Hershey bars. KitKats. Mounds. These are just three of the reasons why I'm a portly fellow. Then again, make that a jolly portly fellow, because, hey, these things are delicious. Oh, and let us not forget Reese's Pieces; let me tell you, E.T. was not out of his extraterrestrial mind when he adopted that candy brand as his personal favorite.
So why do I bring up the subject of addictive chocolate bars? Well, last week Hershey Foods (NYSE:HSY) announced that it would be raising the prices on many of its candy products. Not good news for those of us who reach for the sugar drug often, or even every now and then. The release details the specific timeframe and structure of the increases; it also states that the increase will effectively be 3% overall for the confectioner's domestic product portfolio.
Price increases are an inevitable fact of corporate life. They do occur, brought on by the usual suspects: energy expenditures, employee costs, and commodity prices. They can also be summoned by world events, as Brian Gorman observed several weeks back when he discussed unrest in the Ivory Coast and its potential negative effect on not only Hershey, but companies such as Cadbury Schweppes (NYSE:CSG), Kellogg (NYSE:K), and Kraft (NYSE:KFT).
Long-term holders in Hershey stock shouldn't be worried by this event. It's true that any increase is bound to slow the growth of sales; that's just basic supply/demand economics. What investors seek is price increases that keep products compatible with the marketplace at large. As long as the increases can be absorbed as painlessly as possible by purchasers, shareholder value shouldn't see too much of a hit. Of course, we've yet to see how the increased costs of Hershey candies is met by the public, but I don't think the percentages discussed in the release are going to dissuade too many sugar-bar lovers from consumption of Hershey's versions of their favorite junk food.
All companies want -- and must -- maintain as high a premium as possible for their products. And sometimes an expanded premium can be used to encourage consumers to alter their patterns of interaction with a company to allow for generation of higher profits. Rick Munarriz wrote about Disney's (NYSE:DIS) recent theme-park-ticket inflation and how it was essentially a brilliant strategic move from this point of view. He's absolutely correct. As a shareholder, I want and need management to constantly evaluate pricing architectures to see where the bar can be raised.
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Fool contributor Steven Mallas owns shares of Disney.
