Companies try to pass on rising raw material costs to consumers
[SHUTTERSTOCK]
After the high profitability of the last two years, during which the big chocolate manufacturers Hershey and Mondelez benefited from the high demand for high-end chocolate and cocoa, today the situation has been dragged out. Companies are trying to pass on rising raw material costs to consumers. The problem is that the latter, due to the ever-increasing cost of living, are cutting expenses, as reported by the Reuters news agency. And while the previous two years the demand seemed undeterred by the increase in the cost of cocoa, today the facts have changed. Its prices reached the highest levels in the last 46 years, while in the case of sugar the price is the highest in a decade. Consumers in Europe and North America have already seen price increases of nearly 20% over the past two years, so they are gradually cutting back on chocolates, according to data compiled on behalf of Reuters by market research firm Nielsen.
Consumers “shop around hoping to find deals,” Mondelez chief executive Dirk van de Putt said last month. The company in question, which also owns the well-known British chocolate company Cadbury, expects that inflation in the prices of cocoa and sugar will continue. “The rise in the price of sugar and cocoa in particular is significant,” Mondelez chief financial officer Luca Zaramela said in July. “We're probably talking about a 30% plus increase if we look closely at prices specifically in cocoa over at least the last 12 months.” However, after more than two years of higher prices, retail groups (such as supermarkets) are fighting back, leading to a battle with chocolate factories, putting their profit margins at risk. One such clash resulted in Mondelez previously pulling Cadbury and Milka chocolates from the shelves of Belgian supermarket chain Colruyt after failing to agree with it on prices.
Chocolatiers rely on traditional resilience of their product to price increases. Mondelez raised its annual revenue growth forecast in July, while Hershey revised its profit forecast upward. However, volume growth in Mondelez chocolates has weakened significantly this year – from 14.8% in the period from January 30 to February 25, to 3.2% in the period from June 26 to July 15 on a year-on-year basis. And that was, after all, despite keeping its price increases in the low double digits, according to a Bernstein analysis of Nielsen data obtained by Reuters.
