Hershey, Mondelez eye price hikes to cover cocoa crunch

The makers of Hershey and Cadbury chocolates 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 execuitve 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 Kisses and Reese's cups last year, with Hershey's sales volumes down 6.6 per cent in the quarter ended December 31, a trend executives forecast will continue this year. The company is cutting jobs to try to control its costs.

A 10.8 ounce (306 grams) bag of Kisses sells for $4.84 (£3.86) at Walmart.com. Hershey executives said last week that its latest price hike went into effect this month. 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 Milka and Cadbury chocolates, is also planning price hikes to cover the inflation in cocoa, executives said in an earnings call on January 30. Retailers in Europe may push back against the hikes, leading to lower sales in the region, Mondelez executives said.

Prices of Mondelez chocolate in Europe, its biggest market, rose 12 per cent to 15 per cent last year, chief executive Dirk Van de Put said last month in a call with Wall Street analysts.

Michelle Li, an analyst with Parnassus Investments, which holds Mondelez shares, said in an email 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. A 7.61-ounce package of Tiny Toblerone sells for $6.58 on Walmart.com. A 3.52 ounce Toblerone bar costs $2.84 on Walmart.com.

"Last year chocolate companies were fairly well hedged. They had some stockpiled cheap cocoa as well, but this rally has been going on for well over a year so a lot of these companies are beginning to be fully exposed to these higher cocoa prices,” said Rabobank cocoa analyst Paul Joules.

Swiss truffle maker Lindt & Sprungli 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)