Price is on the mind of all confectioners as attention turns to the strategies sweet makers will be adopting to navigate the changing and complex confectionery landscape.
The real impact of the cocoa crisis hits in 2025
With the ongoing cocoa disruption running into its fourth season, this is one sector within confectionery that stands out. “The cocoa crisis is very clear,” says Andy O’Brien, commercial director for EPIC Conjoint, a consultancy and analysis software provider.
A respite from cost struggles is not on the horizon for chocolate manufacturers working on premium launches. These manufacturers don’t expect regular cocoa prices to return within the next 12 months. “The supply is not going to recover quickly enough,” O’Brien says. They’re facing the conundrum of: How do I change my products from a cost perspective? How do I change my packs and pack sizes? What can I do from a price perspective?”
“Many manufacturers are running out of options this year as they can’t absorb much more and cannot find efficiencies elsewhere,” says O’Brien. Despite having made strides such as improving their business and spending efficiency and implementing waste management strategies, although the crop has increased or improved, the ramifications of high cocoa prices will likely come down in the foreseeable future.
“That will probably take another season of the year to wash out, and who wants to invest in long contracts on cocoa at its peak?” says O’Brien. Larger manufacturers will have purchasing teams negotiating at the highest possible scale. Still, smaller manufacturers that buy off the secondary market will have to rely much more on the spot prices. Potentially, there’s an opportunity if it pulls back or drops back 5% or 10%.
Cost of living affects all confectioners
Yet, manufacturers’ cost battle is not isolated to cocoa and chocolate. “Very few categories aren’t affected heavily now through cost, have taken too much cost in the last couple of years, or have pushed through too much price, and volumes are suffering,” shares O’Brien.
Beyond confectionery sourcing, ingredients and supply chains, the wider environment significantly impacts cost strategies.
“The cost of living crisis is the overarching piece that will punish the chocolate manufacturers,” confirms O’Brien. Before the crisis hit in late 2021, brands and manufacturers had headroom to increase pricing, but now, they have to be more creative about addressing price hikes without losing their consumers.
‘Shrinkflation buzz’
“The manufacturers really are stuck between a rock and a hard place now,” says O’Brien. Manufacturers of scale have more capabilities to try and optimise that balance between meeting a need from a consumer perspective and meeting a need from a price or an ability to pay perspective. “They know they’re going to have a tough time in the media,” he says.
For example, the rise of the term ‘shrinkflation’ has attracted negative attention. Arguably, the industry may feel the focus has moved away from what the consumer wants from their products and perceives as value to a conversation centred exclusively around price.
“Who’s to say it should be 45g, 65g, or 100g? That’s an unwritten rule that the press, effectively, is bringing in, so that’s the big challenge now,” O’Brien shares.
Promotional and packaging considerations
Multinational manufacturers can cut above the profit line to try and manage their margins. We may see them cut back on promotional activity in-store and make pack changes. Cadbury has already launched an activation pack in 2025, releasing a different execution of the same purple artwork, driving some fun into the category.
Manufacturers are also questioning how best to approach their marketing strategies. “Probably most damaging is: ‘What happens to me from a promotional perspective?’” adds O’Brien. Brands that increase their price then lose the ability to continue advertising their product at the desirable or rounded price point they’ve promoted. “It’s tough for them to be able to accommodate this cost in the short term,” O’Brien says.
Brands are, therefore, increasingly looking at their marketing mix. Avenues like changing pack sizes, upping prices, modifying formulations by using alternative ingredients to cocoa or reducing cocoa content are all up for grabs. It’s about considering what sort of balance seems probable or pragmatic for them. Differences in approach will exist between start-ups, growing brands and multinationals based on category positioning.
“The likes of Tony’s can’t sacrifice their ESG agenda because that destroys the brand,” says O’Brien. The ability to shift will depend on the manufacturer’s position and their strength in the category. While brands like Dairy Milk can take on more price hikes than other smaller manufacturers, they also have the reverse issue: Cadbury or Mondelēz have considerable investments in factories that can’t alter their packs as quickly.
Then, if these pack size changes are made, brands and manufacturers need to consider the count line at the front of the store. If every bar suddenly shrinks by two centimetres, there’s a space for a new competitor. “If you’re going to reduce your size, you’ve got to reduce your depth,” says O’Brien.
Questions to ask to formulate your pricing strategy
Where you go in terms of pricing depends on your starting point.
● Do you have a proposition that’s necessary in the category?
● Are you a follower, or are you a challenger brand?
● Have a unique positioning, a unique consumer group that follows you and needs you for their consumption?
“If you’re not one of those and don’t have a precise positioning, you are stuck with having to absorb some of it, and then you’ll get a chance to put some through,” says O’Brien. “But retailers will be tougher on those guys because there’s probably some opportunity for the retailers in those situations to either call the range or get more investment from somebody hungrier,” O’Brien adds.
Escape the cost dilemma with innovation
Reformulation to bring in new innovations will be an appealing step many confectioners will explore. In doing their research, brands need to consider how they balance what happens if they reduce their cocoa level, if their pack sizes reduce, their artwork changes. They need to test all of these before executing these changes and rolling them out to their audiences.
“What I fear most for the smaller brands is that they will use good instinct for those sorts of questions; some will be right, and some will be wrong. This will see a lot of smaller guys get swallowed up or struggle and lose a lot of distribution,” says O’Brien. Then, if these brands lose distribution, it’s very hard to recover from that momentum.
Innovating confectionery formats “is an excellent opportunity”, O’Brien says. There will likely be a significant number of innovations that maintain the category. People come in a different format but need to hit that price point. Like Easter, the Malteser Bunny, for example, can be sold at a lower price and, therefore, can keep hitting a specific price point. “The pricing ladder will become more populated because the core products we’re used to will have to escalate up the ladder naturally,” adds O’Brien. Brands will need to top these product creations up because they can’t walk away from one-pound to two-pound price points.
“You can’t expect everyone to come on that journey with you,” warns O’Brien. So, there will be innovation in the format space, which will help maintain the market. Then, locals will increase with the increasing brands, and there’ll be more value in the market.
Although it’s still three months away, the upcoming Easter sales season will be an interesting time as a lot of that Easter product innovation has probably been sold in September or October. Manufacturers will be seeing the price increases this year. “I’m sure they’ve had price increases before it’s even hit the shelf, which is just going to be very interesting to see how expensive Easter will be this year and to see the huge premium eggs that will be rolled out,” adds O’Brien.
The retailers might be left with a fair bit of stock, and we’ll see how challenging chocolate is in the clearance aisle. Then, it’ll be about watching this space and seeing how Halloween and Christmas roll out.
