Rising cocoa prices biting into ad budgets of chocolate giants?

In a bid to navigate surging cocoa prices, chocolate giants like Mondelez India and Hershey India are likely to slash advertising budgets in 2024, industry insiders reveal. 

The spike in cocoa costs—driven by supply chain disruptions, climate concerns, and geopolitical tensions—is believed to have put intense financial pressure on confectionery brands, prompting them to reassess discretionary spending. Marketing and promotions are often the first to face cuts.

“Historically, the chocolate industry has relied heavily on advertising to drive seasonal demand, but with raw material costs hitting record highs, brands may shift focus to maximising profitability over aggressive brand-building”, industry insiders say. 

“Marketing budgets are often the first to be scrutinised when input costs soar,” said a senior industry executive. “With cocoa prices showing no signs of stabilising, brands will need to make tough calls on where to invest their dollars. For Mondelez and Hershey, the balancing act lies in maintaining consumer demand while managing shrinking margins.” she noted. 

All sources requested anonymity due to the confidential nature of the strategies.

Hershey’s India had already slashed its ad spends from Rs 164 cr in FY23 to Rs 85 cr in FY24, according to their financial report obtained from Tofler. The company also suffered a revenue loss of Rs 21 cr in this period. The US-based firm is likely to cut its India ad spend further by 15-20 percent in the current fiscal year, experts say. 

Mondelez India hiked its ad spend taking it to nearly Rs 1,600 cr in FY24, from Rs 1,400 Cr a year ago. This bold move helped the company, which owns iconic brands such as Cadbury Dairy Milk, 5 Star and Bournvita, to capture the market space and rake in 13 percent more sales and 70 percent more profits in this period. 

“However, the constant rise in input costs has prompted the Oreo maker to consider a 30-35 percent cut in ad spends in the current fiscal, keeping it in the range of Rs 900 cr”, executives noted. 

Notably,  Chicago-headquartered Mondelez commands nearly a two-third share in the Indian chocolate market. Pennsylvania-headquartered Hershey’s share is less than 10 percent. Ferrero, Nestle and Indian player Amul are also key players in the market. 

Mondelez India and Hershey India’s responses were awaited till the time of writing these lines. The copy will be updated as and when they respond. 

Prices doubled in two years

Bakers and patissiers in India are grappling with soaring cocoa prices that have surged by 110%-200%, impacting their chocolate-heavy menus. Globally, cocoa prices reached $10,000 a tonne, according to media reports. 

“Despite hopes for a better crop in the 2024/25 season, cocoa prices look set to remain high in the medium term, hovering around the $6,000/tonne mark once a balanced market is reached. This could in turn impact the chocolate market, with confectionery prices likely to increase in 2025,” said a JP Morgan report published in December 2024. 

A combination of extreme weather conditions, crop diseases, underinvestment in cocoa farms, and steady consumer demand has tightened supply, forcing the confectionary industry to brace for financial strain.

West Africa contributes around 80% of the world’s cocoa output, and cocoa availability in the region is at historical lows. “Overall, the world cocoa balance is shaping up to be in a modest deficit through 2024/25 of around 100,000 tonnes, versus the record deficit of around 460,000 tonnes in 2023/24,” says Tracey Allen, an agricultural commodities strategist. 

Mondelez International and Hershey’s have both cautioned that record-high cocoa costs will weigh heavily on their businesses throughout 2025. The Oreo maker warned of “unprecedented” inflation for the commodity that would reduce its earnings, while the Kisses giant cautioned of a disconnect between fundamentals and market price. 

“We are navigating unprecedented cocoa cost inflation,” said Mondelez CEO Dirk Van de Put in a statement. He acknowledged that if prices remain elevated, the company may have to implement further price hikes later this year or into 2026. Despite these challenges, Van de Put noted that consumers still have a strong appetite for chocolate, describing it as an "indulgence they can't live without."

Hershey CEO Michele Buck echoed similar concerns, stating that the “surge in cocoa prices will put significant pressure on 2025 earnings.” 

With cocoa prices showing no signs of stabilising, the industry faces a critical test in balancing profitability with consumer demand in the years ahead.

However, ad and media industry believes that the chocolate market in India has a wide scope to grow. “On a per capita basis, Indians consume roughly 170 grams of chocolate a year, the least among emerging markets, and ten times lower than developed markets. Naturally, our market has the scope to grow. In fact, it's among one of the fastest-growing markets. Hence, ad spend is likely to rebound soon even if it is being slashed in the ongoing fiscal,” said an ad executive. 

It is the sheer size of the market that makes India attractive for these international brands. Taking into account India’s “demographic and economic potential” and the “expected consumption growth rates in the years ahead,” global players are competing with each other across geographies and formats to bolster their share.

Strategies to save marketing costs

Mondelēz International has been developing a proprietary generative AI content creation platform in collaboration with Accenture and Publicis Groupe since last year. 

AI-driven campaigns are expected to launch soon across key markets, including the U.S., U.K., Germany, India, and Latin America, Jon Halvorson, SVP of Consumer Experiences and Digital Commerce at Mondelēz, was quoted as saying by an international portal. 

The platform will generate content at scale. It will begin with performance-driven marketing content, eventually expanding to television ads. With over 60% of its advertising and consumer promotion budget allocated to creative development and production, Mondelēz sees AI as a key tool to reduce marketing costs while accelerating content production. 

The Kit Kat maker Hershey has also developed an AI tool which is used to automate its media bidding strategy. “We started by developing a custom algorithm by feeding sales data into our media algorithms, broken down by zip code. Once built, we let AI take over. By increasing ad spending where sales were effectively under the national sell-through average of 85%, we were able to focus our dollars where it mattered most, driving a sell-through of 90% in the underperforming market during our Halloween season,” Vinny Rinaldi, Head of Media, The Hershey Company, had stated during CES 2024. 

Chocolate market in India

The chocolate category in India stands at Rs 19,000 cr and is expected to grow at a CAGR of 8.8 from 2023 onwards. Within this, premium chocolates account for 30% of the overall market share. With disposable income and health awareness increasing across age groups, many consumers are switching to more expensive, premium chocolates. Approximately 39% of Indian consumers consider chocolates ideal for gifting – whether it is for birthdays, festivals, weddings or anniversaries.