Mondelez executives are observing initial indications of an increase in volume, although consumers continue to face challenges due to price hikes and cocoa inflation, which remain significant headwinds.
To address these challenges, Mondelez plans to implement further pricing adjustments in the latter half of its fiscal year, which has now entered its third month. These adjustments are expected to be driven primarily by still high but declining cocoa prices.
However, CEO Dirk Van de Put emphasized a selective approach to pricing, ensuring the company remains responsive to any consumer backlash. Prioritizing both volume recovery and market share protection will be essential, as he noted while addressing participants at the Barclays Global Consumer Conference on September 4.
In the second quarter, Mondelez continued to raise prices by 4.7%. Nonetheless, this marked a slowdown for the fifth consecutive quarter as negotiations across Europe reached a conclusion, according to recent figures released in July. Furthermore, the volume mix decreased by 2.2% during the three months ending June 30, indicating a negative trend for the third consecutive quarter.
Van de Put pointed out a noticeable divergence in reaction to pricing in Europe compared to North America, particularly the United States, and how these reactions affect volume recovery.
“We’re now fully engaged in filling the pipeline and operating normally in the market,” he stated in regard to European pricing.
Despite the challenges, Van de Put expressed a more optimistic outlook, highlighting low unemployment rates in Europe and observed wage increases amid easing inflation.
However, he acknowledged consumer frustrations surrounding inflation, especially in the U.S. market. He explained, “In the U.S., I would say the frustration is much bigger than it is in Europe.” He attributed this disparity to the relative perception of inflation levels between the regions, noting that European consumers seem to endure less inflation than their American counterparts, who often react more intensely.
In the U.S., Van de Put mentioned some stabilization in the biscuit category, which is the company’s primary segment. He indicated that the company is witnessing slight volume growth, a promising shift from negative results to flat or slightly positive metrics.
“Our market share is improving. Does that translate into positive volume growth for us in the second half of the year? So far, after two months, that is the case. We feel pretty good about where we stand.”
Regarding chocolate pricing, Mondelez is employing various revenue growth management (RGM) strategies, which typically encompass portfolio mix, trade investment, and promotions. Van de Put acknowledged, “We will have to do more pricing in chocolate,” although positive signs are emerging from the upcoming African harvest, which is expected to outperform last year’s.
As part of its strategy, Mondelez intends to introduce new items at various price points instead of implementing blanket pricing increases. Van de Put elaborated that the implementation of line pricing will be gradual rather than one significant increase.
In July, when presenting second-quarter results, Mondelez maintained its organic growth outlook, projecting growth at the “upper end” of a 3-5% range, which implies an acceleration compared to the recent 2.5% print.
CFO Luca Zaramella remarked, “We are in a good place regarding our pricing strategies, particularly in Europe, as we have moved beyond previous disruptions.” He also noted early signs of recovery in U.S. market softness, describing recent performance as encouraging.
Zaramella pointed out that cocoa prices have diminished from their recent historical peaks and anticipates that the upcoming crop, especially from Africa, will see an increase of approximately 20-25%.
“To protect volume and our market share, we will strategize line pricing carefully to optimize our top-line growth. We believe cocoa prices will eventually decline, irrespective of our costs, into 2025,” he stated.
In terms of potential mergers and acquisitions (M&A), Van de Put and Zaramella highlighted the opportunity to expand in the cakes and pastries segment, particularly in markets where Mondelez already holds a significant presence in biscuits, chocolate, and baked snacks.
“We remain enthusiastic about cake and pastry, a category that is witnessing rapid growth,” the CFO noted. Van de Put pointed out that cakes and pastries typically share shelf space with biscuits, making it a natural extension for Mondelez.
“This area is highly fragmented and represents a global market of approximately $80 billion, slightly less than chocolate and biscuits combined. For instance, in markets like China, chocolate is valued at $4 billion, biscuits at $8 billion, and cakes and pastries at around $30 billion. The favorable brands we possess in chocolate and biscuits naturally align with this space.”
Overall, Mondelez is strategically navigating the food and beverage industry, responding to food and drink business trends while addressing food and drink consumer trends. Their approach aims to ensure sustained growth while managing current external pressures effectively.
