Chocolate manufacturers are discovering that consumers have limits when it comes to price increases. Mondelez International revealed that European chocolate demand elasticity reached 0.7-0.8, significantly higher than the industry’s expected 0.4-0.5 range, indicating consumers are cutting back on purchases more than anticipated.
The confession came during Mondelez’s Q3 earnings call, where CEO Dirk van de Put acknowledged that cumulative 30% price increases had reached a level “probably a little bit more than the consumer can accept at the moment.” The admission marks a notable shift for an industry that has long operated under the assumption that chocolate demand remains relatively stable regardless of price fluctuations.
Demand elasticity measures how consumption responds to price changes. A lower number indicates inelastic demand, where consumers continue purchasing despite higher prices. The chocolate industry typically assumes elasticity around 0.4-0.5, reflecting the belief that consumers are reluctant to give up treats even during economic difficulty. However, Mondelez’s reported 0.7-0.8 elasticity suggests the extended period of price increases has tested consumer tolerance more than expected.
The higher elasticity confirms patterns emerging in recent consumer data across the chocolate sector. Chocolate confectionery inflation has outpaced broader food price gains as manufacturers attempted to absorb elevated cocoa costs. After cocoa prices reached historic highs earlier this year, manufacturers passed significant costs to consumers through repeated price adjustments.
Cocoa bean prices have retreated from their peaks, with ICE Europe front month contracts holding around 4,100 GBP per tonne. The decline reflects higher supply expectations and somewhat weaker demand, though prices remain elevated compared to historical levels. Month-over-month, ICE Europe prices fell 11.5%, while origin prices declined between 4.8% and 11.5% depending on location.
The cocoa market showed minimal reaction to weaker global grinding figures, with some expectation that demand may improve as prices decline. Companies are now relatively well-covered on cocoa exposure, having secured supply during the lower price environment while leaving room to benefit from potential further declines.
Mondelez’s acknowledgment of consumer resistance comes as manufacturers contemplate price deflation to boost volumes. The question facing the industry is whether consumption will recover proportionally as prices decrease, particularly after an extended period of broadly higher inflation across food categories.
Processing margins remain weak as processors work through expensive inventory from last season. Cocoa butter prices declined 14% month-over-month to 9,733 EUR per tonne, while cocoa mass fell 12% to 7,202 EUR per tonne. Cocoa powder prices held steady at 7,700 EUR per tonne.
West African cocoa arrivals are running 25% lower than last year in Ivory Coast, with quality issues creating high rejection rates due to undersized beans, mold, and waste material. Ghana announced plans to seek a 200 USD per tonne premium for traceable, sustainably produced beans in anticipation of EUDR requirements. However, the market has largely focused on anticipated supply surplus rather than quality concerns.
This article is part of a more comprehensive market analysis. For the full cocoa market analysis, go to: https://app.vespertool.com/market-analysis/2403