Small candy manufacturers forced to reshape business strategies

For the maker of Chick-O-Stick, Slo Poke, and Mary Jane candies, it seems like a good time for the candy industry — provided enough people can be found to make the candy.

Product sales at Atkinson Candy have quintupled since 2019, but the 90-year-old company's workforce has halved during that period. Some machinists were lured away by higher pay in industries like oil and gas. Eric Atkinson, the 68-year-old CEO, said workers who make the handmade candies are especially hard to retain, as they have been drawn away by generous government assistance programs.

With fewer hands on deck, Atkinson now can take up to three months to deliver orders to retailers and wholesale distributors, compared with two weeks before the COVID-19 pandemic — if the company can fill the orders at all. The labor shortage was so severe in 2021 that the company lost millions of dollars in sales simply because it did not have enough workers, its CEO said.

"It's like listening to fingernails on a chalkboard," Atkinson said of the stress of dealing with lost sales.

Rethinking how to do business

Atkinson is not alone. Executives at small and mid-sized candy companies say they are being buffeted by a confluence of challenges, including higher shipping costs, labor shortages, and commodities that often do not arrive in the quantities promised.

"We're in a different era, and you have to rethink how you do business," said Joe Colyn, a partner at JPG Resources, who helps bakery and confectionery clients source ingredients.

The issues affecting business, profits, and even survival are not new for candy makers. They have weathered wars, recessions, depressions, and supply disruptions.

But the CEOs interviewed say having so many problems hit at once has forced them to rethink how they operate and overhaul key parts of their businesses that have largely gone unchanged for decades, from how they hire and retain workers to when and how far in advance they buy ingredients or packaging.

Small and mid-sized chocolate and candy companies make up a large portion of the 600 member companies of the National Confectioners Association (NCA), about half of which are manufacturers. These companies range from multi-generational family businesses spanning decades to new companies just getting started.

"There's no question that the challenges facing the entire industry — supply chain, inflation, labor shortages, broad pandemic impacts, etc. — are disproportionately impacting small and mid-sized companies more than their larger counterparts," Carly Schildhaus, a spokesperson for the trade organization, said in an email.

Daniel McCarthy, an assistant professor of marketing at Emory University, suggested some of the category's smaller players should play defense by raising money from investors or taking on manageable debt while also seizing opportunities. These companies should also carefully manage their balance sheets, watch spending closely, and raise prices like their larger CPG competitors, he said.

"The advantage they have that other big industries don't have is that the (product) cost is very low," McCarthy said, noting a 20% increase in candy is far more palatable to consumers than a 20% increase in something like a car. "In that sense, they're in a more defensive position."

Atkinson's candy business faces rising costs for everything from sugar to peanuts — peanut costs are up more than 20% — and he has passed some of those higher costs on to consumers through price increases. The most recent increase came last week.

"We're trying to maintain a thin margin, but most products are either losing money or about to lose money," he said.

Despite the difficulties permeating the industry, chocolate and candy sales remain strong, which helps at least partially offset higher expenses and labor challenges. Chocolate and candy sales in 2021 grew 11% over the prior year, according to the NCA's State of Treating report, and Schildhaus noted the category is "performing well" this year.

Back to the future

For many small candy makers, the current environment is forcing them to plan ahead or find alternatives — some of which may not be ideal.

At Boyer Candy Company in Pennsylvania, maker of Mallo Cup and Clark Bar, the current environment is thriving. President and CEO Anthony Forgione II said the company is ordering ingredients ahead of time and leaning on the decades of experience of its top executives, many of whom have spent decades at the 86-year-old business.

"It takes more anticipation and forecasting," Forgione said, noting sales are up 36% so far this year. "If you plan properly, it's not really that bad."

Boyer used to order corn syrup two weeks out; now it locks in supply three months ahead based on historical forecasts, he said. The company does similar forward buying for sugar and peanuts.

JPG Partners' Colyn said the firm encourages small businesses to connect with ingredient suppliers more frequently — weekly — to maintain relationships and better communicate long-term needs, especially in an environment where supplies of certain materials are volatile and uncertain.

Atkinson said shortages related to Russia's invasion of Ukraine have led the company to reduce its use of sunflower lecithin imported from that country, an ingredient used in making caramel, toffee, and peanut butter candies.

He hopes the company can source the ingredient from other regions, including India. If Atkinson cannot obtain it, the company may have to go back to using soybean oil — which it stopped using because it is an allergen. Changing the formula now would require new packaging to list the ingredients — Atkinson said reprinting would cost hundreds of thousands of dollars — and discarding unused wrappers.

To save money, Atkinson is buying more ingredients that do not spoil as quickly. Its efforts extend to packaging as well, stockpiling wrappers, boxes, and plastic film. Still, he said, in many cases candy makers have no choice but to pay market prices for ingredients.

"You can't get hung up on the cost of ingredients in times like this," Atkinson said. "You have to buy them no matter what they cost, because the alternative is shutting down, and that's not acceptable to us."

Stuart Selarnick, CEO of Philadelphia-based Frankford Candy, said suppliers have sometimes failed to deliver promised quantities of commodities like milk chocolate, forcing him to make new arrangements with other companies to fill the gaps.

The milk chocolate shortage — stemming from surging consumer demand and the labor shortages and raw material sourcing difficulties facing its suppliers — is highly unusual. It is the first time since he joined the company in 1987 that he has encountered this ingredient supply problem, Selarnick said.

"You have to keep moving forward. You have to be resourceful and look for other sources, other opportunities, other suppliers," Selarnick said. "That's what we're good at, because we're flexible and agile and can move quickly."

Hard to find workers

Andrew Schuman, owner of Hammond's Candies in Colorado, has taken a similar approach to sourcing ingredients and packaging. So far, the 102-year-old maker of candy canes, lollipops, toffees, chocolates, and other sweets has "weathered the storm fairly well," he said.

But like countless businesses of all sizes across the country, Hammond's has faced its share of challenges recently, especially in finding and retaining workers.

"The labor market is a buyer's market because they're buying your job," Schuman said. "They can go anywhere they want."

Hammond's has about 160 employees. While about 80 are core employees who have been with the company for over 15 years, Hammond's has struggled to fill the remaining positions over the past three years. Schuman estimates that the other 80 workers, who do everything from wrapping candy to cooking marshmallow, have turned over two to three times a year since mid-2020.

In May, the company brought on a full-time recruiter for the first time in its history and now conducts an average of 25 interviews a week to court prospective employees. The company could also turn to temp agencies, but that would cost 35% more, Schuman said, and the workers who come in often lack long-term commitment because they do not have much personal stake in the business.

To retain workers, Hammond's has handed out random quarterly bonuses, provided surprise lunches and snacks, and offered flexible hours for employees to see a doctor or pick up their kids from school. "We've done everything we can to keep people," he said.

Labor of love

Small candy and chocolate makers claim one of their advantages over deep-pocketed CPG giants like Hershey or Mars Wrigley is their ability to pivot quickly.

Boyer's Forgione credits the company's experienced executive team. Because many have been at Boyer for years — including his mother and brother — they have a better handle on where the business is positioned and what products will be in demand in the coming months.

"We use experience to stay ahead of the market," Forgione said.

Selarnick said Frankford's unique and ever-changing product portfolio has played a key role in helping it navigate the market turmoil. Its lineup includes more than 100 branded items, such as Dunkin' iced coffee-flavored jelly beans, a hot chocolate bomb line, and Krabby Patties gummies. These products help Frankford stand out from the competition while also giving it the flexibility to prioritize producing items with higher margins.

Unlike some competitors, Selarnick said Frankford's stable, unionized workforce has largely eliminated the threat of worker shortages. But he still worries about the next 12 months as he prepares for rising costs on everything from shipping to fuel.

"When you build a business model ... you have to set aside a certain amount for anticipated expenses," Selarnick said. "In this environment, you add an extra portion to that because you have to make sure you have enough coverage."

Because many small candy companies have been run by the same families for years, ensuring the business survives is a matter of both personal pride and carrying on a deep family legacy.

Atkinson acknowledged that while "there are easier ways to make money," taking over from his grandfather and keeping the business thriving "is truly a labor of love."

At Boyer, CEO Forgione said the company has little choice but to adapt.

"It's a family business. It's either succeed or fail," Forgione said. "We don't hesitate to order millions of dollars of commodities because there are only two outcomes: the company either thrives or it struggles, either way."