Cacao for Cocoa Puffs

How the high price of chocolate has Hershey's and Mondelez adapting

Author

Ahmed Saeed
April 07, 2024

Sponsored by

So, in case you didn’t notice, chocolate prices are near/at all time highs.

We’re giving you the clear-think on how Hershey’s, Lindt, and Cadbury are handling this expected/unexpected crisis.

Let’s dig in.

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1. Cocoa prices are up…way up

2. It’s a gut punch to top-line margins, because of headaches in supply chains and energy expenditures.

3. Be ready to pay the same price for smaller packaging, etc.

The Cacao Price hike

We tried summarizing, but we’re going to let Kate Gibson from CBS News do the work here…

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.

Kate Gibson, CBS News

If that didn’t work, here’s a graph:

What are the biggest challenges here?

The answer to that has many parts:

  1. Cacao plants take a long time to mature: This isn’t a simple crop yield that’ll be fixed in the next harvest cycle. Companies will have to source new suppliers, and build new relationships in different parts of the world.

  2. Supply chain issues: Aside from tapping other suppliers, the major producers besides Brazil typically don’t have big dairy industries , so the raw product needs to be processed elsewhere. That means adjusting the supply chain for processing candy, ice cream, etc.

  3. Added Energy expenditures: Chocolate needs to be kept cool, so while trying to adjust the supply chain to buy chocolate from other parts of the world, there also needs to be climate control at each step of the way.

What are companies doing right now?

  1. Stockpiling: Companies like Lindt and Mondelez saw this coming, so they stockpiled cheap cocoa; they’re only hedged for a limited time, though.

  2. Smaller format: Same price, smaller package, usually.

  3. Efficiencies: Lindt, in particular, plans to make efficiencies in manufacturing to drive down cost as much as possible.

What does the future look like for chocolate?

  1. Chocolate is going to get more expensive for the next 12 months at least: Obvious result, but when commodities rise to unseen levels, it’s a 1-2 punch on profit margins. We don’t know cacao harvest seasons, but we’ll start to see hope if Ghana/Ivory Coast have a consistent disease-free crop yield.

  2. More ‘Chocolate as luxury’ marketing: Some company out there is definitely going to try and market the scarcity of cacao; possibly bringing on a whole host of ‘luxuries’ afforded to us by global warming.

  3. More non-chocolate candies as flagship items: Get ready companies getting creative with the whole ‘gummy bear gummy worm’ crap.

What AI Made This Week

Sick Fits by Ahmed

Gianni Agnelli was the principal of a car company called Fiat.

But for most people today, he’s known for wrapping his wristwatches around his cuff.

Big industrialist. Bigger style icon.

Have a great week!

Ahmed and Peter

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