Why Hershey, Hostess, Mondelēz, and others are boosting their outlooks

The news: Despite some stiff economic headwinds, several snack food and sweets manufacturers are increasingly bullish about their outlook for the remainder of the year.

• Hershey boosted both its 2022 full-year net sales growth range and adjusted earnings per share (EPS) growth to 14% to 15% from 12% to 14%.
• Hostess adjusted its 2022 full-year net revenue expectations to a gain of 17% to 19% up from at least 15%, and its adjusted EPS to 96 to 98 cents, which narrows the range from the 93 to 98 cents it previously provided.
• Kellogg Company raised its organic net sales growth guidance to 10%, up from 7% to 8%, and its adjusted EPS to 3%, a tick up from 2%.
• Mondelēz increased its 2022 fiscal outlook so that it now expects at least 10% organic net revenue growth, up from 8%, with its adjusted EPS at 10%, a gain from its prior outlook of mid-to-high single digits.

An affordable treat: Inflation has driven a large share of consumers to take steps to save money at the grocery store. For example, 43% have traded down to a private label brand, per our Insider Intelligence Grocery Survey conducted with Bizrate Insights.

• Those decisions make sense given the price of groceries grew 11.4% year-over-year (YoY) in August, the largest 12-month increase since May 1979, and only slightly receded to 11.2% YoY in September.
• However, not all consumer decisions are fully rational. Many continue to indulge in snacks and sweets in spite of, or perhaps because of, the economic challenges. For example, Andrew Callahan, Hostess president and CEO, pointed to a recent consumer survey during the company’s earnings call that found that while the majority of consumers plan to cut back spending due to economic conditions, a vast majority of those same people will continue to look for new snacking options.
• Hershey’s CEO Michele Buck noted a similar phenomenon. “Our products remain an affordable treat for families and for consumers,” she said during the company’s call.

Paths to growth: While many consumer packaged goods brands such as Kraft Heinz and Conagra Brands used price hikes and shrinkflation to deliver solid financial results despite a slowdown in sales volume, both Mondelēz and Hostess saw volumes grow thanks in part to products that parents can pack in their children’s lunches.

• Hostess introduced new formats, such as Bouncers, which are “poppable” versions of treats such as Twinkies and Ding Dongs.
• Mondelēz noted that it has seen strong growth in products popular for school lunches, such as snack packs featuring Oreo or Nutter Butter cookies, as well as Ritz crackers. In Europe, it continues to see growth in items such as chocolate bars.

The big takeaway: Consumers are not fully rational. If they were, phenomena such as the lipstick effect—the term used to describe consumers’ willingness to indulge in less costly luxury goods such as lipstick in the midst of an economic downturn—would not exist.

• While times may be tough for some people, there’s a significant opportunity for retailers across categories to sell small indulgences.

This article originally appeared in Insider Intelligence's Retail & Ecommerce Briefing—a daily recap of top stories reshaping the retail industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.

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