• by Danielle Oster , May 1, 2024

Global snack food giant Mondelez is among the companies affected by record-setting cocoa prices. According to J.P. Morgan Research, the increase is due to inflation caused by a global supply shortage, as well as what it characterizes as “chronic underinvestment in cocoa farms” and investor speculation.

But cocoa inflation didn’t impact the company’s positive outlook in reporting its Q1 2024 earnings late yesterday, or its investments in marketing and sustainability initiatives.

Mondelez reported a net revenue increase of 1.4% YOY for Q1.

“Despite facing a challenging and dynamic operating environment, our teams remained focused and agile in executing against our long-term growth strategy,” CEO  Dirk Van de Put said in a statement. “We continue to reinvest in our brands, drive distribution gains and capture synergies from recently acquired assets to drive sustainable long-term growth.”

On a call discussing the earnings report, Van de Put took time to address the cocoa issue.  “We are playing for the long term in chocolate because it is fundamentally a great category with very high brand loyalty and low private-label penetration,” he said. “Record costs for cocoa ingredients and the resulting current and future price increases for customers and consumers, obviously, are generating substantial discussion.”

Despite the “near-term headwind" of high prices, volume in the category continues to grow, and, “within this growing category, we remain structurally advantaged with large opportunities still ahead.” He explained the company’s confidence in its chocolate business can be attributed to its “ cocoa coverage strategies,” pricing strategy, supply chain, and “iconic brands” (which include Cadbury, Milka, and Toblerone).

Mondelez CFO Luca Zaramella noted the company believes "current cocoa prices are the result of a series of accidental circumstances that over time we believe should go away. I think you all know that the main crop last year was problematic. But … the mid-crop is already looking much better.  [And] on the demand side, the industry went a little bit shorter than usual on coverage. And now buying out of necessity to replenish minimum stocks really provides support to the current high prices.”

He added, "I think in this context the current market structure does not warrant the current market prices,” predicting that a market correction would likely occur in September or October.

And while consumer sentiment over rising costs has negatively impacted food and beverage brands broadly, Mondelez' core categories of chocolate, biscuit, and baked snacks have been more resilient. As Van de Put said, “consumers in our snacking categories remain very loyal to the brands they know and love.”

Accordingly, Mondelez will not be looking to cut its marketing budget in order to counteract the impact of rising costs. “We continue to increase our [advertising and consumer] spending year-over-year in the high single-digits,” Van de Put said, “which is driving consumer and customer loyalty for our iconic global brands as well as our local jewels.”

Mondelez also gave some indication of what to expect from its advertising focus in upcoming months, as Van de Put highlighted an upcoming campaign celebrating the 200th anniversary of its Cadbury brand in the U.K., which he characterized as focused on a “multichannel consumer activation promoting the brand promise of generosity.”