While large chocolate makers like Mondelez, Hershey’s and Nestle – which cater to a huge set of consumers and derive gains from volume growth – stand to get impacted the most, home-grown bean-to-bar chocolate makers, biscuit manufacturers and bakeries using cocoa derivatives, like cocoa butter and cocoa powder, will also have to take a hit.
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“Bulk chocolate makers source cocoa from around the world and usually buy them at discounted rates. Now, with cocoa prices getting multiplied, it will be a big hit for them as the consumers they service are price sensitive. They cannot go beyond a certain threshold while pricing their products. Companies will have to operate at depressed margins,” said an industry executive who liked the rise in cocoa prices to a “bloodbath.” This week, cocoa prices surpassed $10,000 a ton for the first time.
Companies, industry sources say, do not have enough inventory to last them for a long time and will have to source cocoa at higher prices – if they continue to stay elevated in the coming months.
“Even if they have an inventory of cocoa beans for say six months, they will need cocoa butter which will also get expensive,” said Vikas Temani, business head at Kochi-based bean-to-bar chocolate brand Paul and Mike, which is already in the process of rolling out about a 5% price hike in the next two weeks. The local arms of Hershey’s, Mondelez, Ferrero and Nestle did not respond to queries.
Market research firm GlobalData estimates cocoa supply to fall around 8% in the 2023-24 season compared to the previous 12 months, primarily on account of the supply disruption in Cote d’Ivoire and Ghana – two of the world’s biggest cocoa producing regions. Parle Products will wait until April end to make a decision on price hikes. Krishnarao Buddha, senior category head at Parle Products, said that the company will take price increases wherever necessary and will also absorb price hikes to the extent feasible.
“We have forward contracts booked for the next 2-3 months. The question is whether suppliers are honoring the contracts and until when… There is a rising concern in corporates about the disproportionate rise in cocoa prices,” Buddha said. While price hikes will take some time to get implemented, companies will first aim at reducing pack sizes and using FSSAI-approved substitutes for cocoa butter.
