Nestle chocolate prices in focus as cocoa costs rise, Marketing & Advertising News, ET BrandEquity

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Nestle could announce further price increases for its chocolate products when the world’s largest food maker releases its first-half financial results on Thursday, making its KitKat and Smarties bars more expensive ahead of Christmas.

Nestle and other consumer goods companies have been raising prices on their brands for the past three years to cover skyrocketing input costs amid post-pandemic supply chain woes. In recent quarters, costs for most goods have started to fall again, but cocoa has nearly doubled in price this year as supplies dwindle.

As companies like Nestle raised chocolate prices, they gave away some sales to cheaper rivals, including Tesco and other supermarkets’ own brands.

Nestle’s total real internal growth (a measure of sales volume across a range of products, from chocolate to coffee and other food products) was negative in the first half of the year, down 0.5% from a year earlier, according to a survey by the company.

According to traders and analysts, the worst is yet to come for Nestle and its competitors in terms of lost confectionery sales volumes.

Chocolate companies buy cocoa up to 12 months before they make and sell their products. In the first quarter of this year, when cocoa prices tripled, cocoa traders told Reuters that many in the industry still needed to stock up on the commodity.

“Chocolate makers’ production costs will increase in the fourth quarter, that’s for sure. They buy contracts (for cocoa) nine to 12 months in advance and pay only once (they receive the goods),” said a cocoa trader based in Europe.

Chocolate makers are expected to pass on those higher costs to customers and retailers in the fourth quarter – known as the all-important “holiday quarter” – when the bulk of the industry’s sales occur around Halloween and Christmas.

“If there is pricing pressure, they will indeed start in the fourth quarter, but end of story: Christmas, because that is the peak chocolate season,” said Bernstein analyst Bruno Monteyne. “So Christmas will not necessarily be cheap.”

Nestle, which also makes Aero, Milkybar, Quality Street bars and its own chocolate brands, as well as Milo drinks and Nesquik cocktails, declined to comment ahead of the release of its first-half financial results.

Swiss chocolate maker Lindt & Spruengli said on Tuesday it will have to raise prices further due to high cocoa prices.

“It is indeed a cause for concern for the entire industry,” said Jean-Philippe Bertschy, adding that he was also concerned about sales volumes in 2025 if price increases in stores continued.

“Overall sales in the chocolate sector are at a low level this year,” Bertschy said.

No changes to the recipe

Higher prices have led to a decline in the market shares of many companies.

In Europe, Nestle has lost market share in the past 14 quarters in chocolate confectionery to cheaper brands and private-label products, according to NielsenIQ data analyzed by Bernstein, even as value sales rose in most of those quarters, driven by higher prices. A pack of six regular Kit Kat bars costs £6.99 ($9.03) in the U.K. on amazon.co.uk, where shoppers can also buy six Kit Kat Chunky bars for £12.99.

Swiss chocolate maker Barry Callebaut said this month that sales volume fell 0.3% in the third quarter ended in May, with high cocoa prices pushing up costs.

A drop in the price of raw materials used to make the sweets, such as soy and wheat, this year has helped to partially offset the rise in cocoa prices. Some companies are modifying recipes and using less cocoa to help mitigate the damage.

However, Nestle assured that it would not change the recipe for KitKat bars, as company CEO Mark Schneider told journalists when giving financial results for previous quarters.