Chocolate Price Soar, Sales In Danger
Cocoa prices have soared because of supply problems in Ghana and Ivory Coast, which were hit by floods and drought one year after another. Prices may be up 100% year over year by May. Chocolate makers have cut back on purchases, and some have put less chocolate into candy. Farmers, makers, and consumers have all been affected. It will get worse.
Food Price –Bananas
Chocolate is, without a doubt, part of US discretionary spending. However, discretionary spending does drive much of the economy. For retailers, holidays like Easter and Mother’s Day are a significant source of income. As companies like Hershey’s raise prices, demand at the retailer level likely drops. The cost of inventory when prices double can become an issue.
Corporate Margins Tighten
According to the BBC, large company bottom lines will suffer. Hershey’s commented to its shareholders, “Historic cocoa prices are expected to limit earnings growth this year.”. Hershey’s is caught in a supply and demand trap in which its margins will suffer.
Bloomberg recently reported, “Cocoa futures rose to a fresh intraday record, topping $7,000 in New York for the first time, as supply concerns drive a rally that shows no sign of offering relief for chocolate makers.”
Finally, based on long-term weather forecasts and growing conditions, the situation in Ghana and Ivory Coast will not improve soon.
