Chocolate giants under pressure from rising cocoa prices

Confectionery stalwarts Mondelēz and Hershey are grappling with challenges posed by escalating cocoa prices due to climate change, which are expected to weigh on their businesses throughout 2025. The companies are leveraging strategies such as price adjustments and product diversification to circumvent these challenges, with the Oreo maker expressing concerns over “unprecedented” inflation impacting earnings.

Cocoa prices have more than doubled since the end of 2023, squeezing supply due to weather, diseases and robust consumer demand. Nearly 65% of consumers indulged in chocolates last year, which accounted for US$21.4 billion in confectionery sales, according to an October report from the National Confectioners Association.

Mondelez’s net revenue during the fourth quarter of 2024 was US$9.60 billion, slightly below analyst estimates of US$9.64 billion. The adjusted gross profit margin declined by 650 basis points to 31.5%, primarily due to higher cocoa and transportation costs.

Meanwhile, adverse weather conditions in key cocoa-producing regions like West Africa also impacted Hershey’s business. The company expects surging cocoa prices to put “significant pressure on 2025 earnings.” 

To offset higher raw material costs, Hershey increased product prices, leading to an 8.7% rise in sales and a 33.2% increase in earnings in the fourth quarter of 2024.

Recent research predicted that changes in temperature and heavy rainfall are negatively impacting cocoa yields, estimating a 50% reduction in cocoa production in Côte d’Ivoire and a moderate decline in Ghana.

Impact of price changes

To manage rising costs, Mondelez has also implemented price increases, leading to a decline in European sales volumes. Meanwhile, North America saw a slight increase in volumes following a 0.9-percentage-point price reduction. 

The company is also planning to offer products at varied price points to appeal to cost-conscious consumers.

Meanwhile, Hershey is planning further price increases, cost-saving measures, and potentially reduced marketing expenditures to combat the escalating cocoa prices.

CEO Michele Buck is optimistic about the long-term health of the cocoa market, noting increased diversification in cocoa production beyond West Africa.

“While we continue to expect the surge in cocoa prices to put significant pressure on 2025 earnings, we will focus on driving top-line and share momentum, executing our transformation and productivity programs, and positioning ourselves to deliver peer-leading performance over the long-term.”

This year, Mondelēz expects adjusted EPS to decline approximately 10% on a constant currency basis due to unprecedented cocoa cost inflation.

Future outlook

In 2026, Mondelez expects more pricing to offset inflation “if cocoa prices remain high,” it said in its fourth quarter results. If cocoa prices decline, it expects to have higher earnings upside potential. Hershey anticipates 2% sales growth in 2025 but predicts earnings per share to drop to US$6.00-US$6.18 from US$9.37 in 2024 due to soaring cocoa prices.

Meanwhile, confectionery players are expressing an increased interest in alternate ways to tackle cocoa procurement challenges, such as cocoa reduction and replacement, as well as creating them in the laboratory.

Mondelez’s SnackFutures Ventures, the company’s venture capital arm, recently contributed to a US$4.5 million investment in cell culture ingredient manufacturer Celleste Bio. The company combines AgTech, BioTech and AI computational models to grow 100% natural cocoa from one or two beans in optimal, controlled conditions, year-round.

Hershey is closely watching technologies like cellular agriculture, noting the significant investments it is receiving, Buck told analysts. She believes it could be a “game changer” in the long term to mitigate the impact of volatile cocoa prices due to environmental factors. 

The company has also invested in West Africa and diversified its supply sources, she added.