Did you know that almost half of pet owners love their cat or dog more than their partners? We are not the ones making this claim (because we secretly think figures should be more!) but this startling revelation emerged in a recent survey done by Dr James Greenwood, practicing and resident vet on ITV’s The Pet Show, along with pet food producer Webbox. Well, keeping in mind the growing importance of pets in their owners’ lives, it would be a smart move to make more space in stores for pet food and care products to make the best of this comparatively untapped market.
Pet households’ numbers in the UK have been on the rise, particularly post-pandemic and post Instagram. Today, there are approximately 13.5 million dogs as pets with 36 per cent of households owning a dog. There are approximately 12.5 million pet cats with 29 per cent of all households having a cat.
With such affection towards pets also comes the need to care for them.
Brits love their furry friends and go a long way in keeping them healthy and happy. According to Statista, this cost them £6.70 a week with £2.8 spent on pet food, £1.4 on pet purchase and accessories and a further £2.5 on veterinary and other services for pets.
The UK dog food market alone is valued at £1.6 billion with cat food not far behind at £1.27bn, states recent data from Statista.
There was a time when most pets once got by on little more than table scraps, and whatever extra they could hunt or scavenge. Today, things are quite different. The love humans have for their pet means some pets now eat better, sometime even better than their owners do.
The verdict is clear- pet food and care section in convenience is a great way to grow sales. In fact, it holds a massive room for growth, considering that most pet owners still opt for supermarkets or specialist stores for this need.
Noteworthy here is convenience is paramount for pet owners too who often balance work, family, and pet care responsibilities. Convenience stores positioned within neighborhoods can serve as accessible hubs for these busy individuals, providing a nearby destination to stock up on pet food alongside other essentials.
By integrating pet food into their product offerings, convenience stores can elevate their role as indispensable community resources, meeting the diverse needs of residents in a single location.
Good news here is that pet food represents a resilient category, with steady demand even during economic fluctuations. Mars Petcare is the leading name in this section with brands like Cesar, Whiskas, Sheba, James Wellbeloved, Pedigree, Eukanuba and more.
For Pawfect pals
In 2021, the leading dog food brand in the country by retail sales revenue in convenience stores was Pedigree. That year, Pedigree generated approximately £24.6m worth of sales. The leading competitor was Bakers, which generated approximately £11.3m that year in convenience stores.
Pet owners today are spoilt for choices as there are several types of dog food available in the market.
Dry dog food is the most popular type of dog food and is available in various formulas, including puppy food, adult food, and senior dog food. It comes in different sizes, shapes, and flavours. Some popular dog food brands include Royal Canin, Orijen, and Hill’s Science Diet.
Wet dog food is another popular type of dog food that comes in a variety of flavours and textures. This type of dog food is typically made with higher moisture content and has a soft texture. Some popular brands of wet dog food include Pedigree, Almo Nature, and Lily’s Kitchen.
Keeping in mind the caring nature of pet owners, it is wise to stock the range keeping in mind the common allergens and pets’ dietary requirements as well.
Grain-free dog food is a popular choice for dog owners who want to feed their dogs a diet that is free from grains and other potential allergens. Some popular brands of grain-free dog food include Taste of the Wild, Canidae, and Wellness.
Similarly, limited-ingredient dog food is designed for dogs that have food sensitivities or allergies. Limited ingredient dog food contains a limited number of ingredients, making it easier to identify potential allergens. Some popular brands of limited-ingredient dog food include Natural Balance, Blue Buffalo Basics, and Nutro Limited Ingredient Diet.
Raw dog food is a relatively new type of dog food that is gaining popularity among dog owners who want to feed their dogs a natural, unprocessed diet. Raw dog food is made with raw meat, bones, and vegetables, and is often sold frozen or refrigerated. Some popular brands of raw dog food include Nature’s Variety, Primal Pet Foods, and Stella & Chewy’s.
By offering a selection of dry dog food, wet dog food, grain-free dog food, limited-ingredient dog food, and raw dog food, c-stores can cater to the needs of different breeds, sizes, and dietary requirements, thus providing customers with the best possible options for their furry friends.
Apart from regular leading wholesalers, Quayside Wholesale is also one of the names to look upon if a retailer wants to stock a perfect and updated range in this aisle.
Retailers must also consider stocking Dr Veneta’s new four-strong portfolio of freeze-dried nuggets whose avant-garde nutritional makeup prioritise the ongoing health of dog’s microbiome, where 84 per cent of its all-important immune system resides.
Freeze-dried thinking has in recent times has become the nutritious benchmark within premium tier K9 nutrition, a best-of-both-worlds proposition that combines the nutritional vitality of raw with the ‘everyday appeal’ of convenient, ambient stored kibbles.
With Dr Veneta’s unflinching commitment to 80 per cent meat or fish supplemented with minimally-processed human-grade fruit, veg and herbs, this stylish looking portfolio seeks to go one step further than its incumbent freeze-dried peers by insisting upon the inclusion of a fermented yeast collagen and beneficial botanicals which further elevates support for dogs’ underlying gut health.
Dr Veneta told Asian Trader, “As an active veterinary practitioner, my team and I see so many morbidly obese and nutritionally bereft dogs for whom a nutritionally well-rounded diet could make the world of difference.”
Apart from dog food, dog treat is also a high-yielding product line which is usually bought on impulse.
Lily’s Kitchen Beef Mini Burgers, Bonio Bitesize Meaty Chip, Skipper's Salmon Skin Flatties Dog Treats, Bounce and Bella Grain Free Dog Training Treats, Pets Purest Nibbles Bundle, Pets Purest Natural Peanut Butter and Lords & Labradors Natural Graze Essential Box are some interesting brands to consider.
For Feline friends
The rate of cat ownership is increasing, leading to various companies providing more cat food options with custom-made dry and wet cat foods based on cat age and health. In 2022, cat food accounted for 35.8 per cent of the pet food market in the UK and experienced a 23.4 per cent increase between 2017 and 2022. This growth can be primarily attributed to the rising cat population and the increasing number of pet owners.
The treats segment is the second largest in the UK cat food market. Treats are given to cats in addition to regular food to provide additional health benefits, such as aiding digestion and promoting healthy skin and coat.
According to Statista, the leading cat food brand in the country by retail sales revenue in convenience stores was Felix in 2021 while the leading competitor was Whiskas.
Some of the other well-known wet cat food brands to keep on the shelf are Felix, Iams Delights, Lily's Kitchen, Scrumbles, Purina andBlink!.
HiLife CAT Pouchesis also a popular and highly rated cat food brand in the UK. These pouches contain a range of meat chunks in a delicious gravy sauce that will appeal to even the pickiest of feline eaters.
Cats are often regarded as low-effort pets. And one of the crucial parts of their diet is dry food. Some leading dry cat food brands to consider are Royal Canin, Scrumbles, Tippaws, Fat Cat Slim, Iams For Vitality and Hill's Science Plan.
Another must-stock brand to consider here is Tiana cat food, the world’s first halal-approved cat food range made with best-in-class human-grade ingredients using state-of-the-art, freeze-dried technology.
Burns Pet Nutrition has branched out and launched a new range of dry food for cats. The four tasty new vet-developed foods are Kitten Chicken & Rice, Adult Cat Chicken & Brown Rice, Turkey & Brown Rice and Sensitive Duck & Potato.
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Burns Kitten Chicken & Rice is a complete, hypoallergenic diet that has been created specifically for supporting healthy growth and development while for For adult and senior cats.
Vet and founder of Burns Pet Nutrition, John Burns MBE, said at the time of the launch, “We are really delighted to be launching our new range of dry cat food, which has been developed to provide all the nutritional support needed to keep kittens and cats healthy.
“We pride ourselves on making high-quality and healthy food for our furry family members and our new range does exactly that. The fussiest of feline food connoisseurs will be meowing for more!”
Lancashire pet food manufacturer Pets Choice has invested £500,000 in a new multi-channel campaign to generate awareness for its growing cat and dog food brand, Webbox Naturals. The new campaign will see the product advertised on television for the first time, accompanied by the launch of refreshed packaging.
Redesigned product packaging now includes a satisfaction guarantee, promising owners a 100 per cent refund if their pet isn’t satisfied with the food. All products within the range contain natural ingredients to promote health and joy for pets of all life stages.
Did you know?
Race is on to produce a new generation of pet food products that don’t rely on farmed animals. A British brand specialising in pet food made with lab-grown meat is launching what it claims to be the world’s very first cans of cat food using cultivated chicken as the protein source.
Meatly – formerly known as Good Dog Food – is bringing to market what it claims to be the world’s first cans of cat food that use cultivated chicken as the protein source.
More precisely, chicken eggs have been used as the “raw material” to reconstitute what looks like a chicken fillet. The can will also have seaweed and plant proteins, supplied by Omni, a brand already known in the UK for producing plant-based dog and cat food.
But before retailers can stock them, there’s one final hurdle which is the approval by the UK’s Department for Environment, Food and Rural Affairs.
Another important aspect to keep in mind is pet owners are finicky and tend to make responsible buying decisions. They are expected to stick to a particular brand too as they don’t want their pets’ eating habits to be disturbed.
Health, obviously, is on top of their minds.
One survey of UK pet owners by Mintel found that 60 per cent prioritize health benefits in selecting pet foods. Another UK dog owner survey’s results suggested that the quality of the dog food is their top criteria in selecting a product.
One of the main trends in pet food is humanization or making pet food look and taste like human food. This includes using similar ingredients, names, and aromas. Another trend is premiumisation, which includes using premium ingredients and traceability.
Like human food, a trend toward natural product values continues to be strong in dog and cat food, with a focus on no artificial ingredients.
Did you also know that the cat and dog treat market is one of the fastest expanding areas in the pet food industry?
Year-on-year, it increases in value and volume, so it’s a highly lucrative sphere for retailers to focus on. Unsurprisingly, the emphasis on humanisation and premiumisation has transmuted into pet treats as well. As a result, pet owners can now buy their cat a beer, or treat their dog to crisps, popcorn and even muffins!
From Purrs to Profits
Merchandising pet food in a convenience store requires strategic placement, attractive displays, and understanding the needs of pet owners.
Place popular pet food brands and products at eye level, making them easily visible and accessible to customers. This increases the chances of impulse purchases. Organise pet food products by category (e.g., dry food, wet food, treats) and by pet type (e.g., dog, cat, small animals). Clear signage can help customers quickly find what they need.
Pair pet food with related products such as pet accessories, toys, or grooming supplies. Offer samples or demos of new or popular pet food products. Implement special promotions, discounts, or loyalty programs for pet food purchases.
Regularly solicit feedback from customers about their pet food needs and preferences. Use this information to adjust product selection and merchandising strategies accordingly. Providing informational materials about pet nutrition, health, and care near the pet food display can also help in generating the trust of owners towards the store.
Studies have shown that pet shoppers are some of the highest spenders in convenience stores – spending 50 per cent more than the average customer, and yet 77 per cent of pet owners don’tpurchase their pet food in their local shops. This means the category is a huge untapped opportunity.
The choices are endless. As a pet owner, the sheer level of consumer choice can be overwhelming. Terms like “complete” and “nutritionally balanced” shout out at them from brightly coloured packaging in the pet food aisle so use signage a lot.
In a category as overwhelming as pet food and care, a little handholding can go a far way.
The Retail Solutions division of Vital Pet stands at the forefront of this industry, providing a comprehensive selection of pet products from renowned brands, ensuring that retailers can offer their customers the best products available.
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The insight from its experts can come in handy for retailers who want to take the lead and effectively drive sales year on year within the pet category.
Sunny Sharma, director at Vital Pet, says, "The mission of our Retail Solutions division here at Vital Pet is to empower retailers by providing them with a wide range of high-quality pet foods, toys & accessories. We understand the importance of offering diverse options to meet the unique requirements and preferences of pets, and we are dedicated to supporting retailers in meeting the needs of their customers."
With purchasing agreements with over 200 manufacturers, the Retail Solutions team claims to deliver unmatched value, reliability and have access to the products retailers need, when they need them. Additionally, retailers who work with them can look forward to exclusive, innovative products from global category leaders, including new-to-the-UK ranges.
Pet owners lead busy lives, juggling work, errands, and pet care responsibilities. They need a one-stop shop where they can quickly pick up everything they need, including food for their beloved pets. By offering pet food alongside their traditional lineup of products, convenience stores can become go-to destinations for pet owners seeking convenience and efficiency. No longer do they have to make a separate trip to a pet store or supermarket – they can simply swing by their local convenience store and grab everything they need in a flash.
It's not just about convenience; it's also about community. In areas with a high concentration of pet-loving residents, stocking pet food can be a game-changer, fostering a sense of connection and loyalty within the community. Plus, it's a smart business move. By diversifying the product offerings to include pet food, convenience stores can tap into this lucrative market segment thus attracting a whole new customer base and their loyal furry friends.
Ashton Primary School in Preston has teamed up with SPAR during the season of goodwill to donate delicious food to the city’s Foxton Centre.
The school’s Year 3 class enjoyed a cookery session baking pear and chocolate crumbles to take down to the Foxton Homeless Day Centre as a pre-Christmas treat for people who access its services.
Ingredients for the crumbles were supplied by James Hall & Co. Ltd and the children also received SPAR recipe cards to recreate the recipe at home with nutritional guidance from the University of Central Lancashire’s Dietetics department.
It is the second time that Ashton Primary School and SPAR through James Hall & Co. Ltd have collaborated on a project after a Pumpkin and Carrot Soup cookery session in October.
Norman Payne, Year 3 teacher and Deputy Headteacher at Ashton Primary School, said: “This has been a heartwarming project to be part of during the festive season. Learning how to cook is a valuable life skill and I know the children enjoyed the sessions.
“We are thankful to SPAR for their support with supplying the ingredients and the recipe cards, and it was lovely to be able to visit the centre which does a wonderful job of supporting homeless people in the city.”
Wilf Whittle, Trading Controller at James Hall & Co. Ltd, said: “After the Halloween collaboration with Ashton Primary School, it was a lovely idea to do something a bit more indulgent around Christmas while still utilising fresh and seasonal products with the pears.
“SPAR is a community retailer and we are very happy to support initiatives like this that give something back, particularly when there is an educational element woven into the project.”
James Hall & Co. Ltd is a fifth-generation family business which serves a network of independent SPAR retailers and company-owned SPAR stores across Northern England six days a week from its base at Bowland View in Preston.
Cadbury’s has not been granted a royal warrant for the first time in 170 years after it got dropped from King Charles’s list of warrants.
Queen Victoria first awarded Cadbury with the title in 1854 which was then repeated by the late Queen Elizabeth II in 1955 who was a huge lover of the chocolate.
Following the decision, the look of Cadbury products is expected to be undergoing a significant change
Cadbury told The Sun, "Yes, practically this means that we will remove the Royal Arms from all of our packaging.
"However to be clear, there will be no change to the iconic Cadbury purple which is not by Royal appointment. Cadbury purple has been used for Cadbury chocolate products for more than a century and is synonymous with the brand, this won’t change."
The reason for sudden the removal of the royal title is not known but Cadbury is not the only company to lose such an endorsement.
Another big brand missing from the list is Unilever, which manufactures goods including Marmite, Magnum ice-cream bars and Pot Noodles.
Apart from Cadbury's and Unilever, 100 other companies had their title removed by the Monarch. Luxury chocolate maker Charbonnel et Walker Ltd has also been bumped from the list since the last under Queen Elizabeth II’s name in April 2023.
Those who have lost their warrants were told of the decision by letter, but not informed of the reason.
They have 12 months to remove any royal warrant-associated branding from their items.
The King released the list of the 400 companies that received his royal warrant this year, including includes 386 companies previously holding warrants bestowed by his mother, Queen Elizabeth II.
These range from the official 'suppliers of Martini Vermouth', Bacardi-Martini, to Command Pest Control Ltd, Dunelm for soft furnishings, Foodspeed for milk, Kellogg's for cereals, florist Lottie Longman, and McIlhenny as the official supplier of Tabasco hot sauce.
Each warrant is granted for up to five years at a time. The king first issued warrants in 1980, when he was Prince of Wales.
Some firms gained warrants for the first time, including those connected with Queen Camilla. They include hairdresser Jo Hansford and Wartski jewellers. The latter made the king and queen’s wedding rings when they got married in April 2005.
Plans to convert a vacant South Shields pub into a convenience store have been given the green light, despite objections from CAMRA beer campaigners.
South Tyneside Council’s planning department has approved an application for The Jolly Steward site in the borough’s Harton ward.
Plans from One Stop Stores Limited, a major retail convenience business, were submitted earlier this year in a bid to change part of the site at Fulwell Avenue into a retail use.
A planning application submitted to council officials described the site as a “vacant former public house” and noted the new development would create jobs, including three full-time employees and 10 part-time roles.
The development aimed to convert the pub into a retail shop with ancillary staff residential accommodation to the first floor, alterations to the building’s elevations, new ramp structures at entrances and a new air conditioning and refrigeration plant to the rear.
Proposed external alterations to the building included new windows, doors, ramps and signage, as well as “infilling” some windows and doors.
A total of 14 car parking spaces were also proposed, including three resident car parking spaces, two staff parking spaces and nine customer car parking spaces (including two disabled parking bays), along with four cycle spaces.
During a council consultation exercise on the plan, a single objection was submitted from CAMRA (Campaign for Real Ale) about the loss of the pub as a ‘community asset’ and campaigners said there was “no justification” from developers on this issue.
The CAMRA representation, included in a council report, added: “If running the Jolly Stewart as a public house is currently ‘unviable’ for the current owner, could it be viable for another operator?
“Change of use should only be considered once meaningful attempts to market this community facility as a going concern have been made, at a realistic market price, for a suitable length of time and following suitable consultation with the local community.”
A petition with seven signatories was also submitted to the council in support of the shop conversion proposal, describing the development as a “welcome addition to the wider community”.
The petition said that the proposal would “not result in a significant increase in traffic to the area due to the close walking proximity the shop’s location will provide”.
After considering the planning application and assessing it against planning policies, South Tyneside Council’s planning department approved it on 13 December.
Council planners, in a council decision report, said The Jolly Steward pub had “stopped trading and the land is no longer being used”.
Council planners noted the proposed shop would “serve a primarily local catchment” and that the gross floorspace proposed was “modest in size and reflective of the size of unit likely to be suited to a small convenience store serving a local catchment”.
The council decision report added: “It is considered that the sequential test is satisfied in this instance and that there would be no significant harm to the vitality and viability of the borough’s defined centres subject to a condition restricting the range of goods that can be sold from the premises to primarily convenience goods only.
“Furthermore, the proposal would result in the re-use of a currently vacant building and would provide social and economic benefits (such as additional jobs) to the immediate vicinity and wider borough.”
Council planners also said the plans would be acceptable in terms of design, highway safety and deliveries and that there would be no “unacceptable impacts on the amenities or privacy of the occupiers of any neighbouring properties.”
Under planning conditions, the development must be brought forward within three years.
Proposed opening hours for the shop at the site will be 7am-10pm, seven days a week.
(Local Democracy Reporting Service)
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Vino Convenience Store on Metheringham High Street
A shop in a village near Lincoln has had its premises licence revoked after police discovered an illegal worker being paid below the minimum wage.
Lincolnshire Police officers urged North Kesteven District Council’s alcohol and entertainment licensing sub-committee to revoke the licence for Vino Convenience Store on Metheringham High Street during a review on Tuesday (17 December).
The committee heard that management had been “operating in such a manner that amounts to criminal activity”.
Officers first carried out a compliance check on 21 March, where they found no evidence of a written policy to prevent alcohol sales to under-18s or staff training related to that policy.
Although management claimed in an email sent on 4 April, that outstanding issues had been resolved, a follow-up visit on 10 October, revealed otherwise.
Upon entering the store, officers questioned the Designated Premises Supervisor (DPS), who stated she had never seen a policy or received any training and was, in fact, looking after the store “as a favour”.
Police then returned to the store a few hours later that day to find a male worker and inquired about his right-to-work status.
It then transpired that he was not allowed to work in that role and that he was paid around £600 a month with no payslip for working approximately 20 hours a week.
“Our inquiries found that he arrived in the UK under a skilled working visa in health and social care and had worked for a period of time in this field. But at the time of this encounter, he no longer worked for the sponsor and had no right to work in the shop,” a representative from the force said.
Mr Sureshkanth Arumugam took over the licence for the property in October 2023 alongside Thanusha Kaliyaperumal. Mr Arumugam is also listed as the license holder for two other businesses in the North Kesteven area – Ashgrove Convenience Store in Dorrington and Crescent Store in Leasingham.
In April 2023, officers visited the store in Dorrington, where they encountered a male behind the counter whose English was poor. Following this, checks were made with the Home Office Immigration Compliance and Enforcement team, which confirmed he was an illegal worker who could have been arrested.
This demonstrated how the illegal worker found at Vino Convenience Store was “not a one-off”.
Other issues found with the store in Metheringham included non-compliant age verification signage and alcohol seen on shelves with no price markings. Officers also insisted that “recent intelligence” has found the store is selling vapes to a 14-year-old.
Ian Holland, who attended the review in support of Mr Arumugam, stated: “I’ve known Suresh for about six years now and he’s always been an excellent man.”
He claimed that he has witnessed staff in the Leasingham store checking ID for restricted items and also highlighted how the licence holder was paying for the illegal worker’s rent and food, explaining why he was only being paid £600 a month.
Mr Arumugam claimed he believed the man had the right to work there but later admitted he had “made a mistake.” He also insisted he was “verbally training” staff in selling age-restricted items.
(Local Democracy Reporting Service)
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Cocoa beans are pictured next to a warehouse at the village of Atroni, near Sunyani, Ghana April 11, 2019
Behind a record surge in cocoa prices this year, a corner of financial markets that drives the cost of chocolate underwent a seismic shift: the hedge funds that oiled its workings headed for the exit.
Confectionery prices, from candy bars to hot chocolate, are heavily influenced by futures contracts for cocoa beans. These financial instruments, traded in London and New York, allow cocoa buyers and sellers to determine a price for the commodity, forming a benchmark for sales across the world.
In the middle of last year, hedge funds - a class of investors that use privately pooled money to make speculative bets - started pulling back from trading cocoa futures because price swings in the market were raising their cost of trading and making it harder to make profits.
They accelerated their retreat in the first half of this year as cocoa prices hit a record in April, driven by supply issues in West Africa, according to Reuters calculations based on data from the US Commodity Trading Futures Commission (CFTC), which oversees the New York market, and ICE Futures Europe, an exchange that compiles figures for trading in London.
"This market became increasingly volatile," said Razvan Remsing, director of investment solutions at Aspect Capital, a $9.3 billion London-based fund that uses coding and algorithms to find trades. "Our system's response was to trim our positions."
Aspect slashed the exposure to cocoa in its Diversified Fund from nearly 5 per cent of its net asset value in January to less than one percent after April, according to a presentation reviewed by Reuters.
REUTERS
The departure of hedge funds and other speculators caused liquidity in the market to slump, making it harder to buy and sell, stoking volatility to record highs and fueling the price spike still further.
Reuters spoke to a dozen fund executives, cocoa market brokers and traders who said the retreat has left lasting strains on the market. That has resulted in greater gaps between the price at which cocoa can be bought and sold, and has prompted some industry players to seek alternative instruments, leaving a lasting impact on the sector.
This month, the number of futures contracts held globally at the end of a given trading day - a key indicator of market health known as "open interest" - hit its lowest since at least 2014, the global figures show, a sign the futures market overall has shrunk significantly. Data prior to 2014 was not available.
On Wednesday, New York cocoa futures prices topped their April peak.
The futures market is a crucial cog in the cocoa industry, allowing producers and chocolate companies to hedge their exposure to swings in the price of beans.
Futures dictate income for the farmers and low-income nations that produce the world's cocoa - the majority of which comes from Ghana and Ivory Coast in West Africa.
Hedge funds and speculators have become bigger players in commodity markets over the past two decades as the value of their overall assets has grown. But, as purely financial investors, they have no need to remain in the market at times of stress.
The impact of hedge funds' exit illustrates how reliant trading has become on these lightly regulated funds that increasingly shape financial markets. Reuters has reported this year on how hedge funds are piling into the euro zone's $10 trillion government bond market, drawing regulatory scrutiny, and on their growing sway in European stock trading.
Contacted by Reuters, the CFTC declined to comment. A representative for Britain's regulator, the Financial Conduct Authority, said that, in line with its market supervision practice, "we have been working with trading venues and participants to monitor the orderliness of the market."
Bernhard Tröster, an economist at the Austrian Foundation for Development Research (ÖFSE) in Vienna, who last year co-authored a paper on the growing role of financial actors in commodities derivatives markets, said the withdrawal of hedge funds had helped fuel the crisis in cocoa markets.
"When markets became so volatile this year, it was clear how hedge funds and other financial actors have become so important," he said.
Supply issues hit prices
Hedge funds and other speculators' share of the market peaked at 36 per cent in May 2023, the highest in at least a decade, after which their retreat began, the global data calculated by Reuters show.
Then, at the start of this year, global cocoa prices soared after top producer Ivory Coast was hit by adverse weather and disease. Number two producer Ghana fared even worse, with smuggling, illegal gold mining on cocoa farms and sector mismanagement added to the mix.
In early February, cocoa prices surpassed a previous record high set in 1977. Executives at five hedge funds told Reuters they began to withdraw as volatility grew and the cost of trading increased.
When markets become too hot, exchanges require speculators to increase the amount of collateral they put down per futures contract, raising their costs. Lawrence Abrams, president of Absolute Return Capital Management in Chicago, said the cost of trading a single cocoa futures contract soared from $1,980 in January to $25,971 by June.
High prices and volatility, combined with falling liquidity, began to affect "our system's trading and risk management decisions," Abrams said, whose fund sold out before prices peaked in April. He declined to detail how much his fund managed, citing regulatory reasons.
Ripe cocoa pods grow on a tree at a farm in Assin Foso, Ghana, November 20, 2024REUTERS/Francis Kokoroko/File Photo
Many hedge funds promise investors they will not exceed a certain amount of risk, meaning that if a certain market becomes too volatile they have to reduce their exposure.
The difference between prices offered and sought for futures, the so-called "bid-ask spread", soared following the hedge funds' withdrawal. That has made trading harder: lower liquidity and wider spreads mean traders struggle to execute large trades without moving overall prices.
"You need speculators," said Vladimir Zientek, a trading associate at brokerage firm StoneX, referring to hedge funds, which are not among his clients. "Without speculators in the market, you lose a lot of liquidity, which allows for these very wide and erratic market swings."
By mid-April, New York contracts CCc1 hit a then-record above $12,000, up three-fold from January, prompting hedge funds to sell down their positions.
"Trends don't last forever," said Remsing at Aspect Capital. "Stay too long in size and you stand to give back all your gains."
Hedge funds' share of the cocoa futures market dropped to 7 per cent in late May, its lowest in at least a decade, the global data show.
One European broker, who requested anonymity to discuss clients' trades, said that panic in the market increased in March and April as liquidity drained away.
Volatility in cocoa futures hit an all-time high in May, up five-fold from a year earlier, according to data from the London Stock Exchange Group (LSEG).
Daily average price swings that month neared $800, some 15 times the levels of a year earlier, according to a Reuters analysis of figures from market data provider PortaraCQG.
Riskier markets
For major trading houses that buy and sell cocoa beans - a group that includes Singapore's Olam, Switzerland’s Barry Callebaut, and US-based Cargill - the liquidity drain and associated price surge exacerbated the more than-$1 billion dollar hit they took on their futures positions.
The losses came earlier this year after Ghana, following a disastrous harvest in the October 2023 to September 2024 season, delayed delivery on nearly half the beans the nation had pledged to sell, upsetting cocoa traders' futures market strategies.
These traders typically use futures to lock in prices achieved for cocoa beans, or to hedge against the risk of falling prices.
But that strategy unraveled as Ghana delayed its deliveries. Traders were forced to liquidate, at steep losses, short positions for the month of expected delivery, and take new short positions.
REUTERS
The market turmoil has prompted some trading houses and producers to seek alternatives to futures.
Australian investment bank Macquarie, a big player in commodity markets, told Reuters it sold over-the-counter products to trading houses, processors and chocolate makers when cocoa volatility hit record levels this year, and demand remains high.
One major agri-commodities trader is now using such bespoke contracts, according to a source who requested anonymity citing sensitive commercial relationships. They declined to comment on the magnitude of the business.
Such products typically protect buyers against narrower price swings than is possible with futures, limiting their use, a European broker said, declining to be identified to freely discuss clients' activity.
'Cocoa tourists'
Some hedge funds have returned to the market. Along with other speculators that trade using investors' cash, they accounted for 22 per cent of futures trading this month, according to the global data. But buying and selling in the cocoa market's altered landscape has become harder.
Zientek, the trading associate at StoneX, said bid-ask spreads can now top 20 "ticks" - $200 per contract - compared to about 2-4 ticks before cocoa's rally to record highs.
"This makes larger orders tougher to execute without seeing an immediate distortion in the market," he said.
Daniel Mackenzie, managing director of Cocoa Hub, a UK-based company that sources and sells cocoa beans to artisan chocolate makers, said higher and more volatile prices were forcing small and medium-sized makers to decide between passing costs to clients or reducing product sizes.
One chocolate maker he worked with has been shuttered and another sold, he said, without providing further details.
As hedge funds exited, short-term investors such as day-traders – which buy and sell assets within a single trading day – have stayed in the market, the European broker and the broker at the agri-commodities bank said.
The cohort that includes day-traders this month accounted for 5 per cent of the market, about the same as the start of the year, the global data show.
Day-traders cannot fulfill the liquidity-provision role traditionally played by hedge funds, the two brokers said.
"I like to call them 'cocoa tourists' - they move in, hold a position for a day or two, then move out," the European broker said.