Chocolate addicts take note: it's likely to grow more expensive to satisfy your already expensive addiction.
Chocolate addicts take note: it's likely to grow more expensive to satisfy your already expensive addiction. (Photo : by Matt Cardy/Getty Images)
Navigating Rising Ingredient Costs
In February, while releasing its most recent financial results, the Hershey Co. stated that it anticipated record-high cocoa prices and rising sugar costs would hinder its earnings growth. The company plans to offset the pain by hiking pricing partially.
Chief Financial Officer Steve Voskuil stated on the results call that Hershey boosted the price of sweets for Valentine's Day and Easter in 2022, then raised the price of chocolate generally in mid-2023, before implementing minor price increases on a few supermarket and food service goods in February.
The company that owns Chips Ahoy, Mondelez International, is also planning price increases and the Belgian chocolate brand Côte d'Or.
Although sugar prices are also on the rise, in 2023 an average Hershey bar cost $1.79, and the component accounted for less than 3.4 cents, or 2%, of that amount, according to the American Sugar Alliance, a national alliance of farmers of sugarbeet and sugarcane.
Customers of the Mondelez brand in the US are waiting for sales and buying less frequently in response to rising chocolate costs.
The National Confectioners Association's (NCA) most recent research confirmed the executive's opinions. According to the trade association, Americans spent $19.3 billion on chocolate at supermarket and convenience stores last year, 5.8% more than the year before, but 5.4% fewer than the year before.
According to an NCA analysis, "fewer consumers perceive chocolate and candy to be as affordable as it has been traditionally," which makes sales promotions a stronger driver.
Major cocoa processors, such as Blommer Chocolate Company, a division of Japanese cocoa processor Fuji Oil Holdings, and Switzerland's Barry Callebaut, are demonstrating the obstacles facing the sector. Both are terminating employees and closing production facilities.
In late February, the CEO of Barry Callebaut informed the German daily Handelsblatt that the chocolate manufacturer will eliminate around 2,500 positions, or 19% of its personnel, over the next 18 months.
The cost of cocoa, which is used to produce chocolate, has increased by 150% in only a year, and is currently at or close to all-time highs on international markets. Extreme weather is the primary cause of the rise. The majority of the world's cocoa is cultivated in West African nations, but due to torrential rains, there has been a production deficit for the past three years.
The primary component in chocolate, cocoa, is sourced from cacao plants in Ghana, Ivory Coast, Nigeria, and Cameroon for around 75% of the world's supply. In recent months, severe winds have caused dust to obstruct light necessary for bean pods to grow-a season that followed heavy rainfall that dispersed a rotting disease.
The International Cocoa Organization's February market report states that supply constraints from major suppliers, Ghana and Ivory Coast, continue to be a major cause for worry over high cocoa prices. Noting that older trees are yielding poorer cacao, the committee also forecasts considerable output decreases from bad weather and illnesses in top-producing nations.
Because businesses hedge their pricing and contract for supply up to a year ahead of time, consumers have not yet completely felt the effect of the record-high cocoa costs.
