COVID-19 Impact on Chocolate in Food and Beverages Industry

Overview

Chocolate is a confectionery product manufactured from the processing of cocoa beans. The outbreak of the COVID-19 pandemic has forced governments across the world for lockdowns which are causing supply chain disruptions in the chocolate industry. The demand for cocoa grindings has reduced because of the reduction in global chocolate consumption. Cocoa grinding is a major ingredient used in chocolate production. 

For instance,

Association of German Confectionery Industry (BDSI) members and eleven German companies working in the cocoa grinding industry reported that cocoa grinding in the second quarter of 2020, their production facilities produced 78,825.2 tonnes of cocoa which is 16.3% less than the corresponding quarter of the previous year. Various other countries across the world the confectionery manufacturers faced a downturn owing to the disruptions in the supply chain. The sales channel such as confectionery stores and department stores have been closed from the previous few months. The European Cocoa organization (ECA) also reported the reduction in the cocoa grounding which is valued at 314, 108 tonnes in Europe, this value is 8.9% less than the previous year.

TOP EXPORT AND IMPORT COUNTRIES FOR CHOCOLATE
•    Export (2019)

• Import (2019)

Source: World Integrated Trade Solution (WITS)

COCOA BEAN PRODUCTION (2018)

COVID-19 IMPACT SUPPLY CHAIN IMPACT

• About 70% of the global cocoa production is done by smallholder farmers based in West Africa, Ghana, and Côte d’Ivoire which are the key suppliers accounting for two-thirds of the world cocoa supply with Côte d’Ivoire alone producing 42% followed by Cameroon, Nigeria, and Togo. The majority of the chocolate products come to supermarket shelves of European and Western countries from a production chain that starts in West Africa. Owing to the COVID-19 pandemic and lockdowns the farmers have restricted access to inputs such as fertilizers and seeds.
• During the initial phase of the COVID-19, the cocoa prices were decreased and the cost of transportation was increased. The biggest challenge is to collect cocoa from small farmers and supply it to the cacao exporters and cacao processors for the production of chocolate. The restrictions on the transportation and closing of borders have worsened the situation. Because of his the chocolate manufacturers or processors are facing a shortage in the supply of raw materials which is affecting their sales. 
• Owing to the reduction in the consumption of chocolate and transportation issues across the world, the manufactures, and chocolate product distributors are not able to reach their consumers, therefore manufacturers are coming up with various initiatives. For instance, to boost the sales of craft chocolate, the craft chocolate community has created a platform called Stay Home with Chocolate. This platform is led by Uncommon Cacao, FCCI, Craft Chocolate Experience, uses online tools, such as e-commerce and live tastings. This platform is supporting small chocolate companies to offer ethical and high-quality chocolate products.

TOP CHOCOLATE MANUFACTURERS IN THE WORLD, 2019

MONTHLY AVARAGES OF DAILY COCOA PRICESSMALL CHOCOLATE BUSINESSES AND THE IMPACT OF COVID-19 PANDEMIC

Fine Cacao and Chocolate Institute (FCCI) conducted a survey to know the impact of COVID-19 pandemic directly from the manufacturers. More than 250 companies having revenues between USD 100K to USD 2.5 million participated in this survey. The findings of the survey include,

• Existential Threat

One in five chocolate business is facing existential threat.20% of the respondents described the impact of COVID-19 pandemic as an existential threat, which means that these chocolate business companies may become more severe or may go out of business. More than 70% of the companies have faced more than 50% reduction in sales and further 17% of the companies faced reduction in sales up to 90%.

• Shortage of Supplies

The companies are facing disruptions in the supply of raw materials along with other things which include cleaning supplies or protective gear.

• Online Sales

Even though the lockdown has been imposed by various governments across the world, postage and deliveries are still possible in various countries. Chocolate manufactures have taken advantage of this to boost the sales. 30% of the companies are willing to offer products online and owing to this few companies have seen increase in the sales. 59% of the total companies surveyed are willing to or anticipating increase in the digital marketing efforts in the future.

INITIATIVES TAKEN BY CHOCOLATE MANUFACTURERS OWING TO COVD-19 PANDEMIC

"Management is taking all necessary and appropriate action to maximize the Company's liquidity as we navigate the current landscape," commented Merryman. "These actions include significantly reducing our operating expenses and production volume to reflect reduced sales volumes as well as the elimination of all non-essential spending and capital expenditures. Further, in abundance of caution and to maintain ample financial flexibility, we have drawn down the full amount under our line of credit and we have received loans under the Paycheck Protection Program. The receipt of funds under the Paycheck Protection Program has allowed us to avoid workforce reduction measures amidst a steep decline in revenue and production volume"

-Bryan Merryman, CEO and Chairman of the Board for Rocky Mountain Chocolate Factory

“Our first consideration was the safety of our people, and we had to address this in a rapidly changing situation. Our care also extended beyond our own employees, to outsourced services, such as our security teams and workers from trucking companies who deliver for us. Alternative working arrangements, such as home office, meant ensuring that all those who had to suddenly work from home, could do so. To address this we needed to procure adequate resources such as laptops, smartphones and data bundles for our people to enable a smooth transition from the workplace to home office.”

-Vice President Cocoa Africa for Barry Callebaut

 “In some counties, we have paused production on a temporary basis due to restrictions on movement introduced by governments. We are also repurposing resources in some locations to ensure we meet evolving demand.”

-Mark Schneider, CEO for Nestlé S.A.

 “As one of the largest food companies in the country, we play a critical role in safeguarding the U.S. food supply. In this time of heightened need, we are working in close collaboration with customers and local communities to ensure that production lines remain operational, distribution networks continue to work efficiently, and U.S. consumers have access to foods on shelves”

-Glen Walter, EVP and President, North America for Mondelēz International, Inc.

 “In response to these social trends, in October 2019, the Meiji Group established the Sustainable Management Department to accelerate our sustainability activities across the group. We will focus on adopting a more future-oriented vision and corporate strategy, incorporating and regularly updating corporate sustainability by addressing the important social issues we are facing. We will evolve and strengthen our sustainability activities in order to create more sustainable society through each of our businesses”

-Kazuo Kawamura, CEO, President and Representative Director for Meiji Holdings Co., Ltd

Conclusion

The outbreak of the COVID-19 pandemic is expected to have an intense impact on the global chocolate industry, including global trade, consumption, and manufacturing or production. Owing to the government's initiatives such as complete or partial lockdown in various countries, out of the home consumption of chocolate has decreased significantly. To restrict the spread of the COVID-19, hotels, restaurants, coffee shops, and offices have been closed. A more adverse impact on the global chocolate demand is expected owing to the global recession triggered by the indirect and direct impacts of the COVID-19 pandemic. Reduced household incomes could translate into lower demand for chocolate in volume terms. All the chocolate manufacturing companies’ are suffering during the time of COVID-19. Disrupted supply chain and reduced demand are some of the major factors that manufacturers are facing due to COVID-19. Once the pandemic situation settles the companies will find it imperative to change with time and innovate to remain relevant. There is a seismic effect of the COVID-19 pandemic on businesses across the world, but there are lessons that can come out from it. This is an opportunity to fine-tune business contingency and continuity plans, but it is also a chance to decide what things are mainly important and find new ways in which to grow.