NEW YORK — When passing along price increases, two hurdles arise: trade and consumer, said Dirk Van de Put, chief executive officer of Mondelez International, Inc., on June 1 at the 2022 Sanford C. Bernstein Strategic Decisions conference.
Mondelez raising prices has had no effect so far on the number of households buying the company’s brands and the average quantity households buy, he said.
“As it relates to the trade, obviously, as we all have seen, with what Walmart and Target announced, they are feeling some of the changes,” Mr. Van de Put said. “I think they have their own cost pressures that they need to deal with. So I do believe that they understand that price increases need to happen. So I don’t think there will be a refusal to increase prices.”
C. Douglas McMillon, president and CEO of Walmart, in a May 17 conference call said the retail chain will partner with suppliers on the food and consumable side to bring costs down.
Mr. Van de Put said he expects discussions with retail chains will focus on how the pricing actions will happen and how the actions may affect volumes.
“So it's going to be more about the mechanism than the actual price increase, but there's certainly going to be heightened scrutiny on price increases, that's for sure,” he said.
Mondelez in 2022 is facing inflationary pressure in the range of 10% to 13%, said Luca Zaramella, chief financial officer. Over the next two years a heavy pressure on costs will force Mondelez to increase prices, Mr. Van de Put said.
“We price for cost,” Mr. Van de Put said. “We don't price for percentage margin. So you will see our gross profit margin and our operating profit margin decline as a percentage of net revenue, but the absolute dollars will go up in a significant way.”
Going forward Mondelez eventually wants 90% of revenue to come from the two categories of chocolate and biscuits. Bolt-on acquisitions could help the company reach that goal, Mr. Van de Put said.
“There are certain segments within biscuits and chocolates that are more interesting: health and wellness, premium, digitally oriented models,” he said. “Those certainly will get the priority, and then as it relates to the size, anything below $400 million, $500 million in net sales is a little bit more difficult for us to really make a difference.”
Reduced-sugar products have fared well recently.“As it relates to sweeteners, I think we are in a stage where there are natural sweeteners that make it impossible to detect difference,” Mr. Van de Put said. “We've made a 30% reduced Cadbury bar, and consumers did not detect the difference. We just launched zero sugar Oreo in China, which is doing well, very difficult to detect the taste difference.”