Inflation bites: Chocolates, cookies to cost more says Mondelez boss

Sweets giant Mondelez, whose brands include Cadbury and Toblerone, says every single part of the sector has been touched by inflationary pressure.

Mondelez Australia boss Darren O'Brien says there is inflationary pressures across all parts of the food and grocery sector. Picture: Aaron Francis/The Australian

Mondelez Australia boss Darren O’Brien, whose prized chocolate and lollies portfolio include blockbuster brands Cadbury, Toblerone, Oreo and Sour Patch Kids, argues there is hardly an input cost across the food and grocery sector that isn’t showing the strains of inflationary pressure.

Commanding sizeable market shares across the supermarket aisle thanks to its Cadbury brand as well as products in biscuits, lollies and spreads, Mr O’Brien said the food manufacturer is in the process of talking to the major supermarket chains about more price hikes on top of previous pricing initiatives.

“We will have to, and we have and we are undertaking pricing initiatives,” Mr O’Brien said as he oversaw steadily increasing costs of doing business from freight and logistics to energy and agricultural commodities such as sugar that are core for Mondelez’s portfolio of chocolates and lollies.

“Whether it be things such as ocean freight, which has gone up by over 400 per cent, in many instances, oil prices have surged and people think that‘s about cars, but oil prices flow into packaging and packaging has gone up significantly.

“Commodities, both in terms of things like wheat and sunflower oil, and particularly some of these commodities that have been impacted by the war in Ukraine have surged in terms of their pricing and we are seeing that coming through in sugar as well.

“So there‘s pretty much not an input cost you can look at, certainly across the food and grocery sector, that has not shown significant inflationary pressures and there’s a challenge both in terms of its price, but even availability. So even being able to source some of these ingredients or some of the imported packaging at times becomes very difficult.

“So to remain both viable but also to continue to innovate, to invest in our brand … and also research and development, we will have to raise prices.”

Mr O’Brien said it wouldn’t be a “blunt price” approach to his products with the global conglomerate aware of its need to cater to the issue of affordability which could see changes to packaging and portion sizes.

“We are certainly conscious of the need to still provide value but also to ensure that we continue to have the fuel to invest behind our brands.”

A number of trends borne by the pandemic past year — such as working from home — helped fuel revenue growth for the Australian offshoot of the global food giant Mondelez, with latest accounts lodged with ASIC showing sales in calendar 2021 hitting $1.707bn from $1.57bn in 2020 although higher marketing and advertising expenses helped shaved its profit to $64.5m from $89.35m.

Mondelez’s portfolio includes chocolate giants Cadbury and Toblerone which has helped it grab around a 48 per cent share of the local chocolate market. In biscuits it recently bought a specialist crackers brand, it owns Oreo and Ritz, with a 13 per cent slice of the biscuit market, and lollies such as Sour Patch and the Natural Confectionery Co see it have around 22 per cent of the candy market. Its popular spreads centre around the Philadelphia brand.

Through lockdowns and Covid-19 chocolate seem to be the “go to” treat for many consumers with the chocolate category growing by a strong 5 per cent last year, which is also one of Mondelez’s biggest categories.

“In fact all the categories we participate in last year grew, there was a clear benefit from changing consumer habits from more flexible working. There were periods of home schooling depending, by state, so that did put people in much more arms reach of snacks and of course, that’s good for our category.”

Meanwhile, Mr O’Brien said he was receiving a positive reception from the two major supermarket chains, Woolworths and Coles, when talking to them about the need for price increases in the wake of 5 per cent-plus inflation in the food and grocery sector.

“The supermarkets, and I’ve spoken to both CEOs in the last few days, they are very aware of the inflationary pressures that suppliers are facing, and they’ve seen it in their own cost base.

“And then you have probably heard them talk about that in their own results recently, so I think it’s fair to say that both retailers and suppliers are taking a constructive approach in terms of realising that the industry must remain sustainable in order to continue to deliver the service and the products that consumers are expecting.”

This week in a speech to the Australian Food and Grocery Council conference, of which Mr O’Brien also chairs, he argued for greater focus on productivity and economic reform which had been drowned out by the furious discussions around inflation and wages growth through the Federal election campaign.

“In the height of a federal election campaign, there has been much focus on the cost of living pressures and demands for real wage growth,” he said in his conference speech.

“Unfortunately, there has been too little focus on the critical need for productivity gains as a key enabler of real wages growth,” Mr O’Brien said, adding there needed to be discussion about productivity as a key engine of propping up wages growth.

“Without productivity gains, and the right policy settings to support them, the combination of skills shortages, inflation only driven wage outcomes and increasing interest rates will lead to unsustainable consequences, reducing international competitiveness, stifling innovation and ultimately reduced consumer demand.”