Chocolate Industry: A Brief Review of Current Business Trends
On Sunday June 25, I’ll be pursuing a “Chocolate Marathon” in Paris, France.
As the name suggests, this involves approximately 26 miles of walking and running over the course of a day while visiting as many chocolateries (specialist manufacturer-retailers of chocolate) as possible. It’s a great way to experience Paris and explore some of the world’s greatest chocolate at the same time.
While I’ve done this on my own three times in the past, I was curious to see if there are readers of this Substack who would like to join me. The timing immediately follows the conclusion of the Cannes Lions, so may be ideal for anyone passing through Paris on their way home.
If you would like to participate or explore sponsorship opportunities, please reach out to me at brian@madisonandwall.com .
Those who have known me for a while are likely aware that I’m a fan of high-quality chocolate. I’ve even looked at the chocolate business for lessons to help understand how the ad tech sector would evolve.
As I’ve recently pointed out that most packaged goods companies have provided commentary for the first quarter showing healthy growth so far this year (with expectations for current trends to continue) I was curious to see how the chocolate sub-sector was evolving within it.
It should go without saying that this isn’t solely about chocolate: it’s a relatively decent-sized advertising category, too. Hershey and Mondelez both allocate around 5% of revenues to advertising, implying perhaps $5 billion of global ad spending for the broader confectionery category.(1)
While some of the biggest players in the space are private, including Mars and Ferrero, we do have data from other consumer-focused chocolate manufacturers including Mondelez, Nestle, Hershey and Lindt & Sprüngli. As well, B2B-focused manufacturer Barry Callebaut provides an additional frame of reference on the business. Collectively, these companies generate nearly $40 billion in annual sales from chocolate.
Although I’m sure these points will be far from ground-breaking for readers who are immersed in the business, as a relative amateur when it comes to the chocolate industry I thought the following were interesting takeaways.
1. Like much of the packaged goods industry, organic revenue growth has shifted from low single digits pre-pandemic to high single and low double digits in the past couple of years. Inflation has clearly been a factor, but underlying growth appears stronger now than it was before
Source: Madison and Wall analysis of company reports
2. After a year where organic growth was around 10%, organic growth trends continue to be healthy in 2023. Lindt does not provide quarterly results, but in March provided full year guidance for 6-8% growth. Others posted the following results during the first few months of the year:
Hershey’s North America confectionery business was up 10.9%
Mondelez’ global chocolate segment was up 18.4%
Nestle’s confectionary segment – nearly 80% of which is chocolate – was up 13.5%
Barry Callebaut grew approximately 8% in the three months through the end of February
3. Profit (EBIT) margins for those who make relevant disclosures are mixed relative to pre-pandemic levels, but probably not materially different overall.
Hershey’s North America Confectionery segment ended 2022 with a 32.9% margin vs. the similar North America segment, which was 30.0% in 2019
Lindt’s global margin was 15.0% in 2022 vs. 13.2% in 2019. North America rose significantly, from 4.3% to 10.9% over the same period
Nestle’s Confectionery segment margin was 16.9% in 2019 and 16.8% in 2022
Barry Callebaut’s global margin was 8.2% in their fiscal 2019 (ending in August of that year) vs. 6.8% during fiscal 2022
(1) Euromonitor data tracked by Barry Callebaut indicates $128 billion in retail revenue for chocolate confectionery during 2023 of which we might presume around $100 billion goes to manufacturers. 5% of this total would equate to $5 billion in advertising expenses.