KitKat maker sees chocolate demand ebbing as cocoa costs creep in

Consumers will probably cut back on chocolate as this year’s historic cocoa rally gradually trickles down to manufacturers and forces them to raise prices, a Nestle SA executive warned.

Cocoa futures have more than doubled this year on the back of a huge global shortage, making it more expensive to produce confectionery.

But shoppers are yet to feel the full impact because chocolatiers secured and hedged supplies at lower prices — and companies will inevitably have to start passing on higher costs, said Mark Davies, managing director at Nestlé Confectionery UK & Ireland.

“Demand appears to be resilient at the moment, but as prices go up we would expect to see dampening demand,” he said during a visit of the company’s factory in York, England, which churns out 200 000 KitKat bars every hour.

Cocoa futures surged to a record of more than US$11 000 a ton in New York in April as poor harvests in West Africa curbed output, stressing buyers.

Companies that secured supplies well in advance have been relatively protected, but they’ll face higher costs as they buy at prices that are currently much higher.

“People aren’t paying the US$10 000-a-tonne headline figure,” Davies said.

Still, cocoa prices are likely to stay elevated and the industry shouldn’t “imagine a future where prices will go back to US$2 500,” he said.

Bloomberg Intelligence said earlier this year that chocolate makers will feel the impact of higher cocoa prices over six to 12 months, and then consumers will face it too.

The supply crunch has already prompted some chocolatiers to raise retail prices or produce smaller bars — and Nestle’s Davies said bigger costs may also spur some companies to use more substitutes to cocoa.

This season’s global cocoa shortfall will be bigger than previously expected, partly as consumption holds up, the International Cocoa Organisation said in late May. However, some analysts have said the rally has peaked.

Cocoa futures were up 0,3 percent at £6 473 (US$8 241) a tonne in London on Wednesday. US markets are closed for a holiday. Nestle says chocolate made in the UK — including at its York factory — uses cocoa sourced from plantations that are part of a programme to boost the income of poor African farmers.

The company plans to expand that programme to 160 000 cocoa-farming families by 2030. — Bloomberg