- Rising sugar and cocoa prices are hitting margins for major confectioners
Leading confectionery companies may see investors running scared after they have delivered negative returns so far in 2024, with many no doubt hoping for a Halloween boost to get them back on track.
Despite looking forward to a much-needed seasonal upswing later in the year, Etoro’s confectionery basket has fallen two per cent in the year-to-date, compared to growth of 21 per cent in the S&P 500 during the same period.
Etoro’s confectionery basket is an equal weight index of the top eight sweet producers by sales.
Seasonal boost: Confectioners are betting on a sales boost from Halloween and Christmas
Over the past five years, sweet-treat manufacturers have returned just five per cent on average, according to data from Etoro.
This lags far behind the 95 per cent returns delivered by the S&P 500 over the same period, and 72 per cent growth by the MSCI World Index.
In the past 12 months alone, these firms have fared even worse, falling four per cent, while the S&P 500 grew 34 per cent in comparison.
Sam North, market analyst at Etoro, said: ‘Confectionery stocks are facing a challenging period. Rising cocoa and sugar prices have squeezed profit margins, whilst supply chain disruptions have led to increased production and distribution expenses.
‘Inflation and increasing cost of living have also affected consumer spending power, making it harder for people to spend money on non-essential items such as chocolates and snack bars.
‘Market saturation has also made it difficult for companies to sustain growth and profitability.’
However, bucking the otherwise worrying trend, some firms have seen more positive returns and in turn helped to improve the wider sector’s figures.
Cadbury, Milka and Toblerone producer Mondelez has seen a rather muted period recently, returning three per cent over the past twelve months, but has enjoyed growth of 28 per cent over a five-year period.
Sweet treats: Mondelez has invested heavily in developing lower-calorie product options
Similarly, US chocolate producer Hershey has grown 22 percent over five years, but also suffered more recently. While it lost four per cent over the past year, the brand has gained back three of those percentage points since January.
Swiss brand Lindt is the biggest long-term winner, having gained 30 per cent over the past five years, and is up four per cent this year so far.
However, the picture has been gloomier for fellow Swiss giant Nestle. The firm has fallen some 14 per cent this year so far, and is down 22 per cent over the past five years.
The firm’s nine-month underlying sales increased by just two per cent and below expectations, bringing its full-year forecasted sales to rise by only two per cent, its ‘lowest rate since the turn of the century.’
| Country | Stock | Brands | Returns YTD | Returns 1 year | Returns 3 years | Returns 5 years |
|---|---|---|---|---|---|---|
| US | Mondelez | Cadbury, Oreo, Milka, Toblerone, Trident, Chips Ahoy!, Sour Patch Kids, Halls | 1% | 3% | 23% | 28% |
| US | Hershey | Hershey’s, Reese’s, Kit Kat (US), Twizzlers, Jolly Rancher, York, Almond Joy | 3% | -4% | 12% | 22% |
| Switzerland | Nestle | Smarties, Aero, Rolo, Kit Kat (outside the US), Lion, Toffo, Milkybar, Quality Street | -14% | -19% | -25% | -22% |
| Switzerland | Lindt | Lindt Excellence, Lindor, Lindt Creation, Lindt Gold Bunny, Lindt Nuxor | 4% | 6% | -2% | 30% |
| Japan | Meiji Holdings | Meiji Milk Chocolate, Kinoko no Yama, Takenoko no Sato, Apollo, Chocorooms | 10% | -1% | 3% | -5% |
| Japan | Ezaki Glico | Pocky, Pretz, Giant Pocky, Almond Chocolate, Collon, Caplico, Bisco, Cheeza | 7% | 8% | 8% | -1% |
| South Korean | Orion | Choco Pie, Orion Custard, Market O, Goraebab, Jelly Turtle Chips, My Gummy | -17% | -25% | -17% | -4% |
| US | Tootsie Roll | Tootsie Roll, Tootsie Pops, Dots, Crows, Junior Mints, Charleston Chew | -8% | 3% | 6% | -6% |
| Source: Etoro | ||||||
In August, Nestle’s chief executive Mark Schneider stepped down after continued underperformance.
The downturn among many chocolate producers comes as consumers increasingly avoid unhealthy foods. Some firms, such as Mondelez, have invested considerably in creating alternative product options in order to capitalise on this shift in attitudes.
North said: ‘The shift towards a healthier lifestyle is another pressing concern for this industry. As more people opt for snacks with lower sugar content and natural ingredients, companies have had to innovate their product lines.
‘Some examples include the low-calorie versions of Mondelez’s flagship products, the organic and non-GMO product line launched by Hershey, and the high-protein, whole grain, and fortified snacks developed by Nestle.’
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