Attention all chocoholics: Brace yourselves! Indulging in your favorite sweet treat, which is already on the expensive side, is about to become even pricier.
The Hershey Co. is anticipating record-high cocoa prices, prompting CEO Michele Buck to state, "Given where cocoa prices are, we will be using every tool in our toolbox, including pricing, as a way to manage the business," during a discussion with analysts.
What's the Future of Chocolate Prices?
Hershey initiated price increases for Valentine's Day and Easter in 2022, followed by a broader increase in chocolate prices in mid-2023. In February, the company introduced small price hikes on select grocery and food service items, as revealed by Chief Financial Officer Steve Voskuil during an earnings call.
Similar price hikes are on the horizon at Mondelez International, the parent company of popular brands like Chips Ahoy! cookies and Côte d'Or chocolate. Mondelez also holds the rights to the iconic Cadbury brand, which Hershey acquired the U.S. license for in 1988.
Cocoa Prices on the Rise
The rising cost of cocoa is expected to significantly impact chocolate prices in 2024, according to statements made by Mondelez International's CFO Luca Zaramella during the company's recent earnings call. Zaramella indicated that chocolate prices will play a major role in overall pricing, with anticipated increases surpassing the typical annual hikes, although likely not as high as the up to 15% spikes seen in 2023.
"For the third consecutive year, prices are continuing to climb, especially in the chocolate sector," added Mondelez International CEO Dirk Van de Put.
Changing Consumer Behavior
In response to the higher chocolate prices, customers of Mondelez brands in the U.S. are adjusting their buying habits by seeking out deals and making fewer purchases. Van de Put noted a trend of downsizing to smaller product formats and purchasing more frequently in response to the price hikes. The reduction in pandemic-related food benefits for low-income families has also impacted chocolate sales, according to the CEO.
Industry Challenges
Recent data from the National Confectioners Association (NCA) highlighted the financial impact of these shifting consumer behaviors. While Americans spent more on chocolate in 2023 compared to the previous year, they bought less of the sweet treat overall. Sales promotions have become increasingly important as consumers perceive chocolate and candy as less affordable than before, as outlined in the NCA's report.
The challenges in the industry are also reflected in the actions of major cocoa processors like Barry Callebaut and Blommer Chocolate Company, both of which are closing manufacturing plants and laying off employees in response to the changing market dynamics.
Barry Callebaut CEO told the German newspaper Handelsblatt in late February that the chocolate maker would cut about 2,500 jobs, or 19% of its workforce, within the coming 18 months.
What's driving up chocolate prices?
The price of cocoa, which is used to make chocolate, is at or near all-time highs on global markets, with costs having soared 150% from a year ago. The main reason for the spike — extreme weather. Torrential rains in the West African countries where most of the world's cocoa is grown have resulted in a production shortfall going on its third straight year.
About three-quarters of the world's cocoa — the main ingredient in chocolate — comes from cacao trees in Ghana, Ivory Coast, Nigeria and Cameroon. Severe winds brought dust that blocked the light needed for bean pods to grow in recent months, a season after heavy rainfall spread a rotting disease.
Consumers have yet to fully feel the impact of the soaring cocoa prices, as companies are taking measures to mitigate the effects by hedging prices and securing supplies well in advance.
However, the increasing cost of chocolate has not gone unnoticed, with one shopper in Minnesota expressing her surprise at the price hike. Christy Schuth Ittel, shopping at Mackenthun's in Waconia, mentioned to CBS Minnesota before Easter that the price of M&M's had risen from $2.50 to $4.
Despite the price increase, Ittel remains undeterred in her holiday candy purchases. "I will still buy it, for sure," she affirmed.
