Chocolate’s next chapter: Alt-cocoa, farmer collaborations and retail tactics emerge amid economic downturns

Rising cocoa prices — driven by climate change, geopolitical tensions, and supply chain disruptions — are urging chocolate manufacturers and retailers to rethink their ingredient sourcing and pricing strategies. Research indicates the costs will stay elevated in the medium term, driven by supply constraints and strong demand, with prices expected to stabilize at around US$6000/ton once the market rebalances.

In response, formulators are embracing alt-cocoa innovations, downsizing products amid the “shrinkflation” trend, and exploring alternative ingredients like fava beans to offset supply chain disruptions exacerbated by adverse weather conditions, particularly in West Africa, the source of nearly 70% of global cocoa.

Food Ingredients First discusses the chocolate industry’s efforts at navigating record cocoa price hikes amid consumers’ sustainability and ethical demands, in an exclusive interview with Dr. Madhav Durbha, Group VP of CPG and Manufacturing at Finland-based Relex Solutions, which provides supply chain and retail planning solutions to F&B companies.

How are companies balancing their sustainability commitments with the financial pressures of rising cocoa costs?
Durbha: One of the biggest shifts we’re seeing is that companies are leaning into their sustainability commitments as part of their broader brand story. Consumers are becoming more discerning — they want to know where their food is coming from, how it’s sourced, and whether ethical and sustainable practices are followed. This is where transparency becomes key. We’re seeing more brands adopt smart labeling technologies, like QR codes, that allow consumers to scan a product and see details about sourcing, sustainability efforts, and even ethical labor practices.

Companies are reducing cocoa content with more milk chocolate or using cocoa alternatives in formulations to offset price spikes, says Durbha.At the same time, companies are adjusting their product mixes to offset rising costs. Some are reducing cocoa content by formulating more milk chocolate products that rely on cocoa butter rather than cocoa solids, while others are experimenting with alternative ingredients like carob and fava beans to supplement traditional chocolate. It’s a balance: brands have to maintain affordability while still ensuring their products meet consumer expectations for quality and sustainability.

Ultimately, this is about long-term positioning. Just like how front-of-package labeling has the potential to change consumer behavior, sustainability messaging is playing a bigger role in purchasing decisions. Companies that can communicate their efforts effectively, whether through ethical sourcing, sustainable farming practices, or innovative product formulations, will be better positioned to navigate these cost pressures while keeping consumer trust.

Despite rising prices, some consumers still pay a premium for high-quality chocolate. Will this willingness continue, or will budget-friendly alternatives gain more traction?
Durbha: Chocolate has always been an interesting category because, even in economic downturns, it tends to be viewed as an affordable luxury. Research suggests that about three-fourths of consumers are still willing to indulge even when prices rise. This makes it easier for premium chocolate brands to pass on cost increases without experiencing major drops in demand.

That said, some shoppers will become more price-sensitive, and we’re seeing companies adjust their strategies accordingly. For example, we’ve seen brands introduce smaller portion sizes, like “fun-size” packs, where the amount of chocolate is reduced without a drastic price hike. Others are pivoting toward private-label chocolate, though this category is still relatively underdeveloped compared to other grocery segments like household goods or snacks.

At the same time, consumers may also start seeking out chocolate-adjacent alternatives, such as carob-based products or chocolates with more inclusions — nuts, crispy textures, or caramel — which also helps manufacturers reduce cocoa content. I don’t think we’ll see a complete shift away from premium chocolate. Still, we will see companies becoming more strategic about how they cater to both budget-conscious and premium shoppers.

How is diversified cocoa sourcing reducing reliance on West Africa? Which regions or innovations show the most promise?
Durbha: West Africa remains the dominant source of cocoa, but we’re starting to see more interest in diversification. Countries like Brazil, Ecuador, and Peru are emerging as alternative sources, but scaling production in new regions isn’t easy. Unlike crops such as wheat or corn, cocoa is largely grown on small, independent farms, which makes supply chain diversification more complex.

Chocolate is viewed as an affordable luxury, with three-fourths of consumers still willing to indulge even when prices rises.One way companies are addressing this challenge is through direct partnerships with farmers in different regions, allowing for more control over sourcing and better stability in supply. In parallel, there’s a growing exploration of alternative ingredients like carob, fava beans, and other plant-based substitutes that can mimic the texture and flavor of cocoa. There’s also a lot of discussion around lab-grown cocoa, similar to what we’ve seen with cultivated meat, though it’s still in its early stages.

While alternative sourcing and ingredient innovation are picking up momentum, the reality is that diversification takes time. In the short term, companies are focusing more on supply chain agility by optimizing their sourcing strategies while preparing for longer-term shifts in how and where cocoa is produced.

With Easter and other major chocolate-buying seasons approaching, how are retailers adjusting their pricing and promotions?
Durbha: Retailers are facing a balancing act. They know chocolate is a seasonal staple, especially around holidays like Easter, but they also have to manage the rising cost of cocoa. One way they’re adapting is by expanding their product mix — increasing the share of non-chocolate confections like jelly beans and sugar-based treats, which aren’t impacted by cocoa price spikes.

Retailers are also getting creative with premiumization strategies. We’re seeing more high-end packaging and “limited-edition” chocolates that justify higher price points while making consumers feel they’re getting something special. Promotions are being targeted more strategically as well; rather than broad discounts, retailers are using loyalty programs and personalized offers to maximize sales without deep markdowns.

The key for retailers is maintaining consumer perception of value, whether that’s through packaging, branding, or strategic promotions, so that shoppers remain engaged despite the higher costs.

What do you see as the most transformative changes in the chocolate industry over the next 3-5 years?
Dubha: The chocolate industry is at the cusp of some major shifts, both in technology and ingredient innovation. One area to watch is the rise of smart packaging — brands are starting to integrate QR codes and 2D barcodes that allow consumers to scan their chocolate and get insights into sourcing, sustainability, and even interactive content like recipe recommendations. This is a way for brands to build deeper engagement while reinforcing trust in their products.

Retailers are using high-end packaging and promotions to appeal to consumers amid the upcoming Easter festivities.On the ingredient side, we’re seeing an increase in alt-cocoa experimentation. Carob and fava beans are gaining attention as cocoa substitutes, and while lab-grown cocoa is still in its infancy, it’s something the industry is keeping an eye on. At the same time, we might see more blended products, where chocolate is mixed with other textures and flavors to reduce reliance on pure cocoa without compromising indulgence.

AI-driven supply chain management is also going to be transformative. Companies are using artificial intelligence to predict weather disruptions, optimize procurement strategies, and improve demand forecasting, which helps them navigate cost fluctuations more effectively.

Overall, the next few years will be about adapting to a more volatile cocoa market — whether through ingredient innovation, supply chain agility, or smarter consumer engagement. The brands that stay ahead of these trends will be the ones that thrive.