Under supply chain pressure, small and medium-sized American candy makers are forced to restructure their operations

For makers of candies like Chick-O-Stick, Slo Poke, and Mary Jane, these are good times for the candy industry—provided they can find enough workers to make their products.

Atkinson Candy's product sales have grown fivefold since 2019, but the 90-year-old company's workforce has halved over the same period. Some machinists left the family business, lured by higher pay in industries like oil and gas. Eric Atkinson, the company's 68-year-old CEO, told Food Dive that workers who make the handmade candies are especially hard to keep because they are often drawn to generous government assistance programs.

Because of the labor shortage, 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 them at all. Its CEO said the labor shortage was so severe in 2021 that the company lost millions of dollars in sales solely because it did not have enough workers.

Describing the stress of lost sales, Atkinson said, "It's like hearing nails on a chalkboard."

Rethinking how they do business

Atkinson is not alone. Executives at small and midsize candy companies say they are being buffeted by a host of challenges, including higher shipping costs, labor shortages, and raw material deliveries that often come up short of what was promised.

"We're in a time where we have to rethink how we do business," Joe Colyn, a partner at JPG Resources, told Food Dive. Colyn helps source ingredients for the firm's bakery and confectionery clients.

The problems affecting candy makers' businesses, profits, and even survival are not new. They have weathered wars, recessions, depressions, and supply disruptions.

But the CEOs interviewed say the severity of so many issues hitting at once is forcing them to rethink how they operate and overhaul key parts of their businesses that have largely gone unchanged for decades. That spans everything from how they recruit and retain workers to when and how much they buy ingredients or packaging in advance.

Small and midsize chocolate and candy companies make up a significant portion of the National Confectioners Association's (NCA) 600 member companies, about half of which are manufacturers. These companies range from family businesses that have been around for decades to startups just getting off the ground.

"There's no question that the challenges facing the industry—supply chain, inflation, labor shortages, broad pandemic impacts, etc.—are hitting small and midsize companies disproportionately harder than their larger counterparts," Carly Schildhaus, a spokesperson for the trade group, said in an email to Food Dive.

Daniel McCarthy, an assistant professor of marketing at Emory University, suggested that some of the smaller players in the category should take advantage of opportunities to raise money from investors or take on manageable debt to play defense. He said these companies should also manage their balance sheets carefully, watch their spending closely, and raise prices like their larger consumer packaged goods rivals.

"One advantage they have over the larger industry is that the cost of their products is inherently lower," McCarthy noted. A 20% increase in the price of candy is much easier for consumers to swallow than a similar jump in something like a car. "In that sense, they're in a more defensive position."

Atkinson's candy business is being squeezed by rising costs for everything from sugar to peanuts—where costs are up more than 20%—and he has passed some of those higher costs on to consumers by raising prices. The most recent increase came last week.

"We're trying to maintain a small margin, but most of our products were already losing money or close to it," he said.

Despite the difficulties, chocolate and candy sales remain strong, which is helping to partially offset higher expenses and labor challenges. According to the NCA's State of Treating report, chocolate and candy sales rose 11% in 2021 from the prior year, and Schildhaus noted the category is again "performing well" this year.

Back to the future

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

Boyer Candy Company in Pennsylvania, maker of Mallo Cup and Clark Bar, is thriving in the current environment. Its president and CEO, Anthony Forgione II, told Food Dive the company is ordering ingredients further in advance and leaning on the decades of experience of its top executives, many of whom have been at the 86-year-old company for decades.

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

Boyer, which used to order corn syrup two weeks out, now locks in supply three months ahead based on historical forecasts, he said. The company is taking a similar buy-ahead approach with sugar and peanuts.

Colyn of JPG Partners said the firm is encouraging small businesses to connect with their ingredient suppliers more often—as frequently as once a week—to maintain relationships and better communicate long-term needs in an environment where some materials are volatile and uncertain.

Atkinson said shortages related to Russia's invasion of Ukraine have led his company to cut back on sunflower lecithin from that country—an ingredient used in making caramels, toffees, and peanut butter candies. He hopes the company can get the ingredient from other places, including India. If it can't, the company may have to go back to soybean oil, which it stopped using because it is an allergen. Changing the recipe now would require printing new wrappers that list the new ingredient, a reprint that could cost hundreds of thousands of dollars, and discarding unused old wrappers, Atkinson said.

To save costs, Atkinson has bought more ingredients that don't spoil quickly. Its efforts extend to packaging, where the company has stockpiled wrappers, cartons, 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 the price is because the alternative is shutting down, and that's not acceptable to us."

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

The milk chocolate shortage—driven by surging consumer demand and challenges like labor shortages and difficulty sourcing ingredients at its suppliers—is highly unusual. Selarnick said it's the first time he's had trouble getting the ingredient since he joined the company in 1987.

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

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 pretty well," he said.

But like countless businesses of all sizes across the country, Hammond's has faced its share of challenges recently, especially when it comes to finding and keeping workers.

"The labor market is a buyer's market right now because they're 'buying' the job from you, and they can go anywhere they want," Schuman said.

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

In May, the company hired its first full-time recruiter in its history and now conducts an average of 25 interviews a week to find prospective employees. Schuman said the company could also turn to temp agencies, but they cost 35% more and those temporary workers often don't have the personal investment in the business to stay motivated long-term.

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

A labor of love

Small candy and chocolate makers say their ability to pivot quickly is an advantage over deep-pocketed consumer packaged goods giants like Hershey or Mars Wrigley.

Boyer's Forgione credits his company's experienced executive team. Because many have been at Boyer for years—including his mother and brother—they are better able to gauge where the business is headed and what demand will look like for products in the coming months.

"We're using our experience to get ahead of the market," Forgione said.

Selarnick said Frankford's unique and ever-changing product portfolio has been key 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 giving it the flexibility to prioritize higher-margin items.

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