Mondelez executives are seeing early signs of a volume pick-up, although pricing-hit consumers and cocoa inflation still remain headwinds.

Further pricing is still on the cards, however, through the second half of the chocolate and biscuits maker’s fiscal year, now into its third month, predominately on the back of still high but easing cocoa prices.

But Mondelez will be selective on price and also reactionary to any consumer kick-back with volume recovery and protecting market share as two key priorities, CEO Dirk Van de Put said yesterday (4 September) as he addressed participants at the Barclays Global Consumer Conference.

Mondelez continued to price in the second quarter to the tune of 4.7% but the pace slowed for a fifth straight quarter as negotiations in Europe largely concluded, figures showed in July. But volume-mix was down 2.2% in the three months to 30 June, negative for a third consecutive quarter.

There remains a disconnect between the reaction to pricing in Europe and North America, predominately the US, and in turn volume recovery, Van de Put told the audience.

“We're now fully at filling the pipeline and acting normally in the market,” the head of the Cadbury and Oreo brand owner said in terms of pricing in Europe.

“We see a more optimistic view - unemployment is low in Europe, they see good wage increases, inflation is easing and starting to go down in some items.”

Van de Put said consumers have become “frustrated with the inflation” as he explained the disconnect.

“In the US, I would say the frustration is much bigger than it is in Europe. I think the European consumer sees a little bit less inflation than the US consumer and the US consumer tends to react more violently to these things, so we see less elasticity.”

For the US, the CEO explained: “The first thing is that the biscuit category, which is our main category, is stabilising. We're seeing slight volume growth at the moment, nothing to get too excited about but from negative volume growth, now it's flat to slightly positive.

“Our market share is improving. Does that translate into positive volume growth for us in the second half of the year? So far, after two months, that is the case. After two months, we feel pretty good of where we are.”

Chocolate pricing

As well as pricing, Mondelez is employing other revenue growth management (RGM) techniques, which otherwise would generally include portfolio mix, trade investment and promotions.

“We will have to do more pricing in chocolate,” Van de Put said, albeit the upcoming Africa harvest is showing positive signs of being better than last year.

“We're putting in place a number of mechanisms. We won't line price everything. We will launch some new items at different price points. We will do RGM and on top of that, when we do line pricing, we won't do it in one big shot,” he explained.

Presenting the second-quarter results at the end of July, Mondelez stuck with its organic growth outlook at the “upper end” of a 3-5% range, implying an acceleration in the back half from the print of 2.5%.

“We are in a good place in terms of having implemented pricing now, particularly in Europe, disruption is behind us,” CFO Luca Zaramella said when asked for an update at the conference.

“Second, a recovery from the US market softness, recent numbers [are] quite good, I would say, and encouraging.”

Zaramella noted cocoa has come off its recent historical highs and early indications are that the upcoming crop, particularly in Africa, is going to be up about 20-25%.

In the context of pricing in chocolate linked to cocoa, he said: “The goal is really to protect volume, to protect our share. We will play with line pricing in a way that will allow us to optimise our top line, first and foremost, because we believe cocoa eventually will come down, regardless of our cost, into 2025.”

M&A plans?

In terms of potential M&A, Van de Put and Zaramella pointed to expanding the presence in the cakes and pastries category, particularly in markets where Mondelez has reached scale in biscuits, chocolate and baked snacks.

“We keep on being very excited about cakes and pastry. It is a massive category. It is a category that grows very fast,” the CFO said.

Van de Put added as he explained cakes and pastries often sit in the same aisle as biscuits.

“It's a natural extension of the biscuit space. It's a space that's very fragmented. It's about an $80bn market globally, slightly smaller, but not a lot, than chocolate and biscuits.

“But in certain markets like China, chocolate is $4bn, biscuits is $8bn and cakes and pastries is $30bn. The other reason why it's interesting for us is that the brands we have in chocolate or biscuits have a natural right to play in that space.”