Bars of Kit Kat, a chocolate product manufactured by Nestle.
Credit: Reuters Photo
London: Nestle may flag more price hikes on its chocolate products when the world's biggest food maker reports first-half earnings on Thursday, making Kit Kat bars and Smarties more expensive by Christmas.
Over the past three years Nestle and other consumer goods companies have raised prices across their brands to cover sky-high input costs amid supply chain issues after the pandemic.
In recent quarters, the costs of most commodities have started to decline again but cocoa has nearly doubled in price this year amid shrinking supplies.
As companies like Nestle raised their chocolate prices, they ceded sales volumes to cheaper rivals including Tesco and other supermarkets' own brands.
Swiss-based Nestle 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 per cent from a year earlier, according to a company provided poll.
Traders and analysts said the worst is yet to come for Nestle 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.
"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)," said a Europe-based cocoa trader.
Chocolate makers are expected to pass these higher costs on to shoppers and retailers in the fourth quarter - known as the all-important "holiday quarter" - when most of the industry's sales are made around Halloween and Christmas.
"If there are pricing pressures, they would indeed start for the fourth quarter, but the back end: Christmas, as that is a peak seasonal chocolate period," Bernstein analyst Bruno Monteyne said. "So, Xmas won’t necessarily be cheap."
Nestle, which also makes Aero bars, Milkybar, Quality Street and its own label chocolate bars as well as Milo drinks and Nesquik shakes, declined to comment ahead of reporting first-half earnings results.
Swiss chocolate maker Lindt Spruengli said on Tuesday it would need to hike prices further due to high cocoa prices.
"It is indeed a concern for the whole industry," Jean-Philippe Bertschy said, adding that he is also worried about sales volumes in 2025 if the store price increases continue.
"Overall sales in the chocolate sector are depressed so far this year," Bertschy said.
No recipe tweaks
The higher prices have hit market share at several companies.
In Europe, Nestle has lost market share for the last 14 quarters in chocolate confectionary to cheaper brands and private label products, according to NielsenIQ data analysed by Bernstein, even as value sales have grown in most of those quarters, driven by higher prices.
A pack of six regular Kit Kat bars cost 6.99 pounds ($9.03) in Britain on amazon.co.uk, where shoppers can also buy six Kit Kat Chunky bars for 12.99 pounds.
Swiss chocolate maker Barry Callebaut this month reported that sales volumes fell 0.3 per cent in its third quarter ending in May and high cocoa prices had boosted its costs.
A drop in prices of commodities used to make confectionary such as soy and wheat this year has helped partially offset the surge in cocoa prices. Some companies are tweaking recipes and using less cocoa to help mitigate the damage.
Nestle, however, has maintained it will not change the recipe of its Kit Kat bars, with CEO Mark Schneider saying as much to journalists when reporting earnings results in prior quarters.
($1 = 0.7744 pounds)