Both Mondelēz International and Hershey have issued warnings that the persistent high cocoa prices are expected to have a negative impact on their businesses until 2025.
Dirk Van de Put, CEO of Mondelēz, stated that the company is currently facing challenges due to the “unprecedented cocoa cost inflation.” The company anticipates a 10% decrease in adjusted earnings per share in 2025 due to higher cocoa prices and inflation.
Van de Put hinted at the possibility of raising prices later this year or in 2026 if cocoa costs remain high. Despite this, he reassured investors that the demand for chocolate among consumers remains strong.
“Our strategy is to safeguard the category’s well-being, protect our market share, and preserve our brand investments,” Van de Put explained. “While cocoa prices are expected to remain elevated, they are likely to decrease from their current levels in the future.”
Over the past few years, cocoa prices have more than doubled, attributed to weather conditions, diseases, and increased consumer demand.
The surge in cocoa prices has posed a challenge for confectionery manufacturers, according to Erin Lash, a consumer equity research director at Morningstar.
Chocolate sales hit a record $21.4 billion last year, with 65% of consumers enjoying confectionery products, as per an October report from the National Confectioners Association.
Hershey’s CEO, Michele Buck, expressed optimism about the cocoa crop, with almost half of the company’s production now sourced from regions other than Ivory Coast and Ghana. Hershey has also diversified its supply chain and invested in West Africa.
“However, there is a disconnect between market fundamentals and prices,” Buck pointed out.
The soaring cocoa prices have led to a global demand for cocoa alternatives, with some consumers exploring other options. “While we are open to alternatives, we are committed to our brands and their values among consumers,” the CEO emphasized.
Analysts believe that companies like Hershey will be able to navigate through the challenges posed by cocoa prices.
Brittany Quatrochi, an analyst at Edward Jones, acknowledged that higher cocoa costs may impact Hershey’s earnings growth in the short term but remains optimistic about the company’s long-term prospects.
Hershey, Mondelēz, Nestlé, and other cocoa users have invested significantly in improving the livelihoods of cocoa producers and enhancing production in sourcing regions. There is also a growing interest in cultivating cocoa in laboratory settings.
Mondelēz’s SnackFutures Ventures, the company’s venture capital division, participated in a $4.5 million funding round for Celleste Bio in December, a company specializing in cell-cultured cocoa ingredients.
Buck mentioned that Hershey is closely monitoring advancements in cellular agriculture, noting the substantial investments in this area. She believes it could revolutionize the industry in the long run.