Rich cocoa prices hitting shoppers

Sweet Easter baskets will likely come at a bitter cost this year for consumers as the price of cocoa climbs to record highs.

Cocoa futures have surged this year, roughly doubling since the start of 2024. Rising temperatures and weather conditions have stressed and damaged crops in West Africa, which produces more than 70 per cent of the global cocoa supply.

Sugar prices are also rising. Futures for a pound of sugar are up about 8.0 per cent in 2024, after rising 2.7 per cent in 2023.

Big chocolate companies like Hershey’s and Cadbury maker Mondelez have been passing those costs on to consumers – and then some: Hershey’s net profit margins ticked higher to 16.7 per cent in 2023 from 15.8 per cent in 2022. Mondelez reported a jump to 13.8 per cent in 2023 from 8.6 per cent in 2022.

Both companies reported shrinking sales volumes for their most recent quarters as consumers grow tired of paying higher prices.

The National Retail Federation expects a drop in spending on Easter this year, though the total figure still remains high by historical standards. Its latest survey shows that consumers are expected to spend US$3.1 billion on candy this Easter, or US$24.78 per person. That’s down from US$3.3 billion, or US$26.31 per person a year ago.

Mondelez, which owns Easter basket staple Cadbury, has been relying on price increases to counter the surge in cocoa prices. The company has said it commands a 13 per cent share in the global chocolate market. It acknowledged price increases of up to 15 per cent within its chocolate category in 2023, and higher prices will likely be a key factor in meeting revenue growth forecasts for up to five per cent in 2024.

“Pricing is clearly a key component of this plan,” said Luca Zaramella, chief financial officer at Mondelez, in an conference call in January. “Its contribution will be a little bit less than we have seen in 2023, but it is higher than an average year.”

Hershey raised prices on chocolate overall last year as inflation surged, and said it increased prices on some grocery and food service items early in 2024. It expects sales growth of up to three per cent this year.

The company has said it is committed to raising prices in order to cover inflation, though most of it is carry-over from previous increases.

The cost of candy and other sweets rose 5.8 per cent in February compared with a year ago, according to the government’s latest report on consumer prices. Increases have been hovering around that level since late into 2023.

Inflation has been cooling overall, but is still hotter than economists had hoped for at this point in 2024. Analysts are growing increasingly worried about the impact of stubbornly high inflation and high interest rates on consumer spending and overall economic growth.

AP