possible opportunity to secure shipments. In the last year the Ivory Coast has stopped exports of cacao and it is unlikely that the market will rebound soon. Both manufacturers and retailers have had to get innovative.

Shrinkflation and Innovation

Inventory decisions consider more than just the price of cacao coming out of the Ivory Coast. They also factor in how candy is formulated, packaged and priced so that consumers in the? candy aisle are inclined to make a purchase.? Chocolate might be in short supply so manufactures are just using less of it. The sought after Reece’s Peanut Butter Cups are offering a vanilla cream version.? Kit Kat came out with a Ghost Toast candy bar and M&Ms has a new pumpkin pie option. Both innovative ideas use less chocolate than the original candies.

Candy production is estimated to decrease by 14% in 2025.? You will see a lot more gummy style candy this year, and it’s probably just a glimpse of what’s to come in the future of candy making.

Manufacturers know that if they bump prices up too high, even families who plan to spend money on Halloween candy will balk at the numbers. Instead, they can meet demands, move inventory and make money if they package candy differently. Shrinkflation?is a real thing. Smaller candy bars using less chocolate, but sold at the same price as last year have less of a negative impact on consumer spending than simply raising the price of the same sized candy bar. It’s not a new marketing tactic, but it appears to be an increasingly more popular method of boosting sales.

Consumers are taking notice of the smaller unit sizes and have even begun to boycott popular brands like Tostitos and General Mills. But, will they boycott Halloween candy? Hershey’s and Recee’s both confirmed they have shrunk the sizes of their candy or put fewer pieces of candy in bags and are confident it won’t stop shoppers from buying their chocolates.

Retailers are managing their own inventories by offering special sales in hope of offsetting the higher prices and moving candy off the shelves this year. Consumers continue to argue that they prefer transparency over shrinkflation and would rather know that prices are high because of supply disruptions and inflation that feel duped after they’ve purchased a product. But manufacturers and retailers haven’t been ready to put that argument to the test.

Holiday Spending

Hershey’s?says they’ve used polls to forecast consumer spending this Halloween. According to their research, consumers are more trusting of supply chains than they were two years ago which means people are not hoarding seasonal items or rushing to purchase them the moment they hit the shelves. They also found that consumers are more inclined to buy variety pack options. The visual variety gives the impression of getting more for your money.?

Can we have Halloween without candy? Everything is a little more expensive than it was five years ago including costumes and decorations. It’s possible that consumers will spend just as much on candy this year and skip out on the rest of the fanfare.

You might have noticed there are fewer jumbo bags of candy on the shelves this year. And, some of those shelves that normally house chocolate caramel bars are now overflowing with berry flavored gummies. But you will find plenty of bags of candy that fit a $30 budget even if they contain a little less of a treat this year.

Originally Posted on Stratagerm's Blog on October 30, 2024