Mondelez CEO worries how much higher prices can go before consumers say ‘no’

By Elizabeth Crawford

- Last updated on GMT

Source: Getty/Bartosz Luczak
Source: Getty/Bartosz Luczak

Related tags Mondelez International Cocoa Price

As snack giant Mondelez faces yet another round of price increases in 2024, CEO Dirk Van de Put says he wonders how much consumers can absorb and what the company needs to do to maintain volume and market share without compromising margins and profitability.

So far, the maker of Oreo and Toblerone has more or less successfully passed on higher costs to consumers without negatively impacting elasticity – despite a hiccup in Europe earlier this year – allowing it to deliver strong organic revenue in fiscal 2023 starting with a 19.4% increase in organic revenue growth in Q1 ​over an already strong 12% gain in full-year 2022 followed by a 15.8% revenue bump in Q2​.

But, “there’s going to be a moment that it starts to affect elasticity,”​ sales and market share, Van de Put told investment analysts gathered in Boston this week for Barclay’s annual Consumer Conference.

And when that happens, Van de Put says he worries how the company will manage.

“There’s a lot of talk that inflation is coming down. But we don’t quite see that yet in the sense that the cost increases we are expecting for next year are about half of what they were this year and the year before, but it’s still an increase of our costs. And so we will have to price again – much less than we had to do this year – but we will have to price,”​ he said.

“What keeps me up at night is how are we going to pass those prices increases? How are we going to make sure that the volumes don’t suffer?”​ he said.

‘Case by case’ price increases on the horizon

While the company is well-hedged against cost increases for the remainder of fiscal 2023 and “a good part of 2024,”​ it faces increases in cocoa in the coming year and other commodities for which it will “try to price as replacement cost,”​ CFO Luca Zaramell said.

He said the company plans to do this in a way that “eases both retailers and consumers into new pricing.”

For example, he explained pricing will be “case by case,”​ but that company intends to protect small unit product pricing – especially in emerging markets – as they are a fundamental way to recruit consumers or the future.

Mondelez favors advertising over promotions

Likewise, the company intends to steer clear of aggressive promotions – despite an uptick in pressure from retailers and competitors – to offset price increases, Van de Put said.

Rather, he said, “we will push a little harder on advertising investments,”​ especially in emerging markets where the company is making distribution gains and doesn’t want to lose momentum among potential future shoppers.

Consumers continue to buy chocolate, baked goods – but how and where is shifting

This strategy appears to be grounded in what Van de Put characterizes as consumers’ “relatively positive attitudes”​ about the categories in which Mondelez plays, but which do not hold for across all grocery.

“We, of course, look at the consumer largely through the lens our categories – chocolate and biscuits/baked snacks. And in those categories, we clearly see strength. As it relates to the consumer, we don’t really see their consumption going down. Volumes in our categories are flat to slightly positive,”​ he said.

However, he acknowledged seeing “a few changes as it relates to the buying patterns, in the sense that in certain areas and certain classes of consumers, they are increasing the frequency and reducing the amount they’re buying. So, they tend to shop around a little bit more to the discount channels.”

But, he said, “overall, we see our categories as very resilient.”

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