|The biggest chocolate-consuming region is Europe but chocolatiers have to offer steep discounts in April to encourage buyers to purchase their goods. / Photo by CatwalkPhotos via Shutterstock|
Cocoa grindings – the amount of raw cocoa processed into powder and butter for the manufacturing of chocolate and confectionery – may have exceeded 2020 expectations, and prices have begun holding up but the demand for chocolate seen is weaker, according to Bloomberg.
Less spending on treats
The recent data on Asian and European cocoa grindings showed that demand for cocoa is fairly resilient to the Covid-19 pandemic. However, traders and analysts believe that such a demand was fueled more by processors increasing their output ahead of possible disruptions in the supply chain and not real consumption of people.
As lockdowns closed retail outlets in different countries and prompted fewer impulsive purchases, these are signs that chocolate demand is falling. Chocolate firms, such as Mondelez International Inc. and Nestle SA, for example, have discussed confectionery demand and eased their sales. There were also concerns that lower incomes and rising unemployment caused by the pandemic will curb people’s spending on sweets.
Uk-based broker of financial instruments Marex Spectron Group’s co-head of agriculture Jonathan Parkman said evidence is starting to show that the increase in cocoa grindings has to do less with people buying chocolate but filling up the supply. It is also likely that stay-at-home orders will lessen people’s gifting of chocolate and impulse purchases of the premium products.
|The recent data on Asian and European cocoa grindings showed that demand for cocoa is fairly resilient to the Covid-19 pandemic / Photo by DenisProduction.com via Shutterstock|
A bitter taste in the chocolate market
While the Q1 grindings fared better than forecasted, Hershey Co. and Nestle saw a fall in their confectionery sales volume in the first quarter. In Europe, online and supermarket sales of chocolate snacks were steady last month but it is not likely to compensate for the sales decline of at least 80% elsewhere in other places, such as the vending machines, specialist stores, and fuel stations, Bloomberg Intelligence’s analyst Maxime Boucher opined.
The biggest chocolate-consuming region is Europe but chocolatiers have to offer steep discounts in April to encourage buyers to purchase their goods. Chocolate companies have not also commented about the demand prospects but Hershey and Lindt & Spruengli AG have already withdrawn their outlook for this year. The first-half sales of Lindt & Spruengli AG are expected to fall 14% based on the estimate of private investment management company Bank Vontobel AG.
Cookie and cracker manufacturing company Mondelez International’s CEO said last week that its sales growth in the categories of biscuits and chocolates might slow. Cocoa processor Barry Callebaut AG also said that the declining out-of-home sweet consumption might particularly impact its specialties and gourmet volumes.
Traders expect a cocoa surplus
The decline caused by the pandemic will also be reflected in the Q2 earnings and cocoa grindings from chocolate firms. Connecticut-based consultant JSG Commodities’ VP Eric Bergman explained that the decline in chocolate demand may turn global cocoa grindings growth negative this year. Consequently, this will narrow the expected deficit and may put 2020 into surplus.
Agri-business company Olam International Ltd also sees its global grindings declining by 1.5% this season, the first drop since 2016. Some analysts believe that there will be bigger declines in cocoa grindings and some traders expect a cocoa surplus worldwide for this season, which means an excess of production or supply over demand.
Olam’s chief trading officer said last month that traders need to focus more on the bad weather that is affecting the crops of top growers in West Africa. The executive also mentioned there could be supply risks ahead. He went on to explain that the global output of cocoa will be 100,000 tons smaller than the forecast late 2019 as desert winds limit the production in West Africa.
Chocolate demand in North America and western Europe is linked closely to the country’s gross domestic product, Olam Cocoa’s chief trading officer Paul Hutchinson said. If the economic recovery will be V- or U-shaped, the market can expect cocoa grindings to recover.
Dutch business bank ABN Amro Bank NV’s economist Casper Burgering also commented that there is some tightness in West Africa now with irregular weather patterns and increasing pressure on cocoa port arrivals. These concerns also affect the supply and if it persists, the prices may continue to be volatile.
Commodities research and consulting services company J. Ganes Consulting’s president Judy Ganes said in an email that the impact of the economic slowdown will be more evident in the Q2 to indicate loss in retail sales due to the lack of a wedding season of buffets loaded with chocolate desserts and duty-free chocolates in airports, among others.
Sales of candy and chocolate in the US
When it comes to candy, chocolate dominates the sector. Chocolate candy was consumers’ favorite in the US last year. Sales of chocolate candy were US$11.32 billion, according to database company Statista. Such an amount is double than non-chocolate variety with sales of $5.77 billion. Chocolate candy box, bag, or bar sales amounted to $4.78 billion and non-chocolate chewy candy at US$2.14 billion. Hershey’s holds a 43.8% market share on chocolate products sold at the retail level in the US.
U.S. National Confectioners also published a wide range of packaging options that fit the needs of retailers and consumers of candy and gums. Chocolate boxes of 3.5 oz had the highest packaging dollar shares amounting to 22%, followed by sugarless gum (11%), chocolate bars of less than 3.05 oz (10%), and chocolate snack size (7%).
Cocoa beans are processed worldwide but Côte d'Ivoire leads the production of cocoa beans by country between 2015 and 2016. Côte d'Ivoire accounts for 40% of the global cocoa production, followed by Ghana (20%), Indonesia (8%), Ecuador (6%), Cameroon (5%), Nigeria (5%), Brazil (4%), Peru (2%), Dominican Republic (2%), and Columbia (1%), according to the Swiss platform for sustainable coca KakaoPlatform. In terms of cocoa processing, Netherlands is the largest processing country but the USA consumes the most cocoa-based products on a global level, ahead of France and Germany.
Treats have power and they fuel the economy. The markets of cocoa processing, cocoa trading, and chocolate manufacturing may be concentrated but the market concentration has intensified in the last decade. Aside from big companies making high profits from chocolate manufacturing, cocoa growers also earn from the tons of cocoa they are selling.
People may not lose their sweet tooth in a pandemic but we cannot simply erase the possibility of a chocolate crisis as more prioritize buying the essentials. It may, therefore, take a while for chocolate companies to win again the hearts and taste buds of their consumers.