Hershey and Cadbury, two renowned chocolate makers, are considering implementing price hikes to offset the impact of soaring cocoa prices. Cocoa prices have experienced a significant surge, reaching record highs, which has prompted Hershey and Cadbury to contemplate price increases. Over the past year, cocoa prices have approximately doubled, primarily due to dwindling supplies. While chocolate makers have previously passed on rising costs to consumers without significant demand reduction, the current situation is different.
Inflation has compelled consumers to cut back on their chocolate purchases to a greater extent than in previous years, affecting the sales outlook for both Hershey and Cadbury. Hershey’s sales volumes declined by 6.6% in the quarter ending December 31, with consumers buying fewer Kisses and Reese’s cups. This trend is expected to continue in the coming year, leading Hershey to implement cost-cutting measures, including job cuts.
Given the current cocoa prices, Hershey and Cadbury are exploring various strategies, including pricing adjustments, to manage their businesses effectively. Hershey’s CEO, Michele Buck, stated that they would utilise every tool at their disposal, including pricing, to navigate the challenging environment. Hershey recently implemented a price hike, and Cadbury’s parent company, Mondelez, also plans to raise prices to cover cocoa inflation.
While chocolate makers aim to pass on the increased costs to consumers, there may be resistance from retailers, particularly in Europe, which could lead to lower sales in the region. Mondelez executives have expressed concerns about potential pushback from European retailers. To mitigate the impact, Mondelez may need to be strategic in implementing price increases and consider other measures to maintain consumer demand.
RTM Watch’s Take
The surge in cocoa prices poses significant challenges for Hershey and Cadbury, forcing them to consider price hikes to sustain profitability. However, the success of these price increases will depend on consumer acceptance and the ability to balance affordability with maintaining demand. It remains to be seen how consumers will respond to these adjustments and whether alternative strategies, such as product innovation, will be necessary to stimulate demand.
