Record-high cocoa prices are pushing chocolate makers to increase consumer product prices and reduce product size, fueling the so-called “shrinkflation” trend. In his State of the unio Address last week, US President Joe Biden called out brands for using “shrinkflation” tactics amid a cost-of-living crisis, but market analysts expect cocoa prices to continue rising as demand for ever-popular chocolate treats remains strong.

El Niño weather patterns have flooded West Africa’s cocoa-growing region with torrential rains, causing a cocoa production shortfall and a ripple effect in markets. Cocoa prices have been rising sharply for several months and hit US$7,846 per metric ton today — roughly 200% more than March 2023.

Confectionary giants like Nestlé have adopted short- and long-term contingency plans to navigate supply chain issues.

“Last year, cocoa prices increased by approximately 60% and we only passed on a fraction of the price increase to consumers,” a Nestlé spokesperson tells Food Ingredients First.

“We absorbed part of the cost increase through efficiency programs. Nevertheless, given the persistently high cocoa prices, it may be necessary for us to make responsible adjustments to pricing in the future.”

Nestlé tells us it has contingency plans to ensure the continuous supply of its raw materials.

“It’s called shrinkflation”
The State of the unio Address is not the first time President Biden has attacked snack brands for “shrinkflation” tactics as he looks to connect with voters and overturn the odds at this year’s general elections.

“It’s called shrinkflation,” Biden said in his address. “You get charged the same amount, and you got about, I don’t know, 10% fewer Snickers in it.”

Snickers’ manufacturer Mars debunked the president’s comments in a statement to CNN, clarifying: “We have not reduced the size of Snickers singles or share size in the US. Like many other industries, we continue to face high inflation and spikes in material costs. However, we work to absorb these extra costs wherver possible to provide affordable treats and the best value.”

“Final prices are always at the discretion of the retailer, but we make every effort to minimize costs to provide a full range of delicious products,” the company added.

In the UK, however, Mars admitted to shedding 10 g off its Galaxy chocolate bars last year as it worked to absorb rising raw material and operational costs.

In his address, Biden added that his administration plans to “crackdown on corporations that engage in price gouging or deceptive pricing.” He also endorsed Senator Bob Casey’s bill to ban “shrinkflation” as an unfair or deceptive practice.

“It’s a popular thing for a politician to be seen sticking up for consumers,” Lu Ann Willams, co-founder and global insights director at Innova Market Insights, tells us.

“There have been some analyses and headlines pointing to price gouging, and the president has mentioned this, but I am not sure what kind of impact this could have — a viral social media campaign might have a bigger impact.”

Searching for solutions
Chocolate makers have battled with input price increases for the past few years amid the COVID-19 pandemic and weather-induced supply chain problems. Brands are increasingly turning to product price increases, reduced cocoa content and alternative ingredients like caramel or nuts as solutions.

“Of course, consumers would prefer none of these solutions, but the situation will necessitate all of them. Maybe the best solution would be reduced cocoa content if the eating experience remains the same,” Willams tells Food Ingredients First.

Product size reduction is also attractive to manufacturers because it is a solution that remains within their control.

“During and just after COVID, supply chain issues were a huge problem, and with such a specialized and premium product like cocoa, it is perhaps even more difficult,” continues Willams.

“There are some cocoa substitutes in the market now that I imagine would be high in demand in the current situation. These products are being made by start-ups, so supply might also be limited, but at least there is a possible partial solution.”

Taste must prevail
According to Nestlé’s CEO, Ulf Mark Schneider, brands must prioritize flavor profiles to keep consumers engaged with their products during the current economic climate.

After Nestlé’s 2023 full-year results were announced, Schneider explained in a call with journalists: “What’s important to us is that recipes consumers are tuned into and whose flavor profile they appreciate and love get fully upheld. Tinkering now with the recipes and flavor profiles simply because the input cost for cocoa has gone up would be a mistake.”

“[Cocoa] is just one more commodity price variation that we have to tactically deal with. We are very strongly committed to confectionery, and you will see continued success as we put this category back on the growth track — Kit Kat is the tip of the iceberg, but you will see continued success with other brands.”

New deforestation rules
Meanwhile, confectionary leaders like Nestlé must ensure their supply chains comply with the EU’s incoming anti-deforestation regulation.

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Nestlé’s spokesperson tells us that the company’s Income Accelerator Program aims to support cocoa farmers in its supply chain to improve their productivity. It has also established long-term relationships with its suppliers, which can provide farmers with a sense of certainty.

“We hope this will enable them to become more resilient and sustain cocoa production in the long term,” they say.

The European Parliament also nclick="updateothersitehits('Articlepage','External','OtherSitelink','Cocoa price surge: Biden attacks “shrinkflation,” Nestlé prioritizes flavor profiles','Cocoa price surge: Biden attacks “shrinkflation,” Nestlé prioritizes flavor profiles','339763','https://www.foodingredientsfirst.com/news/european-parliament-backs-nature-restoration-law-as-farmers-fear-financial-fallout.html', 'article','Cocoa price surge: Biden attacks “shrinkflation,” Nestlé prioritizes flavor profiles');return no_reload();">recently approved a landmark nature restoration law and backed a new directive criminalizing large-scale environmental damage.