Dirk Van de Put, the chairman and chief executive officer of Mondelez International, Inc., said chocolate volume continues to grow despite record costs for cocoa ingredients.
In an interview with investment analysts on April 30 regarding Mondelez’s first-quarter financial results, Van de Put gave half of his comments on his perspectives on the cocoa market and why Mondelez is positioned to weather the current disruption in the market. During this call, the dynamics of the cocoa market and the company’s expectations for a price break in the second half of 2024 were also the subjects of considerable discussion between executives and analysts.
Van de Put said: “We’re playing for the long term in chocolate because it is fundamentally a great category, with very high brand loyalty and low private label penetration. And within this great category, our business is strong and agile.”
With record highs in cash and futures prices “generating substantial discussion,” Mondelez is confident in its prospects due to its commodity purchasing strategies, price approaches, and the company’s supply chain and strong brands.
While discussing the topics one at a time, Van de Put said Mondelez is fully prepared for 2024 and is “well-protected heading into 2025.” He stated: “Our teams continue to monitor the market very closely to put ourselves in the best position possible. While poor weather and other factors on the supply and demand side have driven prices to unprecedented levels, we believe there will eventually be a market adjustment. We are confident that our teams are putting in place the right strategies to provide future flexibility.”
Amid higher costs, Mondelez employs “sound price strategies” that Van de Put said focus on “headline pricing” and revenue growth management. The company balances its needs to ensure it “maintains solid volume dynamics.”
Regarding the supply chain, Van de Put said that “continuity remains our top priority,” and expressed confidence in the company’s supply chain and external partners. The brand lineup includes “some of the strongest, most iconic chocolate brands in the world,” including Cadbury, Dairy Milk, Marabou, Freia, Lacta, and Côte d’Or.
“These brands already are the leaders in numerous key markets, and we are well positioned to accelerate growth in emerging markets,” Van de Put stated.
Research continues to show that consumers remain very loyal to the Mondelez brands, in part because the role of chocolate in their lives is more than incidental.
“In our annual State of Snacking survey conducted in partnership with The Harris Poll, 72% of consumers across 12 countries said that a world without chocolate would be a world without joy,” Van de Put stated. “Nearly 60% said that they would rather give up social media for a month than give up chocolate.”
When asked if Mondelez will hold off rather than taking further coverage at current inflated deferred prices, Lua Zaramella, executive vice president and chief financial officer, said: “We truly believe that current cocoa prices are the results of a series of accidental circumstances that over time, we believe, should go away,” and added: “I think you all know that the main crop last year was problematic. But as you might have read from multiple sources, the mid-crop is already looking much better. However, on the demand side, the industry went slightly shorter than usual regarding coverage. Now, out of necessity to replenish minimum stocks, it supports the current high prices.
In this context, the current market structure does not warrant the current market prices. So the question becomes, when is the correction going to take place? The answer is in September or October as the data for the new crop becomes available. We cannot stay still until then. We will have to protect ourselves, but our implementation strategy for 2025 is around flexibility.”
He stated that the company had purchased call options at “very affordable prices,” and that, should a correction happen, Mondelez would be ready to take advantage of lower prices.
Even with these perspectives, Zaramella said that no one should expect cocoa inflation to be averted in 2025. “The reality is, in 2024, we are covered at materially better prices than the current market,” he said.
When asked whether the company has a plan if the currency cocoa prices were to be sustained, Zaramella stated it was “absolutely critical for us to get ready for cocoa staying at these levels.”
He also noted that cocoa market prices are inverted relative to the position of the spot market.
“Even today, we could potentially get physical coverage into 2025 but at cheaper prices than the current spot price,” he stated. Rest assured that, as a company, we are looking at all possible scenarios.
