There’s some bad news for chocolate lovers in the New Jersey tri-state area. The price of cocoa is on the rise and that means your favorite locally made chocolates from companies like Hershey’s and Mars could soon be increasing too.
Major chocolate manufacturers like Hershey and Mondelez face increasingly difficult trading conditions in the coming year as they try to offset rising cocoa costs by raising prices for consumers who are starting to cut back.
Data from market researchers Nielsen IQ reveals that over the past two years, chocolate prices have increased by 13% in Europe and 20% in the United States, causing some consumers to buy less chocolate.
The industry previously enjoyed strong profits even as prices rose, but that trend may be reversing. Current cocoa prices have reached a 46-year high, while sugar prices are near their highest in over a decade. Mondelez CEO Dirk Van de Put said consumers are “shopping around more, hoping to find deals.”
Mondelez, maker of Cadbury chocolates, expects the upward trend in cocoa and sugar prices to persist. In preparation, the company has significantly hedged and is working to increase productivity. Retailers are starting to resist higher prices, putting the profit margins of chocolate companies at risk. For instance, Mondelez had to remove Cadbury and Milka bars from Belgian supermarket chain Colruyt’s shelves due to pricing disagreements.
Although chocolate makers are counting on their products’ traditional resilience to price hikes, recent data indicate weakening sales growth. A Bernstein analysis of Nielsen IQ data showed Mondelez’ chocolate sales volume growth has slowed substantially this year, and Hershey’s sales volumes are declining as well.
Lower-priced ‘private label’ chocolates are gaining market share, with sales volumes growing nearly 9% in the U.S. in the year to mid-June despite significant price increases. Hershey plans to rely on automation to reduce production costs, as it anticipates ongoing cost pressures from climate-related issues in West Africa, a major cocoa-producing region.
Rabobank suggests these cost pressures could extend into next year due to the El Nino weather event in West Africa and a lack of alternative cocoa producers. Top cocoa producers Ivory Coast and Ghana are already grappling with droughts, excessive rains, and diseases, adding to the challenges for the chocolate industry.