Consumers must take on the increase in commodity costs faced at Swedish confectionery giant Cloetta, its chief executive insisted today (24 August).
Bengt Baron said Cloetta, which saw a spike in raw material prices hit its half-year profits, would continue to look to pass on its higher costs.
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“At the end of the day, the consumer must bear the increased costs,” Baron said after Cloetta, which manufactures brands including Polly, Salia and Chewits, reported a drop in underlying first-half earnings.
The Cloetta chief said the company had “made some progress” increasing prices in the first half of the year but admitted the process had been “cumbersome”. He added: “We are not there yet.”
Baron’s comments came despite Cloetta seeing some resistance from retailers, particularly in Norway, where the company’s sales fell, a factor in a slide in its overall underlying revenue in the first half of the year.
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The Cloetta chief admitted its moves to increase prices in Norway had led to “somewhat tense relationships” with the company’s customers in the country.
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By GlobalDataCFO Danko Maras said Cloetta had only been “partially successful” in offsetting costs with higher prices at “the net level” amid fierce competition.
“There’s a combination of ongoing negotiations and, when the market becomes flat or slightly down, it becomes quite competitive out there, so promotional pressure gets stepped up a bit to defend market shares and volumes,” Maras said.
However, Baron said eventually all confectioners would look to increase prices. “Some people might view it as a short-term blip and not take action immediately. Some people will view it as a long-term trend and take action earlier. Over time, everybody will be driving for price increases,” he said.
He claimed, however, that Cloetta was protecting its market share in certain categories, although he declined to give examples of where the company was having that success. “We are primarily defending market shares and that’s important as one day the market will turn,” he told just-food.
Asked whether Cloetta’s margins would also be hit in the second half of the year, Baron acknowledged there would be a delay in passing on price increases. He told just-food the “renewal windows” to renegotiate contracts were different in each market but insisted Cloetta would look to increase prices.
“There is a natural lag and then there is a challenge, which is always the case,” he said. “We are still staying firm with the strategy. We will pass on – we have to pass on – the cost increases to the consumer.”
The Cloetta chief acknowledged there could be further pressure on commodity costs, pointing to the prospects of a reduced corn crop in the US. However, he insisted the company would again look to increase prices. “There might be additional pressure going forward but that will continue to be offset by pricing,” he insisted.
While Cloetta’s 45% fall in half-year underlying EBITDA was due in part to higher increased costs and lower sales, the company also run up a deeper net loss thanks to costs from its merger with Leaf International and charges from the subsequent restructuring of the enlarged business.
The new Cloetta has sold off distribution assets, taken back sales and distribution of brands in the Nordic region and announced plans to close factories.
Baron said Cloetta would focus on continuing to integrate the two businesses in Scandinavia and implement plans to shut plants earmarked for closure in Finland and Sweden. The company continues to believe it will achieve integration synergies of at least SEK110m, he said. The restructuring will lead to annual savings of SEK100m, he added. “We are on track with the merger,” he added.
