The Impact of Rising Cocoa Prices on Consumer Goods Inflation

Impact of cocoa prices on chocolate and consumer goods

Rising cocoa prices are significantly impacting chocolate manufacturers like Hershey and Mondelez, leading to increased consumer prices and smaller product sizes. Companies may struggle to fully pass on these costs, potentially affecting profitability and sustaining inflation in consumer goods.

"The rising cost of cocoa will continue to impact publicly traded chocolate makers such as %HersheyCo (NYSE:HSY) and %Mondelez (NASDAQ:MDLZ), who in turn pass the cost onto consumers." --- (MDLZ, press release, 2024/07/15)

"I'm just curious if that's still a reasonable number. And then I guess, second, more broadly, there's been a lot of attention paid to cocoa, obviously, but coffee inflation has been fairly notable as well." --- (KHC, earning call, 2024/Q1)

"The steep rise in the price of cocoa, which is the active ingredient in chocolate, has led to price increases for candy and reduced the size of chocolate bars." --- (MDLZ, press release, 2024/07/15)

"It is possible that we may not be able to increase prices sufficiently to fully cover the incremental costs of cocoa prices in this environment and/or our hedging strategies may not protect us from increases in cocoa costs, which could result in a significant impact on our profitability." --- (MDLZ, sec filing, 2024/Q1)

"In particular, we expect to face higher cocoa costs, as the market price for cocoa beans has increased significantly year-over-year and it is likely that prices will remain elevated for some time. Refer to Commodity Trends for additional information." --- (MDLZ, sec filing, 2024/Q1)

Company strategies in response to cocoa price hikes

Companies are adopting diverse pricing strategies to mitigate the impact of rising cocoa prices. Mondelez is adjusting price points and product offerings while maintaining a favorable cocoa pipeline. Kraft Heinz focuses on holding prices below inflation and providing various price points to ensure consumer access to products.

"And I think you're going to see going forward a much more balanced strategy in terms of what price point we are going to cover, particularly in the U. S. And again, given the much better supply chain we have these days, we're going to hit the market with these new packs and price points fairly soon." --- (MDLZ, conference, 2024/06/13)

"And as a result of greater productivity and efficiencies, we have been able to hold prices below inflation this year while continuing to invest in innovation, marketing and R&D." --- (KHC, earning call, 2024/Q2)

"It is important to note that the impact of cost inflation will be a more significant headwind in the remaining quarters than what we saw in Q1 as a result of our favorable cocoa pipeline compared to the current market prices." --- (MDLZ, earning call, 2024/Q1)

"We want to make sure we have different price points in which we can come in to consumers and allow them to make sure they continue to enjoy our products." --- (KHC, earning call, 2024/Q2)

"There might still be a temporary dislocation, but reality is we will be priced at the level that is materially higher than the pre crisis cocoa price, which used to be £1,600,000, £1,800 per ton versus the more than £8,000 you see today." --- (MDLZ, conference, 2024/06/13)

Consumer behavior changes due to rising cocoa prices

Rising cocoa prices are prompting consumers to seek value, with many expressing concerns over food price increases amid existing inflation. Despite these challenges, U.S. consumers show resilience, adapting their shopping habits while retailers navigate the balance between catering to high-end consumers and maintaining affordability.

"Consumer groups have raised concerns about potential food price increases at a time when people are already struggling with inflation and high interest rates." --- (WMT, press release, 2024/07/26)

"More specifically, U.S. consumers continue to exhibit a high degree of resilience in the face of multiple challenges, including a rapid rise in prices and interest rates over the last few years." --- (TGT, earning call, 2025/Q1)

"And I think what's happening is that there is a high end consumer that even though they're doing well, they're still going to be shopping more and looking for more places in which they can satisfy the value mentality." --- (KHC, conference, 2024/05/30)

"So I guess the question is and this is happening at a time when other retailers are maybe doubling down on opening price point and are not seeing a stable consumer. So I guess my question is, how do you maintain the balance of being known for price and value and convenience too, but also welcoming these higher income consumers? And is that a delicate balance that you think about?" --- (WMT, event transcript, 2024/06/07)

"Consumers remain surprisingly resilient despite a challenging backdrop of significantly elevated prices compared to just a few years ago." --- (TGT, earning call, 2025/Q1)

Economic implications of rising cocoa prices

Rising cocoa prices are impacting consumer goods inflation by tightening supply and affecting margins. Companies like Bunge and ADM highlight that while revenues fluctuate with commodity prices, margins remain a key performance indicator, suggesting that cost management is crucial in this challenging environment.

"So, that's been pretty resilient on the food side. And then with the lower price, we've seen some improvement on the energy demand as well. And then lastly, as I was talking about on the tropical side, we've definitely been a benefit of the tighter cocoa butter supply with our cocoa butter equivalents, and helping some of our customers solve problems on the supply side and/or lowering their cost for -- when they reformulate into our products. So, the team has been doing a great job, the technical team and the execution team, working with our customers as they're deal with a little bit of a challenging environment. Salvator Tiano: Thank you very much." --- (BG, earning call, 2024/Q2)

"During periods of significant changes in commodity prices, the underlying performance of the Company is better evaluated by looking at margins because both revenues and cost of products sold, particularly in Ag Services and Oilseeds, generally have a relatively equal impact from market price changes, which generally result in an insignificant impact to gross profit." --- (ADM, sec filing, 2024/Q1)

"During periods of significant changes in commodity prices, management believes that margins can be a helpful indicator of the Company’s underlying performance because both revenues and cost of products sold, particularly in Ag Services and Oilseeds, generally have a relatively equal impact from commodity price changes, which generally result in an insignificant impact to gross profit." --- (ADM, sec filing, 2024/Q2)

"Revenues decreased $2.9 billion to $22.2 billion due to lower sales prices ($3.6 billion), partially offset by higher sales volumes ($0.7 billion)." --- (ADM, sec filing, 2024/Q2)

Future outlook for cocoa prices and inflation

Future cocoa prices are expected to remain volatile, impacting consumer goods inflation. Companies like Mondelez are adapting with pricing strategies to stabilize access for consumers, while broader economic factors, including government inflation policies, will also play a crucial role in shaping the market landscape.

"Our overall outlook for future snacks revenue growth remains strong; however, we anticipate ongoing volatility." --- (MDLZ, sec filing, 2024/Q1)

"I think the government's priorities right now is to fight inflation. And that was the whole plan. So they don't have a lot of room to maneuver to change something because the moment you divide, you change the exchange rate, everything is translated into prices." --- (ADM, earning call, 2024/Q2)

"And then we're going to hit the market with new packs, particularly at entry level prices like $3 And so we will allow consumers really to get into a much more stable territory." --- (MDLZ, conference, 2024/06/13)