Tricky forecasting leaves chocolate companies wondering how candy sales will fare this Halloween.
Mars’ time horizon for planning for the Halloween season spans two years, yet no one could have known how different things would be this year because the pandemic. For Hershey, Halloween spending comprises ten percent of annual sales.
No one is sure right now if “self-consumption,” when people buy Halloween candy to eat themselves rather than to distribute to others, will be enough to fill the gap of sales lost from trick-or-treating.
- Will COVID-19 cancel Halloween? (Aug 7, 2020, WCNC)
This post is based on the Fortune article reposted to Yahoo Finance, How scary will a COVID-19 Halloween be for candy companies?, by Beth Kowitt, August 29, 2020, and the YouTube video in the Spotlight. Image source: Shutterstock / Sandy Morelli
1. What role does aggregate planning play in the current availability of candy for Halloween of 2020?
Guidance: Many companies have a long planning horizon. In part this may be to ensure adequate supplies of materials and resources when it comes time to manufacture product to meet demand. In addition, manufacturers need to make sure they have enough capacity to create the amount of product needed. Aggregate planning is rough cut capacity planning, where forecasters look two to 18 months out into the future and roughly try to match capacity and demand.
Aggregate planners for Mars began planning for Halloween 2020 long before the COVID-19 crisis. Sudden shifts in plans can cause significant problems if demand differs significantly from what was expected. Normally about half of Halloween candy purchases are for self-consumption, and chocolate companies are planning more promotions to raise that segment further if needed.
2. How have forecasts for candy sales made long before the pandemic, compared with sales so far?
Guidance: Halloween garners huge revenues for businesses that sell seasonal products. It is second only to Christmas in terms of holiday consumer spending. In 2019, companies raked in over $8.8 billion in Halloween sales, placing third for total spending over the last 15 years, according to the National Retail Federation’s survey.
Spending included costumes, candy, decorations, and card purchases. No one knows for sure what to expect this year. The pre-pandemic economy was extremely strong and promising, and it is likely that manufacturers of Halloween-related products had planned accordingly. Usually, consumers buy about half of the available Halloween candy for themselves, beginning long before the holiday arrives. The other half of candy sales take place a couple weeks before.
Fortunately for candy makers, demand for chocolate has remained high during the pandemic. Consumers have stockpiled many comfort foods and longer shelf-life products, such as soup, peanut butter, cereal, and (happily for companies like Mars and Hershey) chocolate.
In fact, Hershey recently reported that its “everyday chocolate sales” have been increasing by about nine percent since the COVID-19 crisis began. This, in fact, may be putting a bit of a strain on resources that were not necessarily geared up for these increased capacity requirements when aggregate plans were originally made many months before. Fortunately for consumers, so far Hershey has been able to keep up.
Ferrero, which makes Butterfinger and Baby Ruth chocolates among other favorites, reports sales thus far for the Halloween season similar to those of years past.
3. What adjustments to product options or quantities of production have been made in light of the pandemic?
Guidance: Regardless of whether or not companies are operating during relatively stable times, or during unusual times such as a pandemic, forecasts are always subject to error and companies should plan accordingly. Even the most accurate forecasters need to have contingency plans.
Often, contingency plans can involve safety stock or maintaining the ability and capacity to create extra product quickly if needed. In this case, Hershey, for instance, is producing fewer items that are specifically seasonal, like its popular Reese’s Pumpkins. Instead, it is opting to make more of its regular product line. That way, if sales for Halloween are lower than expected, Hershey or the retailers it serves are not stuck with products that must be heavily discounted in order to clear them out after the autumn holidays.
In another example, Mondelez International is banking on selling more family-size packages instead of individual units and has planned accordingly.
4. How have distribution channels for chocolate candy changed since the onset of the pandemic?
Guidance: One top executive at Ferrero reports that online chocolate sales grew in the first five weeks of the U.S. lockdown as much as would have been expected in five years of normalcy. Hershey believes this spike in online orders will continue for Halloween, expecting 15 to 20 percent of its holiday sales to come from curbside and home delivery. Online distribution channels have greatly aided chocolate makers during the pandemic.