Mondelez sweetens pricing to capitalize on snacking trend

PARIS — Mondelez International executives expect inflation-weary US consumers to respond to short-term price promotions and shift to more cost-friendly retail channels as they adjust to elevated pricing across food categories.

Speaking at the Deutsche Bank dbAccess Global Consumer Conference in Paris, Dirk Van de Put, chairman and chief executive officer of Mondelez, and Luca Zamarella, chief financial officer, also were upbeat about long-term growth prospects as pricing stabilizes and more consumers embrace a trend of snacking throughout the day as part of meal regimens.

“Our categories are very vibrant,” Van de Put told Steve Powers, head of Deutsche Bank’s US consumer packaged goods practice, in a question-and-answer session at the conference on June 4. “They will continue to grow.” We have a runway of growth opportunities. I always say our issue is not having growth opportunities, which is a luxury compared to many other companies. It is which ones to bet on, execute right against them and make sure you get the right returns.”

Chicago-based Mondelez’s products span biscuits, baked snacks, chocolate, gum and candy, along with other food and beverage offerings. Its brand roster includes Oreo, Chips Ahoy!, Ritz, Wheat Thins, Triscuit, belVita, Clif, Honey Maid, Enjoy Life, Tate’s Bake Shop, Cadbury, Philadelphia, Tang, Sour Patch Kids and Toblerone, among others.

“If you think about the future, we have geographical expansion,” Van de Put said. “We still can get a lot stronger in the areas of the world where the growth will start to happen. We have execution that we can lift to the next level, which will generate top-line but also bottom-line growth. We have a strong balance sheet. We’ve been doing bolt-on acquisitions, which was another part that contributed to growth. So we’re planning to continue that. And we are making good progress.

“Innovation has not yet played the role that it should play for us. So there is an opportunity for us to step up in innovation. So, if you look through that, I really would not doubt for a second that we can deliver against our financial algorithm.”

The sharp run-up in food price inflation hit consumers and manufacturers hard, Van de Put noted.

“For two years, we’ve been able to price without really having any volume effect on what we were doing,” he said, explaining that in chocolate, for example, Mondelez lifted prices 30% over the past two years and volume kept growing at 2%. “You got some great growth with an excellent bottom line to go with it.

“…But now, the situation has changed, I would say mainly in the US. Why? Consumers find themselves in a completely different situation. SNAP has been reduced. They have to start paying back their college loans. The benefit payments they got during COVID are gone. Savings have been depleted. Credit card debt is going up. Suddenly, there is a group of consumers or families that need to really ask themselves, ‘How am I going to spend my money?’ And they need to think that through. At the same time, they find themselves confronted suddenly with the realization, ‘Wow, I used to think this costed so much, and now it costs a lot more.’ And they start to think a lot more (about) what to do. So it’s clearly a change with the consumer in the US.”

European consumers have been “less shocked by the inflationary period,” while in emerging markets, pack-size adjustments by Mondelez have resulted in less elasticity on the consumer end, Van de Put said.

In the United States, consumers have altered their shopping behavior in the hunt for lower prices, he noted.

“What we see them do in the US is start shifting channels,” Van de Put said. “So instead of buying in your normal grocery store or in a convenience store, you start to shift to discounters. They start to buy more on promotion, so the frequency is changing. The channel where they buy and the frequency is changing. Also, the quantity they buy is coming down, and they’re looking a little bit more to private label.

“Those are shifts that weren’t so obvious in the previous year. Most companies find themselves now at price points which, suddenly for the consumer, are not acceptable anymore. And that has become evident over the last six to nine months.”

Three years ago, Mondelez had 60% to 70% of its product range selling below $3, whereas now that price point stands at $4, Van de Put said.

“It’s clear we need to bring it back down below the $4 price point,” he explained. “The way we do that is, in the short term, run different promotions that make it interesting for the consumer. In the longer term, it’s launching packs that are sold at $3, at $4, at the right margins for us. While we do that, I think interest in the category — down 1% in volume at the moment — will go up. I think the overall economic situation will get better because the strange thing is that consumers express optimism about the future, but what they do on a day-to-day basis is clearly a shift in what they feel today. So the economic situation will be better if they find products at better price points.”

Meanwhile, Zaramella said Mondelez has made good progress in price negotiations, most recently in Europe.

“We are now completely done with our pricing plans in Europe,” he said. “We priced all the retailers, all the alliances, inclusive of discounters. So we are where we expected to be in terms of pricing implementation, clearly keeping in mind that cocoa in the meantime has gone a little bit higher than what we anticipated as we implemented prices at the beginning of the year.”

For Mondelez, the impact of market disruption was “better than we anticipated,” Zaramella said.

“Pricing is exactly in line and, importantly, we didn’t miss a beat, particularly in some important markets around big seasons that are particularly important for chocolate,” he said. “In fact, our chocolate Easter business was the highest it has ever been, and we are very happy with the execution. Now that we are approaching the summer holidays, we are going to have more presence, particularly in France and Germany. We will be re-piping the trade, and so we expect a normalization of volume in Europe.”

On the distribution side, Mondelez has seen robust growth in India and aims to continue to focus on other emerging markets such as China and Brazil. Deutsche Bank’s Powers noted that, in emerging markets, Mondelez aims to add some 3 million new stores by 2030, or a roughly 25% increase over 2023.

“In high-potential markets like China, India, Brazil, etc., we want to grow at least high single-digit, if not double-digit,” Zaramella said. “The overwhelming majority of the growth in some of these markets is volume-driven because, again, we protect key entry price points, which is a way to attract consumers to our brands and to our chocolate and cookies.”

He also cited another “up-and-coming set of emerging markets that is becoming very relevant,” naming Southeast Asia and some parts of Africa. “We are far from being done on exploiting opportunities in emerging markets,” he added.

In developed markets like the United States, Mondelez is working to boost its presence in mass retail channels, such as discounters, as well as in convenience stores.

“We are underrepresented in discounters,” Van de Put said. “It is clearly a channel where we are growing faster than the rest of the business because we’re catching up on where we are. So it helps us in the short term also to focus on these channels.”

Mondelez, too, is fine-tuning its assortments in the US convenience store channel.

“We’re going through a number of tests,” Van de Put said. “If those are successful, it’s going to be sort of a new growth area for us. We think that, over time, the opportunity for us in convenience stores in the US alone is probably $1 billion.”

Over time, Mondelez also is banking on a rising trend — particularly among millennials and Generation Zers — of “eating several times a day, eating much more on the go,” Van de Put said. He noted that many consumers now see sweet snacks as affordable options to indulge, and the category’s historical growth of 3% to 5% recently has accelerated and begun catching up with that of salty snacks.

“We’ve recently entered new categories, cakes and pastries and bars,” Van de Put said. “The whole bar phenomenon — healthier bars — started in the US. More than 50% (of that market) today is in the US. But the phenomenon is starting to come to Europe. The bar market in the UK is already quite big. It’s entering other European countries. It’s starting in Australia. It’s starting in Latin America. So that’s why we’ve entered the bar market.”

Entering the cakes and pastries arena marks a “natural extension” for Mondelez in many countries, Van de Put added.

“Think about the biscuit being harder,” he said. “This is the softer side of things, and so our brands have the right to play there. We have Oreo now that’s available in the typical Oreo (cookie) format, but you (also now) have it in a soft cake — same form, but it’s softer. So I think it’s a natural extension for our brands.”