Cadbury and Hershey plan more price hikes as cocoa prices grow

Chocolate makers had been passing the rising costs of cocoa on to consumers without losing much demand. File picture

Chocolate makers Cadbury and Hershey 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 roughly doubled over the past year, hitting a series of record highs in recent weeks due to shrinking supplies. Chocolate makers had been passing the rising costs on to consumers without losing much demand. 

But shoppers are cutting back to a greater degree than they did last year, Hershey and Cadbury maker Mondelez disclosed in recent quarterly earnings calls, hurting their outlooks for sales. Hershey chief executive Michele Buck said last week that "given where cocoa prices are, we will be using every tool in our toolbox, including pricing, as a way to manage the business".

Consumers bought fewer Hershey products, with sales volumes down 6.6% in the three months to the end of December, a trend executives forecast will continue this year. The company is cutting jobs to try to control its costs. 

Hershey executives said last week that its latest price hike went into effect this month. Mr Buck said on the call that Hershey's will be leaning on new products, like its Reese's Caramel Big Cup, to stoke consumer demand.

Mondelez, which makes Cadbury chocolates, is also planning price hikes to cover the inflation in cocoa, executives said in an earnings call last month. Retailers in Europe may push back against the hikes, leading to lower sales in the region, Mondelez executives have said. 

Prices of Mondelez chocolate in Europe, its biggest market, rose 12% to 15% last year, chief executive Dirk Van de Put said last month.  Michelle Li, an analyst with Parnassus Investments, said she thinks the company should be "strategic about passing the price increase to consumers this year". 

The company revamped its upscale Toblerone brand last year, launching Tiny Toblerone mini chocolate bars in some US retailers and Toblerone Truffles in Europe. Swiss chocolate maker Lindt 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." 

Reuters