Cloetta is reducing its pick-and-mix assortment to cut operating costs as the confectionery maker faces pressure from elevated sugar prices.
The Sweden-based business, which produces branded candy such as Candyking and The Jelly Bean Factory, as well as pick-and-mix, said today (14 July) the consumer is so far proving resilient to price increases but not, however, without some impact on volumes.
Cloetta has also had to “step away” from some of its confectionery business amid resistance to the company’s price requests.
Reporting a 22.9% rise in second-quarter revenue to Skr2bn ($194.9m), CEO and president Henri de Sauvage-Nolting said Cloetta had been trimming some “low-hanging fruits” in pick-and-mix, which accounts for 73% of the group’s sales. Of the 1,000 or so “active items”, the company plans to cut the assortment to “somewhere north of 600”, he said.
Finance chief Frans Ryden added during a discussion of the results today: “The growth is driven by pricing but also some favourable mix within the portfolio and between markets, including as we have ramped up efforts on product portfolio rationalisation to create space for more profitable and more strategic growth, as well as we’ve had to step away from sales when our fair pricing has not been accepted.”
Adjusted operating profit rose 18% during the quarter to Skr191m but Cloetta lost Skr30m in volume and mix but with a Skr47m benefit from pricing. The volume loss was less pronounced over the first six months of its fiscal year, down Skr3m, with pricing contributing Skr50m.
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By GlobalDataBranded adjusted operating profit climbed 20.8% to Skr186m, while in pick-and-mix it fell to Skr5m from Skr8m a year earlier.
In terms of profit, Ryden said: “We are pleased to report a very strong quarter where our pricing has offset the entire input cost. The underlying volumes are pretty much holding but with a decline due to our principled approach to fair pricing.”
He added: “We continue to see the effects of the compression from pricing with respect to the profit margin. Adjusted, it’s just shy of double digits at 9.6%. However, as costs eventually start to come down, we will see an equal and opposite positive effect on our margins.”
Ryden explained that while energy costs are coming down, Cloetta is locked into longer-term, higher price contracts at the same time as being up against sugar costs that are “very high”. And with pressure on the Swedish, Norwegian and British currency rates from a strong dollar, the CFO said “we are not yet at a point where pricing should be lowered”.
The Food and Agriculture Organization of the United Nations recently pointed to the high cost of sugar even as global food commodity prices continued to drop in June. While sugar prices halted a four-month run of increases last month, sugar was still 30% up on a year earlier after reaching the highest level in May since October 2011.
Cloetta, however, turned to a Skr73m net profit in the second quarter, compared to a Skr94m loss a year earlier. And Ryden suggested the company will continue to hike prices if necessary.
“In the combination of energy, sugar prices and forex – we do this quarterly calculations towards our customers in our fair-pricing model – and if there is a reason to raise we raise”, he said.
