Cadbury has responded to rises in the cost of raw materials by cutting the size of its chocolate blocks by 10 per cent.
Cadbury has responded to rises in the cost of raw materials by cutting the size of its chocolate blocks by 10 per cent.
Chocolate heavyweights Cadbury and Whittaker’s have reacted strongly to rising costs over the past year, but cocoa prices have peaked and are now falling fast. Holly Ryan looks at the forces at work
A big spike in the cost of raw materials has put pressure on chocolate makers - as Cadbury was quick to point out when it announced plans this week to reduce block sizes by 10 per cent.
Rival Whittaker's has taken a different approach. It raised its prices late lastyear and says it has no plans to cut the size of its blocks.
In fact, despite Cadbury reacting just now, cocoa futures have tumbled about 20 per cent since a September peak - following a global trend in commodities which has hit everything from dairy products to oil.
To be fair, the fall comes off the back of a long three-year rise which saw the price of cocoa surge 38 per cent.
The surge was stoked by strong demand and fears that the Ebola outbreak might slow shipments from West Africa - which produces 70 per cent of the world's cocoa supply.
The rise in cost also prompted chocolate makers including Hershey to raise their prices.
As shipments have continued and demand has eased cocoa has joined the global commodity slump.
Cadbury says the company can't comment on the specifics of the cocoa prices but said if prices continued to drop it would make an assessment at the time about increasing block size again.
This week, Cadbury's new chief executive, Jacqueline Evison, said that despite positive sales growth, there were a lot of costs that went into making chocolate and "more of them are going up than coming down".
Cadbury chief executive Jacqueline Evison.
"We're seeing rising manufacturing costs coming through in the last little while so this year we're having to make some choices about how we keep our chocolate affordable for consumers," Evison said.
Whittaker's chief marketing officer Philip Poole also cited increased manufacturing costs in the price rise.
However, he said he believed increasing the product cost was the best way to go, as opposed to cutting the block size.
"Certainly the rise in raw material ingredients is an issue for us because prices of cocoa butter and cocoa beans, and hazelnuts in particular, have risen significantly," Poole said.
"We had a price increase towards the end of last year but we believe that was justified because the prices of raw materials had increased significantly and we kept consumers informed of this."
The move to reduce Cadbury's block size - by a row of chocolate - was also announced in Australia by Cadbury's parent company, American multinational conglomerate Mondelez (formerly Kraft).
Former Cadbury marketing manager Brandon Wilcox, now head of Evolve marketing agency, said the decision to cut size rather than increase cost was likely to reflect negatively on the company.
He said that after briefly including palm oil in its chocolate and then changing the Cadbury Creme Egg recipe, the company should have been more wary.
"It reflects poor judgment to further tarnish their reputation with missteps like this, on top of the 2009 family block size reduction, which they partially backed down from in 2013 following a consumer backlash, or the recently announced Creme Egg recipe change," Wilcox said.
"The only winner will be Whittaker's. Whittaker's have replaced Cadbury as the quintessential Kiwi brand. Every time Cadbury stumbles, Whittaker's wins."
According to Poole, Whittaker's market share for its chocolate blocks was in the high 30 per cent mark but he said that could increase.
"If the current trends continue [we could have majority market share] but our ambition in this market is to produce the best quality chocolate," Poole said.
"We believe that's what consumers want and that's what they appreciate and that's always been our objective," he said.
Whittaker's manufactures its chocolate entirely from its Porirua factory and said it had no plans to change this.
Cadbury's chocolate is made in Australia and from its factory in Dunedin, which processes more than 30 tonnes of liquid chocolate a day and employs about 600 staff.
Cadbury's Evison said the company also had no plans to change from manufacturing locally, adding that the Dunedin factory, which conducts chocolate-making tours, was an iconic part of the chocolate story in New Zealand.
"The tours are a big part [of our success]," Evison said.
"We had over 100,000 people through the tour alone last year about half of which were from overseas, and the plant itself is doing amazingly.
"We had more chocolate go through the plant last year than we've had in a number of years."
In recent years the issues of fair trade and palm oil have surfaced after consumer pressure, with Whittaker's moving to make its two most popular blocks - dairy milk and dark Ghana - fair trade, as well as keeping its palm oil-free status.
However its other blocks have yet to move to fair trade.
Cadbury took this a step further, ensuring all of its chocolate was fair trade, but had to backtrack on its decision to replace cocoa butter with vegetable oils including palm oil in 2009, after consumer backlash about the environmentally unsustainable product.
Cadbury still uses certified sustainable palm oil in several of its products, but only where it said there was no alternative.
Poole said Whittaker's strategy to diversify - collaborating with Killenchy Gold ice cream and Lewis Road Creamery - had been extremely successful so far, with the Lewis Road and Whittaker's chocolate milk proving a win for the company.
"Part of our strategy has been to build that quality premium image for the brand and going into chocolate milk, for example, was a natural extension," Poole said.
"We've been exceptionally happy with how that has gone," he said. "It's proved extremely popular, and I have to say we did underestimate the popularity of it."
Evison, who has been with Cadbury since 2007, said the company also had an exciting year ahead of it, with new products and innovations on the way, and said she was excited about her new role.
"I think this is a really solid business and I think it's a balance between stewarding these amazing brands but at the same time making sure we can deliver returns and continue to invest here," Evison said.
"We've made some great investments in the last few years and the things we're proudest of are things like the chocolate carnival and the Jaffa race.
"We're going to continue that involvement with local community organisations in New Zealand."
Chocolate lovers • Last year New Zealanders spent $564.5 million on chocolate products. • They consumed 14.9 million kilograms of chocolate.
