My dear chocolate

Chocolate companies are facing the problem of rising prices for raw materials, cocoa beans, in connection with which they shift the “costs” to lovers of sweets.

The chocolate industry has made strong profits over the past two years as demand for chocolate has not declined despite rising prices. However, according to Reuters, cocoa prices hit a 46-year high and sugar prices are close to their highest levels in more than a decade.

According to Nielsen, consumers in Europe and North America have already seen price increases of around 20% over the past two years and are starting to cut back on the amount of chocolate they buy.

Mondelez, famous chocolate maker Cadbury, expects cocoa and sugar price inflation to continue. “The rise in the price of sugar and cocoa is exorbitant,” Mondelez chief financial officer Luca Zaramella said in July. “We’re probably talking about a 30 percent increase if you look at the last 12 months or more, especially for cocoa.”

But after more than two years of rising prices, production is being readjusted, analysts say, as the unfavorable situation threatens chocolate producers’ margins and profitability. The chocolate industry has traditionally been characterized by resilient demand for its products, despite rising prices. Mondelez raised its full-year revenue guidance last month, while Hershey raised its earnings guidance.

However, growth in Mondelez chocolate production slowed significantly this year, from 14.8% in the 4 weeks to 25 February to 3.2% in the 4 weeks to 15 July on an annualized basis. In addition, Hershey’s sales have declined as the company has raised prices.

Changing consumption habits
“We’re seeing consumers starting to react more than before and I would be very careful about raising prices,” said IRI’s Dan Sadler. “Chocolate is not being swept off the shelves as quickly as it used to be.”

Barry Callebaut, the world’s largest chocolate manufacturer supplying most of the major brands including Nestle does not expect an increase in sales this year. Sales of the treat have reportedly fallen 2.7% over the past seven months.

Shoppers are switching to cheaper chocolate
Meanwhile, cheaper private label chocolate continues to gain market share. In the US, private label sales rose nearly 9% year-on-year through mid-June, despite nearly double-digit price increases, according to IRI.

The cost of raw materials (cocoa beans) has an impact on price increases. In fact, the trend may continue next year due to unfavorable weather conditions in the places of their production and cultivation, i.e. in West Africa. In addition, the problem is exacerbated by the lack of alternative cocoa producers.

Leading cocoa growers in Côte d’Ivoire and Ghana have struggled over the past two years with drought, heavy rains and pests (diseases and insects) affecting cocoa trees. Recall that both countries together make up two thirds of world production.

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