Small chocolate firms likely to fare worse as cocoa prices climb

Morningstar DRBS said it expected consumers to change their spending patterns, as chocolate prices rise

Wed, 10 Apr, 2024 - 07:10

Eamon Quinn

Soaring cocoa prices this year will likely hit small craft chocolate producers hard, while the chocolate giants will be protected by the strength of their brands, a leading corporate ratings firm has warned.

Morningstar DRBS said it expected consumers to change their spending patterns, as chocolate prices rise and face paying for "products that contain less chocolate, and/or shrinking product sizes without shrinking prices".

“While global purveyors of fine chocolates and high-volume producers alike could experience some pressure on their operating performance as a result, we believe that their brand strength, customer loyalty, and pricing power should insulate them somewhat," said Aarti Magan, vice president, corporate ratings, at Morningstar.

"Smaller, local, bean-to-bar chocolatiers, however, are not expected to fare as well, given their smaller size and pricing power and limited regional footprint."

Meanwhile, global cocoa prices rose again in New York, with prices heading back toward a record high amid lingering fears about global shortages.

Prices climbed as much as 4% to head for a fourth straight increase. Prices have surged this year — recently exceeding $10,000 a ton — as poor West African harvests put the world on course for another annual deficit, threatening to further raise chocolate prices.

“West African near-term supply remains very tight at the start of the mid-crop harvest, and that has provided underlying support to the cocoa market,” the Hightower Report said. The crunch is making it harder and more expensive for the world’s chocolate makers to secure beans, with the parent of Godiva signaling it will raise prices due to soaring costs. Still, Barry Callebaut, which supplies some of the biggest consumer chocolate brands, on Wednesday indicated that it’s managing to weather the crisis and is so far “well covered” for supplies.