Alfred Ritter, the German chocolate maker, is grappling with rising costs for some of its core commodities at a time when pricing in its largest markets is coming under pressure. While the family-owned company does not provide details on its profitability, the implications for the group’s margins are obvious. Ritter is looking at ways it can make its supply chain more “independent” to counterbalance the input challenges in the longer term while balancing the immediate need to retain margin. Chairman Andreas Ronken reveals more.
Alfred Ritter is working to grow sales in the US and Europe at a challenging time for the chocolate sector. On the one hand, price-conscious consumers are increasingly turning to the discount sector, putting pricing at some of Ritter’s largest supermarket customers under pressure. On the other, Ritter chairman Andresas Ronken says, input costs are limiting the company’s pricing elasticity.
In this context, yearly pricing negotiations – which he says “are always tough” – could be more challenging still.
“The environment is tough. Raw material prices are going crazy up. Hazelnut prices are at tremendous highs. Even now they have come down a little bit – but only a little bit – they are still three times higher than what else is in chocolate. For us, hazelnut is the second important raw material after Cocoa,” he explains.
“Cocoa is always up and down. If the cocoa sector gets more efficiencies there would be no problem with supply. Of course there are problems with climate in Ghana – there is always something going on – [and] you have some political problems in some of the cocoa producing countries. I think with cocoa nobody can really see what is going on so everybody has to find a way to secure supply, to make it more sustainable.”
In a bid to insulate itself from the swings of cocoa prices and falling cocoa supply Ritter is sourcing 2,000 tonnes of sustainable cocoa from Cote d’Ivoire. “This will give us security of supply. But we cannot solve all the problems in Ivory Coast and Ghana,. It is a responsibility of the state, other stakeholder, of course the producers. But it has to be a joint effort,” the chocolate maker suggests.
Ritter is signed up to a number of multi-stakeholder cocoa initiatives. “There are a lot of different initiatives – things like Forum Nachhaltiger Kakao, the German initiative on sustainable cocoa – that try to deliver on this problem. We have our own way. We are focusing on Nicaragua. That is one big pillar,” Ronken explains.
The company is investing in its own cocoa plantation in Nicaragua in a move Ronken stresses will bring a number of advantages, including more stable pricing, traceability, reliability and quality. “We have the whole process under control from fermentation to drying and deciding what kind cocoa we have planted. Depending on how much chocolate we produce, we are a little bit more safe in terms of pricing. Cocoa is a commodity there is a lot of speculation going on. If you produce your own cocoa you are safer from that.
“The other main reason why we have a plantation is because with our own plantation we can really have 100% transparency. We can make a role model plantation that other parties can see it is possible to do it in a proper way, with a human workforce, with mechanisation, not just with hard labour. We think we can make a nice plantation that is really human-based. It is fun to work, like in other good farms.”
The plantation is not contributing to Ritter’s cocoa needs but in the long term the group expects the cocoa it harvests to make up around 30% of its input requirements. “We are building it from scratch. At the moment we have 1.5m trees. We have now planted more or less 400 hectares, 1,500 hectares are to be planned. We get the first small harvest next year but the first full harvest is 23,” Ronken explains.
As Ritter grapples with issues in the hazelnut supply, could the company also look to cultivate its own hazelnut plantations like fellow European chocolate maker Ferrero? “We look at everything. For Ferrero hazelnuts are probably the most important [commodity]. We own cocoa plantations and we are thinking about what we can do with hazelnuts. We have to find a solution. We are dependent on this kind of raw material and we have to find ways to make ourselves a little bit more independent, otherwise we are always exposed to the price [volatility]… We have clear thinking [about how to achieve this] but I cannot say.”
By developing a more “independent” supply chain, Ritter is advancing its sustainability adjenda on core commodities. The group is also a member of the Roundtable on Sustainable Palm Oil. “We are a member of the RSPO…. our focus in terms of sustainability is cocoa, hazelnut then palm oil. We have the highest responsibility for cocoa. With palm oil we have decided to be an early follower with the RSPO,” Ronken says.
At the same time, Ritter is working to improve the energy efficiency throughout its operations. “Also sustainability is about energy management because we make everything warm and then we cool it down. We try to be as efficient as possible in using the energy. This is the same for every company.”
However, sustainability comes at a cost and Ronken says consumers in its key markets – particularly its largest German market – are resisting paying more for sustainably sourced and produced products. “Sustainability will cost money. It is a big challenge because nobody wants to pay for it. Everybody wants to have it as an industry standard. We hope the climate for sustainable products will change and [consumers] will be willing to pay a little bit.”
Ronken says part of the reason why consumers resist higher prices for sustainable products is they do not want to be confronted with issues like child labour, obesity and climate change when they are eating chocolate.
He explains: “If you want to eat chocolate you don’t want to think about problems in Ivory Coast… child labour etcetera. It can also be really topical relating to health. If people are eating chocolate they don’t want to think about health. Dietary management is one of the key questions. There is work to be done… To influence the consumer, if you can do it it would be marketing genius. How can we do it? People don’t want to think who has produced it. My hope is more and more with young people. They want to say ‘OK I want to know. I want to know there is no blood on the water’. But at the moment, especially in Germany, price is very important. They want to hunt for a bargain. A cultural change, a society change, is needed so that you ask more questions.”
Ronken is optimistic change will come in time: “I think this momentum can build [in Europe] and I think it is a good thing for the whole of the chocolate sector. Chocolate is really natural. It is not only sugar. And people have a good feeling when they are eating it… eating chocolate is a good thing.”