PARIS — Mondelez International executives expect inflation-weary U.S. consumers to respond to short-term price-cutting promotions and adapt to higher food prices across the board by shifting to more cost-effective retail channels.
Speaking at Deutsche Bank’s dbAccess Global Consumer Conference in Paris, Mondelez Chairman and CEO Dirk van de Put and Chief Financial Officer Luca Zamarella were also optimistic about the company’s long-term growth prospects as prices stabilize and more consumers embrace the trend of snacking throughout the day as part of their meals.
“Our areas of business are very vibrant,” Van de Put told Steve Powers, head of Deutsche Bank’s U.S. consumer products division, during a question-and-answer session at the June 4 conference. “We’re going to continue to grow. We have a ton of growth opportunities. I always say our challenge is we don’t have growth opportunities, which we have a luxury compared to a lot of other companies. It’s a matter of what areas you bet on, executing correctly against those areas and making sure you get the right returns.”
Headquartered in Chicago, Mondelez’s products range from biscuits, baked goods, chocolates, gum, candy and other foods and beverages. Brand names include Oreo, Chips Ahoy, Ritz, Wheat Thins, Triscuit, BelVita, Clif, Honey Maid, Enjoy Life, Tate’s Bake Shop, Cadbury, Philadelphia, Tan, Sour Patch Kids and Toblerone.
“Looking to the future, we are expanding geographically,” Van de Put said. “In parts of the world where growth is starting to happen, we still have a lot of potential to grow. We have the execution that can take us to the next level, which will generate growth not just in top line but in earnings. We have a strong balance sheet. We’ve been making bolt-on acquisitions, which has also contributed to our growth. So we plan to continue doing that. And we’re doing well.”
“Innovation hasn’t played its part yet for us. So we have an opportunity to innovate. So, when you look at it, I don’t think you doubt for a second that we can deliver on financial algorithms.”
Van de Putt noted that the sharp rise in food prices had hit consumers and manufacturers hard.
“For two years, we’ve been able to price with very little impact on volume,” he said, explaining that in chocolate, for example, Mondelez has raised prices by 30 percent over the past two years while volumes continued to grow by 2 percent. “We’ve had great growth and with that great margins.
“…But now, things have changed, primarily in the U.S. Why? Consumers are in a completely different situation. SNAP has been cut. They have to start paying back college loans. The COVID benefits they had are gone. Savings have been depleted. Credit card debt is rising. All of a sudden, some consumers and some families are really asking themselves, ‘How am I going to spend my money?’ and having to think hard about it. And at the same time, all of a sudden they’re faced with the reality that, ‘Wow, I thought this was going to cost me this much before, and now it’s so much more expensive.’ And they start thinking more about what to do. So the U.S. consumer is clearly changing.”
Van de Put said European consumers were “less shocked by the inflationary period”, but in emerging markets adjustments to pack sizes by Mondelez had reduced elasticity on the consumer side.
He noted that in the United States, consumers are changing their shopping behavior in search of cheaper prices.
“In the U.S., we’re seeing consumers shift channels,” Van de Putt said. “Instead of going to regular grocery stores or convenience stores, they’re starting to shift to discount stores. Consumers are buying more on promotions, and the frequency of their purchases is changing. The channels that consumers buy and the frequency of their purchases are changing. Consumers are also buying less and looking a little more to private label.”
“These changes weren’t as obvious last year. Most businesses are suddenly in a price range that’s no longer acceptable to consumers. And that’s only become apparent in the last six to nine months.”
Three years ago, 60% to 70% of Mondelez’s product line sold for less than $3; now that price is $4, Mr. Van de Putte said.
“We clearly need to get back to sub-$4 price points,” he explained. “The way to do that is to run different promotions that are interesting to consumers in the short term. In the long term, we’ll launch packs that sell for $3, $4, and make a fair profit margin for us. In the meantime, I think we’ll see an increase in interest in the category, which is currently down 1%. Consumers are optimistic about the future, but day-to-day behavior is clearly a shift in sentiment today, so I think the overall economic situation will improve. If consumers find products at a better price point, the economic situation will improve.”
Meanwhile, Zalamella said Mondelez has made good progress in pricing negotiations in Europe recently.
“We’ve now completed our pricing plan in Europe,” he said. “We’ve priced across all retailers, across all our partners, including the discounters. So, in terms of the pricing implementation, we’re seeing results that we expected, although of course we are mindful that when we implemented our pricing earlier this year, in the intervening period, cocoa prices were a little bit higher than we expected.”
For Mondelez, the impact of the market turmoil was “greater than we expected,” Zalamella said.
“Pricing remained on track and performed particularly well in some key markets during the busy season, which is important for chocolate,” he said. “In fact, our Easter chocolate business reached a record high and we are very pleased with the performance. With the summer holidays approaching, we will continue to increase our presence, particularly in France and Germany. We look forward to rebalancing trading and seeing volumes normalize in Europe.”
On the distribution side, Mondelez has seen strong growth in India and aims to continue to focus on other emerging markets, such as China and Brazil. Deutsche Bank’s Powers noted that Mondelez aims to open about 3 million new stores in emerging markets by 2030, up about 25% from 2023.
“In high-potential markets like China, India and Brazil, we’re looking for at least high single-digit growth, and preferably double-digit growth,” Zalamella said. “The vast majority of growth in some of these markets will be volume-driven. Again, we’re maintaining our key entry price points, and that’s how we attract consumers to our brand, our chocolates and our cookies.”
He also cited Southeast Asia and parts of Africa as “promising emerging markets that are becoming very important,” adding that “we’re not done exploiting the opportunity in emerging markets yet.”
In developed markets like the United States, Mondelez is working to expand its presence in mass-market channels such as discount and convenience stores.
“We don’t have a strong presence in discount stores,” Van de Put said. “They’re obviously a faster-growing channel than the rest of our business as we’re catching up, so in the short term it’s to our advantage to focus on those channels.”
Mondelez is also tweaking its assortment in the U.S. convenience store channel.
“We’re doing some testing,” Van de Putt said, “and if it’s successful, it will be a new growth area for us. Long term, we think the convenience store opportunity is probably $1 billion in the U.S. alone.”
Van de Putt said Mondelez is also banking on a gradually growing trend toward “multiple meals per day and more on-the-go eating,” especially among millennials and Gen Z. He noted that many consumers see sweet snacks as an affordable and enjoyable option, and the category’s historical growth of 3% to 5% has accelerated recently and is starting to catch up with the growth of savory snacks.
“We recently entered new categories: cakes, pastries and bars,” says van de Putt. “The bar phenomenon, the healthy bar, started in the US. Currently, over 50% of that market is in the US. But the phenomenon is starting to spread to Europe. The UK bar market is already quite large and it’s spreading to other European countries. It’s starting in Australia. It’s starting in Latin America. That’s why we entered the bar market.”
Van de Put added that entering the cakes and pastries category would be a “natural evolution” for Mondelez in many countries.
Mondelez has expanded its iconic Oreo cookie into the cake category.
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