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Consumers are looking to chocolate, Oreos, and Twinkies to 'not feel terrible all the time' — Hershey, Hostess, and Mondelez are cashing in

Boxes of Hostess Twinkies in a grocery-store shopping cart.
Boxes of Hostess Twinkies in a grocery-store shopping cart.
  • Consumers are buying more chocolate and cookies as recession fears hang over the economy.
  • Hershey, Mondelez, and other sweet-treat makers have raised their outlooks due to the trend.
  • It's a variant of the "lipstick index," the idea that people buy little luxuries during hard times.

Consumers are turning to comfort snacks, from Oreos to chocolate bars, as they look for affordable luxuries in an uncertain economy.

Makers of well-known snack foods, such as Mondelēz, which makes Oreos; and Hostess, which is famous for its Twinkies, said in recent earnings reports that their sales volumes have increased. 

They also raised their guidance, indicating that they expect those sales to continue growing over the next few quarters.

As inflation remains high, layoffs rock sectors like technology, and the outlook for the US economy remains ominous, some consumers are holding off on purchasing expensive items like electronics. But they are still buying smaller pleasures, including sweet treats like cookies and chocolate.

"A package of Oreos is far from 'luxury,' but it's a small treat that is not too expensive to throw in your shopping cart that enables you to not feel terrible at all times," Zak Stambor, a senior analyst at Insider Intelligence, said.

It's happened before, Stambor said. Just over a decade ago, chocolate and sweet-snack makers got a lift as the Great Recession hit workers' wallets.

"We saw back in 2008 and 2009 a similar sort of thing," he said.

Mondelēz International logo and Oreo cookies are seen in this illustration photo taken in Krakow, Poland on September 25, 2021.
Mondelēz International logo and Oreo cookies are seen in this illustration photo taken in Krakow, Poland on September 25, 2021.

Consumers are looking for 'affordable indulgences' 

Many food companies saw their sales rise over the past two years as people spent more time at home during the pandemic — and, in turn, bought more groceries instead of eating out.

Now, many of the same companies are seeing sales of chocolate, cookies, and other sweet snacks rise.

Hostess, for instance, said in an earnings report on November 2 that it expects sales volumes to rise "by low to mid-single digits" in 2022, despite many consumers returning to their pre-pandemic consumption habits.

Snack consumption, "including for sweet indulgent snacks, remain elevated even in the post-pandemic environment," Andrew Callahan, the CEO of Hostess, told analysts.

"Our affordable price points are particularly attractive in the current environment as consumers seek better value to fit with their lifestyle," he added.

Mondelēz, which makes Oreo cookies as well as Cadbury and Toblerone chocolate bars, raised its revenue forecast for 2022 when it reported third-quarter earnings on November 1. The company now expects revenue to grow 10% on an organic basis, up from an increase of 8%.

The company's revenue is growing in part because it is raising prices to keep up with cost inflation, Dirk Van de Put, the CEO of Mondelēz, told analysts on a call to discuss the earnings. But he said that increased purchases at grocery stores also played a role, especially in countries like the US and Canada.

"Consumers in developed markets continue to prioritize groceries over other forms of spending, and they continue to view our brands as affordable indulgences," Van de Put said.

"We believe that the spending decrease that we will see from consumers eventually, as inflation keeps hitting them, is going to be probably more in the big-ticket items," he said.

Hershey also raised prices on its chocolate and other candy in North America during its third quarter, the company said in a November 4 earnings report. Even so, sales volumes were up 3% among those products during the quarter.

"Our products remain an affordable treat for families and consumers," Michele Buck, the CEO of Hershey, told analysts on a call. "And we know that part of that is they want to reward themselves when times are tough."

Revlon lipstick is displayed in a New York pharmacy.
Revlon lipstick is displayed in a New York pharmacy.

Lipstick and perfume also get a lift when the economy is bad

Sweet snacks aren't the only products that consumers tend to buy as small treats when the economy deteriorates. 

In 2001, the US was in a recession after the September 11 terrorist attacks. While consumers cut back spending in many areas, such as travel, sales of lipstick actually grew.

Leonard Lauder, a billionaire and heir to the Estée Lauder cosmetics fortune, reportedly believed that consumers were turning to lipstick as an affordable luxury as times got tough. Lauder is credited for dubbing the inverse relationship the "lipstick index."

During the pandemic, a similar trend took hold with perfume as social distancing and work-from-home arrangements made lipstick less relevant. 

Consumers' appetite for more sweets follows the same general pattern, Stambor said.

"This is not exactly the lipstick effect, but it's a similar sort of phenomenon," he said. "When times get tough, people are feeling down, and they find small ways to indulge."

"That's where companies that sell snacks and sweets can benefit, because they offer products that are a small indulgence," Stambor added.

Read the original article on Business Insider

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