Milka, Oreo, Ritz: “We can’t avoid increasing prices” – Mondelez CEO puts consumers in the mood for expensive times
Düsseldorf Lockdown and home office have permanently changed snacking and snacking – and with it the business of Milka and Oreo manufacturer Mondelez. For example, sales of chewing gum worldwide collapsed in the pandemic. “Chewing gum is chewed on the go – on the way to work, to school or an event,” explains CEO Dirk Van de Put in an interview with Handelsblatt. “Instead, people sought relaxation at home with cookies and chocolate. Because they were stressed and insecure.
The US group with 79,000 employees increased its sales in 2020 by four percent to 27 billion dollars – and thus by one percentage point more than the market. The operating profit margin was most recently at 18 percent. Mondelez recently raised its sales forecast for 2021 from 4.0 to 4.5 percent. “These are good numbers because it wasn’t easy to keep our supply chain stable,” says de Put.
The collateral damage of the pandemic is only now becoming apparent worldwide: lack of raw materials and materials, shortage of personnel and problems with transport. All of this leads to rising inflation. “The global supply chains are severely disrupted by Corona. That increases our operating costs significantly, ”says Van de Put.
Despite hedging, Mondelez – like so many consumer goods manufacturers from Nestlé to Unilever to Danone – is forced to raise prices. Energy, palm oil, wheat, milk and packaging material have become significantly more expensive. However, Van de Put sees the most serious problem in the exploding transport costs: “There is a lack of trucks and truck drivers everywhere.” In Europe, logistics costs have risen by 20 to 30 percent. The situation will worsen in 2022.
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Worry that inflation will rise massively
In the US, Mondelez announced price increases for January. “In Germany, too, we cannot avoid increasing the prices for some selected products in 2022.” He left it open which brands and articles from Milka, Oreo, Ritz, Toblerone, Philadelphia or Miracel Whip will be affected.
“My big concern is that inflation will rise so massively that we will get into a vicious circle – an inflation spiral as we know it from emerging countries.” Van de Put hopes that the situation will stabilize from the end of 2022. However, food prices would remain high.
Mondelez was created in 2012 through a spin-off of the international snack and coffee business from the US group Kraft Foods, which later merged with Heinz. The name is made up of “world” (“monde”) and “delicious”. The Illinois-based company is the world market leader in the $ 103 billion market for biscuits, bars and nut snacks, with a 12 percent share, according to Bloomberg Intelligence. Mondelez makes every other dollar from cookies. When it comes to confectionery like chocolate and chewing gum, Mondelez is number two behind Mars.
Van de Put continues to strategically reorganize the group. “We were a snack and coffee company. Because our financial strength is not enough to become a leading coffee company, we decided to bundle our brands such as Jacobs and Tassimo in the JAB of the Reimann family. ”Most recently, Mondelez held 26.5 percent of the newcomer JDE and 6.4 percent Keurig Dr. Pepper. In the long run, Mondelez will get out of the coffee business entirely. “Whether we make the exit in three, five or ten years depends on the share price.”
Mondelez grows through acquisitions
Mondelez is constantly expanding its global biscuit and chocolate brands into other categories. The Oreo double biscuit, for example, can be found in muesli, yoghurt or in cakes. “The boundaries between the product categories are becoming more and more blurred,” states the CEO.
“Mondelez used to be a biscuit manufacturer, today we see ourselves as a biscuit manufacturer. Soft pastries and cakes are a huge field that we can now also cultivate with our strong brands. ”With this, Mondelez wants to arm its brands against the competition that invades its fields. Ferrero now also sells wafer bars (Nutella B-Ready) and biscuit waffles (Kinder Cards).
Mondelez does not produce many cross-over products itself, but issues licenses. Van de Put is not worried that its own brands will be overstretched. “Our global brands are very successful in new categories.”
Mondelez wants to expand geographically on the one hand: “There are still a few countries in which we are not yet number one or two in terms of biscuits or chocolate.” On the other hand, the group is growing through acquisitions. In 2021 alone, four local brands such as Chipita were acquired from Greece. “The trend is towards regionality, and that also applies to brands. Local brands have a bright future, ”says the CEO. Even if it is of course much more complex to manage 20 local brands than a global one. Morgan Stanley recommends overweight Mondelez shares, also because of the focus on local brands and emerging markets.
Mondelez is also underrepresented in premium chocolate. The segment will have a high priority in the future, as will digital business models, such as an online shop for personalized nut mixes in China and the “Health & Wellness” area.
Increasing criticism because of plastic waste and environmental damage
Mondelez classifies only 30 percent of its range as “healthy” – that is, with less sugar, organic, purely natural ingredients or additional benefits. Health & wellness products only account for one seventh of Mondelez’s sales. “We follow the law of the masses and therefore mainly rely on pleasure products. We don’t get our growth from nut and protein bars, even if this category is growing a little faster. “
With the acquisition of the British protein bar manufacturer Grenade, Mondelez wants to catch up with Nestlé with Yes bars and Mars with “Be Kind” bars. “So far, protein and nut bars have been a little off our radar,” admits Van de Put.
In Germany, advertising aimed at children for foods that are actually unhealthy could now be restricted. Consumer goods companies like Mondelez are also increasingly criticized for plastic waste and damage to the environment and climate. Mondelez aims to zero its greenhouse gas emissions across the supply chain by 2050.
“71 percent of our carbon footprint comes from our ingredients.” With the “Cocoa Life” and “Harmony” programs, Mondelez wants to make the cultivation of cocoa and wheat more sustainable. “The many small cocoa farmers have to change their cultivation methods. We can only do this if we work closely with NGOs, governments and competitors. But that takes time, ”says Van de Put.
The environmental organization “Break Free From Plastic” recently named Mondelez the sixth largest plastic polluter in the world. By 2025, the group wants to make all packaging at least recyclable and use five percent less new plastic by 2025. The group wants to switch to renewable energies and reduce food waste. “Initially, these are high investments. But they will cut our costs significantly in the long run, ”says Van de Put.
More: Consumer goods giants are under cost pressure – and are increasing prices