Nestlé may flag more price hikes on its chocolate products when the world’s biggest food maker reports first-half earnings on Thursday, making popular brands such as KitKats and Smarties more expensive by Christmas.
In the past three years, Nestlé and other consumer goods companies have raised prices to cover high input costs amid supply chain issues following the pandemic.
Recently, most costs have started to decline but the price of cocoa has nearly doubled this year amid shrinking supplies.
As companies like Nestlé raised chocolate prices, they ceded sales volumes to cheaper rivals such as supermarket own-brand products.
Nestlé is forecast to report total real internal growth – a metric for sales volumes across its products from chocolate to coffee and other food – was negative in the first half, falling 0.5% from a year earlier, according to a company-provided poll.
The Worst Is Yet To Come
Traders and analysts agreed that the worst is yet to come for Nestlé and its competitors when it comes to lost sales volumes of confectionary products.
Chocolate companies buy cocoa up to 12 months in advance of making and selling products.
In the first quarter of this year, when cocoa prices tripled, cocoa traders told Reuters many in the industry still had to stock up on the commodity.
A Europe-based cocoa trader told Reuters, “Chocolate makers’ production costs will go up in the fourth quarter, that’s for sure.
“They buy (cocoa) contracts 9-12 months ahead and only pay once (they get their goods).”
Chocolate makers are expected to pass these higher costs on to shoppers and retailers in the fourth quarter – known as the “holiday quarter” – when most of the industry’s sales are made around Halloween and Christmas.
Bernstein analyst Bruno Monteyne said, “If there are pricing pressures, they would need to start for the fourth quarter, but the back end: Christmas, as that is peak seasonal chocolate period.”
Nestlé declined to comment ahead of posting first-half earnings results.
Higher Prices
Swiss chocolate maker Lindt & Spruengli said on Tuesday it would need to hike prices further due to high cocoa prices.
Higher prices hit market share at several companies.
In Europe, Nestlé has lost market share for the last 14 quarters in chocolate confectionary to cheaper brands and private label products, according to NIQ data analysed by Bernstein.
The analysis found that the company lost market share even though value sales have grown in most of these quarters, driven by price hikes.
A packet of six regular KitKat bars costs £6.99 on amazon.co.uk, where shoppers can also buy six KitKat Chunky bars for £12.99.
This month, Swiss chocolate maker Barry Callebaut reported that sales volumes fell 0.3% in its third quarter ending in May and high cocoa prices had boosted costs.
Some companies are tweaking recipes and using less cocoa in an effort to mitigate damage.
Nestlé, however, has maintained it will not change the recipe of its Kit Kat bars, with chief executive Mark Schneider saying as much to journalists when reporting earnings results in prior quarters.
Read More: Lindt Delivers Steady Sales And Launches Share Buyback
