BNR – Chocolate manufacturers, including renowned names like Hershey and Mondelez, are navigating a more challenging trading landscape next year. They endeavour to pass on the burden of surging cocoa prices to budget-conscious consumers who are adopting frugal spending practices.
Cocoa Costs Pose Challenges for Industry
In recent years, the confectionery sector has revelled in profits, buoyed by resilient chocolate demand even during price escalations.
However, data scrutinised by Reuters reveals an emerging trend that could potentially disrupt this success story. This coincides with cocoa prices soaring to levels unseen in 46 years and sugar prices surging to decade-high figures.
Consumers in Europe and North America have already borne witness to a substantial 20% surge in chocolate prices.
In response, they are exhibiting signs of restraint, with data illustrating a reduction in chocolate consumption among these regions.
Mondelez CEO, Dirk Van de Put, noted that consumers are adopting a more discerning approach, seeking cost-effective options.
In anticipation of ongoing inflation in cocoa and sugar costs, Mondelez has undertaken hedging measures to optimise productivity.
Highlighting the situation, Mondelez CFO Luca Zaramella stated that the surge in sugar and cocoa costs holds considerable significance. Zaramella added that 2022 has witnessed a probable increase of over 30% or even more, particularly in cocoa costs.
Chocolate Makers to Balance Rising Costs and Profit Margins
However, the culmination of over two years of upward price trajectories is prompting retailers to push back, thereby engendering a contentious dynamic that poses a threat to chocolatiers’ profit margins and overall financial viability.
Evidently, the intensifying clash has led to instances like Mondelez’s decision to remove Cadbury and Milka bars from the shelves of Belgian supermarket chain Colruyt, following failed price negotiations.
Barclays analyst Patrick Folan underscored the intricate nature of the unfolding scenario.
He cautioned against overly optimistic assumptions about chocolate makers’ ability to freely dictate pricing strategies. The complex interplay between rising costs and consumer spending habits is shaping an uncertain path for a once-prosperous industry.