Mondelēz prepares for ‘a frugal year’ in 2025, turns to collabs, pack sizes to spur growth

05-Sep-2024 - Last updated on 05-Sep-2024 at 13:46 GMT

Source: Getty Images/ Kwangmoozaa

Related tags Mondelez Cocoa Cocoa prices

Sweets and snacks giant Mondelēz is preparing efficiency measures in 2025 to offset lower volume sales and higher cocoa prices and focusing on product collaborations like its one with Coca-Cola to spur growth, two executives shared during a fireside chat at the Barclays Global Consumer Staples Conference.

“We are confronted with two big things for next year. One is the consumer, and how long this suppressed consumption pattern is going to continue, and what we do with it. And second, we have the cocoa inflation that is a temporary offset,” said Mondelēz CEO Dirk Van de Put.

He added, “The tactical things we need to do is probably adjust some of our promotional techniques, our [revenue growth management] ... [and] make sure that we only invest where it matters and try to keep all our other costs under control and probably reduce them. So, it is going to be a frugal year.”

‘We are not going to touch the formulation of our products’

Mondelēz is improving its profit and loss (P&L) statement through optimizing its portfolio and cutting costs, the company’s CFO Luca Zaramella shared. For instance, Mondelēz is “putting a tight lid” on its marketing expenditures, having identified “40% of [its] total marketing budget that is not working,” he noted.

“[2025] is going to be a year where we will calibrate expenses in areas that are not as impactful in terms of driving top-line growth ... but we feel confident that will also provide on an ongoing basis a much better P&L, as cocoa comes down and as we reap the benefits of all these actions that we are taking,” Zaramella added.

This year, cocoa prices surged due to poor crop yields in Africa and weather conditions that impacted growing conditions. However, Mondelēz expects the upcoming cocoa crop yield to be “up around ... 20-25% from what happened last year,” Zaramella explained.

Despite higher cocoa prices, Mondelēz will not reformulate its products to reduce costs, boost efficiencies and increase productivity, he stressed.

“We are not going to touch the formulation of our products, and so you can still enjoy Milka and Cadbury and all the beloved brands that we have as they are today. We are not going to change cocoa content or anything because of [high prices]. Again, our goal is to keep chocolate intact as a category as we move forward,” Zaramella elaborated.

Oreo, Coca-Cola collab set to ‘double the volume of any other activation’

Mondelēz is exploring ways to expand the cultural relevance of its brands, including Oreo, with product collaborations, while creating more entry-level price points with smaller pack sizes, Van de Put explained.

Last month, Mondelēz partnered with Coca-Cola for the release of Oreo Coca-Cola cookies and Coca-Cola Oreo Zero Sugar limited-time offerings (LTOs), which will be available starting in the middle of September. Previously, Mondelēz released co-branded Star Wars, Mario and Pokémon Oreo cookies and released a Sour Patch Kids LTO earlier this year.

“We are excited because [the Coca-Cola partnership is] the biggest activation we have ever done on Oreo, and we already see it in the volume. It is going to be double the volume of any other activation we have done so far,” Van de Put said.

Mondelēz growth in Q3 2024, with ‘solid numbers’ in July, August

Mondelēz outlined in its Q2 2024 earnings how it was appealing to value-conscious consumers through smaller pack sizes at lower price points, with products in the $3-4 range. As it rolls out these products, Mondelēz already sees success with these lower-priced products, Van de Put noted.

“The biscuit category, which is our main category, is stabilizing. ... We are seeing slight volume growth at the moment, nothing to get too excited about, but from negative volume growth now it is flat to slightly positive. The second thing that we are looking for is what is happening to our market share — our market share is improving,” he elaborated.

Looking ahead, Mondelēz is confident that the second half of the fiscal year is going to be “quite good” with “solid numbers” in July and August, as several initiatives bring back volumes, Van de Put explained.

“You will be pleased with the numbers you are going to see in Q3, so we feel quite good in terms of profitability. I think you saw the material profit increases that we had year-on-year. Now, part of it is clearly driven by the favorability related to how we procure cocoa in the first part of the year, but on the other side, that gives us a little bit of more flexibility to activate promotions where we see some consumer softness,” he elaborated.