The producers of Hershey and Cadbury chocolates are planning more price hikes to cover a fresh record-setting surge in cocoa prices, even as inflation-hit consumers curb their purchases and company profits face a hit.
Cocoa prices have nearly doubled in the past year, reaching a string of all-time highs in recent weeks primarily due to dwindling supplies.
Chocolate makers had been passing on the rising costs to consumers without experiencing significant declines in demand.
However, shoppers are scaling back to a greater extent compared to last year, as revealed by Hershey and Cadbury maker Mondelez in their recent quarterly earnings calls, which is negatively impacting their sales forecasts.
Last week, Hershey CEO Michele Buck stated that, “Considering the current cocoa prices, we intend to utilize all available strategies, including pricing adjustments, to effectively manage our business.”
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Last year, consumers purchased fewer Kisses and Reese’s cups, resulting in a 6.6% decrease in Hershey’s sales volumes for the quarter ended December 31. Executives anticipate this trend will persist into the current year. In an effort to manage costs, the company is implementing job cuts.
A 10.8 ounce (306 grams) bag of Kisses is priced at $4.84 on Walmart.com. Hershey executives announced last week that their most recent price increase took effect this month. Buck mentioned during the call that Hershey’s plans to rely on new products, such as its Reese’s Caramel Big Cup, to stimulate consumer demand.
During an earnings call on January 30th, executives at Mondelez, the company behind Milka and Cadbury chocolates, revealed plans for price increases to offset cocoa inflation. Mondelez executives expressed concern that retailers in Europe might resist these hikes, potentially resulting in reduced sales within the region.
In a recent call with Wall Street analysts, CEO Dirk Van de Put disclosed that prices of Mondelez chocolate in Europe, its largest market, surged by 12% to 15% over the past year.
Michelle Li, an analyst with Parnassus Investments, which holds Mondelez shares, said in an email she thinks the company should be “strategic about passing the price increase to consumers this year.”
Last year, the company revamped its premium Toblerone brand, introducing Tiny Toblerone mini chocolate bars in select U.S. retailers and Toblerone Truffles in Europe. On Walmart.com, a 7.61-ounce package of Tiny Toblerone sells for $6.58, while a 3.52-ounce Toblerone bar costs $2.84.
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“Last year chocolate companies were fairly well hedged. They had some stockpiled cheap cocoa as well, but this rally has been going on for well over a year so a lot of these companies are beginning to be fully exposed to these higher cocoa prices,” said Rabobank cocoa analyst Paul Joules.
Swiss truffle maker Lindt & Sprungli is trying to compensate for rising cocoa costs by increasing efficiency as much as possible and through a “forward-looking purchasing strategy,” according to a company spokesperson.
“The remaining costs were subsequently passed on through price increases with the high cocoa price being the main reason for it,” the spokesperson added.
Dan Sadler, principal of client insights at market research firm Circana, said consumers would be choosier about buying chocolate as manufacturers hike prices again.
“Prices are not expected to relax anytime soon,” he said. “Chocolate candy confections have been insulated in inflationary times…but now it’s at a point where the affordability will be tested.”
