“Hershey and Mondelez Invest Heavily in Easter Amid Looming Cocoa Price Crisis” – Reuters

“Hershey and Mondelez Invest Heavily in Easter Amid Looming Cocoa Price Crisis” – Reuters

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© Reuters. Candy for sale is displayed on the shelves of a Target store in Manhattan in March, New York, U.S., March 6, 2024. REUTERS/Jessica DiNapoli/File Photo

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By Jessica DiNapoli, Maytaal Angel and Richa Naidu

NEW YORK/LONDON (Reuters) –

Hershey, Mondelez (NASDAQ:) and other candy makers are resorting to promotions and offering more non-chocolate Easter treats, like cream and cookie bunnies, at a time when soaring cocoa prices threaten their profits and where buyers balk at high prices.

With the decline in “impulse purchases” of chocolate and candy at convenience stores and at grocery checkout lines, according to industry data, special occasions like Easter and Halloween are increasingly important to business sales.

Cocoa prices have tripled in the past 12 months due to West Africa’s bean disease, which continues to worsen, meaning businesses are unlikely to get relief anytime soon. Sugar prices are also up about 7%.

Chocolate makers set out their Easter plans last year and announced they would raise prices again to cover the cocoa crisis. Companies face additional pressure on their profit margins as their hedges protecting raw material costs expire later this year and next.

But these price increases come at a delicate time, because consumers, tired of inflation, are already backing down.

This makes seasonal sales essential. Easter candy sales in the United States, the world’s largest chocolate consumer, are expected to at least reach last year’s total of about $5.4 billion, although that will be mainly due to rising prices and not volumes sold, according to the National Confectioners Association.

In the United States, Easter is the third-largest occasion for purchasing chocolate and candy, behind Halloween, followed by the winter holidays, according to the Confectioners’ Association.

“People will buy during the holidays, but they will eliminate impulse purchases” throughout the year, said David Branch, cocoa sector manager at the Wells Fargo Agri-Food Institute.

Data from the National Confectioners Association shows that last year, the volume of chocolate and candy sold for everyday occasions decreased by 3.6% compared to 2022. The volumes of chocolate and candy sold for seasonal occasions as Easter increased slightly by 0.1%.

The industry predicts that given the continued inflation of cocoa, the trend will continue.

Hershey is shipping more non-cocoa treats to retailers this Easter, in addition to its iconic chocolate Reese’s bunnies and eggs. It’s introducing a new six-pack of cookies ‘n’ cream bunnies, offering full-size Kit Kat lemon crunch bars and mixing Haribo gummy bears with chocolate bars in its assortment bags.

Hershey spokeswoman Allison Kleinfelter said consumers continue to buy seasonal products because parents want to preserve traditions like Easter baskets filled with chocolate bunnies and egg hunts.

The non-chocolate Easter deals have no connection with current cocoa prices, she added.

Simon Crowther, UK seasonal confectionery marketing director at Mondelez, told Reuters the Oreo biscuit maker had introduced a new ‘Cadbury Ultimate Egg’ range and a premium ‘Edgy Egg’ Toblerone aimed at older families. elderly and high-end buyers who might be more willing. splurge on chocolate.

PUSH INVENTORY

US retailers increased their discounts on Cadbury, Reese’s, Hershey’s, M&Ms and Lindt this Easter compared to last year, according to research analytics firm Dataweave.

Big box store Target and supermarket chain Kroger (NYSE:) are also offering deeper discounts on Easter candy this year compared to last year, according to the company. In early March, at Target in New York, mini Reese’s eggs were unwrapped, another new product for this season, and bunnies were buying one and getting one 50% off.

A Kroger spokesperson said the grocer has updated its strategy to include more frequent promotions on top-selling brands and package sizes.

John Ament, an independent consultant and former global vice president of cocoa at M&M’s maker Mars, said there is no doubt chocolate will see deeper discounts this Easter than last year because consumers are tired price increases.

Chocolate manufacturers have already increased their prices: “Easter will therefore be more expensive than last year and consumers will be less inclined to spend,” he said.

He added that this year’s vacation will be more difficult than 2023 due to hiking.

“The category will see slower, if any, growth in the coming year,” he said.

Chocolate companies tend to hedge their raw material purchases up to 12 months in advance, and with most of the rise in cocoa prices occurring this quarter, current chocolate manufacturing costs will be considered low at the end of the year.

Despite this, it is becoming increasingly difficult to impose price increases. Nielsen data shows the unit price of chocolate in the United States rose 10.4% in the year ending in early March, compared with a 14.3% rise in the same period a year earlier. early.

A Mondelez spokesperson told Reuters that as input costs rise this year, the company would consider not only raising prices but also “changing the unit weights” of its chocolates – a technique commonly known as “shrinkflation”.

“We have experienced strong increases in the price of chocolate for several years and we tend to see that the first year, the elasticity is good, the second year, it gets worse, and now we are in the third year, it “It’s going to be horrible,” said Jon Cox, an analyst at Kepler Cheuvreux.

He said high-end chocolatiers like Lindt would likely fare better because the already high markup on their chocolate means they might be able to raise prices less, in percentage terms, than mainstream chocolatiers .

But he added: “Even though they will be under pressure on sales volume, it will not be an easy year for them.”

Mainstream chocolatiers like Mondelez are also more likely to invest in non-cocoa brands, consultant Ament said. The Chicago-based company also sells crackers, cookies and other snacks.

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