The top management teams of the world's two largest chocolate snack giants, The Hershey Company (HSY.US) and Mondelēz International (MDLZ.US), both said that as the price of cocoa, a commodity, has continued to rise in recent years, chocolate manufacturers may further increase the price of related snack products in the future. Cocoa prices have continued to soar since 2024, and current prices continue to hover near record highs. Mondelēz management expects the sales price of chocolate-type snacks to increase by up to 50%.
Although the price of chocolate-type snacks will inevitably rise sharply in line with cocoa prices, the two chocolate giants still expect sales to remain stable. At the same time, the rise in cocoa prices has put tremendous pressure on the stock prices of the two companies. Since 2024, the stock prices of the two companies have continued to underperform the US stock market - the S&P 500 index. However, the market's response to expectations of price increases has promoted a short-term recovery in the stock prices.
"We have taken and are taking proactive measures to respond to the current raw material price environment." Hershey Chief Financial Officer Steve Voskuil said in a speech at the Consumer Analysts Conference in New York on Tuesday local time.
Voskuil noted that most of the company's candy products sold in the U.S. last year saw "double-digit price increases" as inflation remained high. While the company traditionally does not comment on future price increases, he said in his speech: "As we look ahead and look at commodity trends, sales prices are going to be very important to us."
In another important speech at the same event, Mondelez International CEO Dirk VandePut said that as the manufacturer of Milka and Toblerone chocolate snack products, Mondelez is paying close attention to demand levels and is ready to implement "significant price increases" decisions.
VandePut added in his speech: "Consumers need to get used to chocolate snack products that are 30%, 40% or even 50% more expensive than in the past." He said that even if prices rise significantly, he expects sales to remain stable.
The pricing of chocolate snack products is in sharp contrast to the prices of other consumer goods. Under inflationary pressure, consumers' resistance to price increases has forced many retail companies to stop raising prices or even start offering discounts to clear excess inventory.
However, cocoa has nearly tripled in commodity market trading prices in the last year, putting pressure on chocolate-focused snack companies such as Mondelēz and Hershey's. In the past six months, Mondelez's stock price has fallen by nearly 14%, while Hershey's stock price has fallen by about 17%.
Strongly boosted by expectations of price increases, Hershey's stock price rose 3.2% as of the close of U.S. stocks on Tuesday, reaching its highest level in more than a month. Mondelēz shares rose about 0.6% on Tuesday. Last year in 2024, Hershey's stock price fell by 6.5%, and Mondelez's stock price fell by 15%, both significantly underperforming the S&P 500 index's 24% increase in the same period.
In 2024, cocoa’s price gains have outpaced those of all major global commodities, even outpacing gains in the U.S. stock market and Bitcoin. Prices have nearly tripled, soaring to an all-time high of $12,000 a ton as falling production in West Africa, the world's largest grain-growing region, led to massive supply shortages.
The rapid rise in cocoa prices is driven by several factors. First, adverse weather conditions in major producing countries such as Ivory Coast and Ghana, which account for nearly 70% of global production, coupled with crop diseases, have limited overall production. On top of this, low global inventories, soaring freight costs and years of underinvestment in cocoa cultivation have further exacerbated supply constraints. In the 2023-2024 cocoa season, the supply gap reaches 478,000 tons, the largest gap in more than 60 years. This marks the third consecutive year that the global cocoa market has been in deficit, increasing pressure on supply chains.
As we head into 2025, there are few signs that the tight supply and fragile trading conditions that have led to its near-vertical trajectory will be quickly fixed. Record warm ocean temperatures around the world "exacerbate the already fragile situation of West Africa's cocoa crops, which have been harmed by two years of extreme weather."