US confectionery giant Mondelez International said it remains confident about the prospects of its chocolate business despite record-high inflation in the cocoa supply chain.

Speaking to analysts after the release of its Q1 2024 financial results yesterday, the Cadbury chocolate and Oreo cookies manufacturer admitted the operating environment remains “challenging and dynamic”.

According to JP Morgan Research, “cocoa prices are rising due to a global supply shortage, chronic underinvestment in cocoa farms and investor speculation”.

It added: “Chocolate brands are grappling with the impact of higher cocoa costs and this is resulting in price hikes and shrinkflation.”

But addressing the issue in the conference call, Mondelez CEO, Dirk Van De Put, said: “While surprising but temporary, the cocoa inflation does not affect the fact that our categories remain durable and our growth opportunities remain sizeable.”

He added: “Putting the recent headlines about cocoa prices and chocolate into perspective, 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. And within this great category, our business is strong and agile.

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“Record costs for cocoa ingredients and the resulting current and future price increases for customers and consumers, obviously, are generating substantial discussion. Despite this near-term headwind, chocolate volume continues to grow and within this growing category, we remain structurally advantaged with large opportunities still ahead.”

Van de Put said Mondelez is “fully covered for 2024 and well-protected heading into 2025”.

He added: “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.”

On that point, Mondelez CFO Luca Zaramella said: “We truly believe that 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.

“And so the question becomes, when is a correction going to take place? And most likely the answer is, in September, October, as the data for the new crop becomes available.”

Meanwhile, Mondelez admitted that it is seeing some evidence of higher levels of elasticity as cash-strapped consumers trade down and revealed its discussions with a number of European retailers, which were unhappy with its pricing actions, have not yet been finally concluded.

On elasticity, Van de Put said: “Our core categories of chocolate, biscuit, and baked snacks are still demonstrating relatively more resilience and lower elasticity than the broader food universe.”

But he added that in North America, “lower-income consumers feel pressured and we see that pressure weighing on their frequency in the category, especially among brands that skew more to that group.”

Zaramella added: “We will remain agile in our approach to pricing in order to balance the need to offset inflation with the need to maintain solid volume dynamics.”

On long-running pricing negotiations with European grocers, Zaramella said: “Although the vast majority of pricing has been landed in Europe, we continue to expect some level of customer disruption associated with our annual price negotiation process.”

He added: “We are happy to report that about 90% of the price is now implemented. One relevant customer alliance is still pending.”

The group did not name the customer which is refusing to toe the line.

Mondelez generated net revenues of $9.29bn in the first quarter of 2024, up 1.4% year-on-year. On an organic basis, net revenues increased 4.2%.

However, the company’s “volume/mix” fell 2.1%. Zaramella pointed to a 3.6% decline in Mondelez’s developed markets, which he said was due to “customer disruption in Europe” and “softness” in the US biscuit market.

Operating income jumped 81.2% at $2.72bn, or by 12.2% on an adjusted basis. Net earnings fell 32.1% to $1.41bn but grew 9.8% adjusted.

Mondelez has maintained its 2024 revenue outlook of 3% to 5% growth.

Van de Put described the results as “a solid start with strong profit delivery” but Robert Moscow, an analyst with TD Cowen, reflected that biscuit category volume slipped below expectations due to weaker consumer confidence, especially among low-income consumers.

“Mondelez's share declined due to heightened promotional discounting and private-label competition,” he said. “To our surprise, management said they will need to lower price points on Chips Ahoy, which indexes toward low-income consumers, essentially reversing a price increase taken only three months ago.”