Cocoa and chocolate companies brace for Covid-19 impact19 Apr 2020
Chocolate is a source of indulgence for many consumers as they stay at home during the Covid-19 pandemic, which has helped to offset lower demand overall – but the cocoa and chocolate sector as a whole is preparing for wider disruption.
Many chocolate manufacturers reported higher demand in the run-up to Easter, from major producers like Hershey, to smaller operators, like UK-based Thornton’s and Hotel Chocolat, both of which adapted their online strategies to meet increased demand. According to market research firm IRI, UK Easter confectionery sales were up more than 15% compared to the same period last year, but in the United States, sales in the week before the holiday were down 17% year on year.
Retailers across Europe and North America offered heavy discounts of up to 50% on Easter products to help lure consumers to stock up on chocolate eggs and bunnies at a time when many have been more focused on ensuring adequate supplies of essentials like pasta and toilet paper.
The loss of Easter-related impulse purchases is hard to overstate, considering that – depending on the manufacturer – the period accounts for up to 15% of total annual sales. But larger potential problems linked to the Covid-19 pandemic could be looming for chocolate manufacturers.
Olam Cocoa has voiced concerns about the stability of its supply chains, as delivery of ingredients could be affected by quarantine measures. Meanwhile, global cocoa and chocolate giant Barry Callebaut has drawn on a €1 billion fund to increase liquidity, due to concerns about global financial markets. It reported strong sales growth in the first six months of the 2019/20 fiscal year, saying that sales to food manufacturers and global cocoa were largely unaffected, but warning that sales were likely to be impacted in its gourmet sector due to government restrictions on shops and restaurants.
At the moment, cocoa processing for both companies continues in Côte d’Ivoire and Ghana, which together account for about 60% of the world’s total cocoa production. The Covid-19 pandemic has reached both countries, but so far has claimed just eight fatalities in Côte d’Ivoire and nine in Ghana – although if the virus were to spread, it could have a major impact, both in human terms and for cocoa supply.
In an effort to mitigate the effects of Covid-19 in the region, Olam Cocoa has donated medical supplies to hospitals and cocoa farming cooperatives, and says it is looking for other ways to work with industry, government and local communities.
As well as cocoa used by the chocolate industry, Olam has said it expects higher demand for other cocoa and chocolate products from consumers turning to baking for at-home comfort foods.
In addition, travel bans and global quarantines mean the lucrative travel confectionery market is at a near standstill for the time being. Travel confectionery sales have been growing rapidly over the past 15 years, in line with increasing passenger traffic, especially in the Asia-Pacific region. Nestlé, for instance, recently announced its intention to double its travel retail food and confectionery sales to $10 billion over the next ten years – a plan that will need to be put on hold.
In previous times of crisis, chocolate has done relatively well, as many consumers see it as an affordable luxury. During the 2008-2010 recession, the global chocolate market actually grew year on year, with companies reporting sales growth of 2-8% a year during the period. Similarly, during the current crisis, consumer desire for sweet treats is not going anywhere, but how that is reflected in sales over the longer term remains to be seen, especially given unprecedented changes in the global retail environment, and an as yet uncertain picture of how the virus will affect West Africa.
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