US consumers and investors are pulling back from the snack aisle amid sticky food inflation — shrinkflation trends raising prices for ultimately less food — and consistent interest in GLP-1 weight loss drugs. US Bureau of Labor Statistics data illustrated that restaurant prices rose by over 5% and grocery costs ticked up by 1.2% in January.
Mondelez CEO (MDLZ) Dirk Van de Put sits down with Yahoo Finance Executive Editor Brian Sozzi to discuss how the company's brand portfolio — which includes Oreo and Ritz — can continue to grow amidst a changing environment for consumers.
When asked about rising costs for consumers and whether or not he has seen a drop, Van de Put responds: "Unfortunately, we don't. I know it has to happen at a certain stage, and what is annoying for us is that whatever the increases were two years ago and last year, those costs — it was transportation or it was packaging or it was some of the oils we use — they're not increasing anymore, and some of it is coming down. But this year, cocoa, sugar, and hazelnuts are really going up in a quite significant way. So it obliges us, again, to do price increases. We would prefer not to, but unfortunately, the inflation on the cost side for us is not stopping. What I would tell consumers is that it's an affordable indulgence or affordable luxury. It's time for yourself... It's something you can do on a day-to-day basis, and that's what we see from consumers."
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Editor's note: This article was written by Nicholas Jacobino
Video Transcript
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BRIAN SOZZI: Big food is trying to get back into the good graces of investors who have soured on the space as the Ozempic craze takes further hold. Not helping sentiment on the industry is that food inflation remains sticky, causing consumers to pull back on discretionary spending. Let's check in with one of the brighter spots from within the big food space, Oreo and Cadbury maker Mondelez. Here with us now is Mondelez Chairman and CEO Dirk Van de Put. Dirk, always nice to get some time with you.
So really, I think your presentation down at CAGNY was well received. Lots of focus on the top line. And that is a little bit also the vibe at the CAGNY conference. What are you doing to get your top line growth rate to the next level this year?
DIRK VAN DE PUT: Well, first of all, thanks for having me, Brian. It's always a pleasure to be here. I would say that for us, continuous investment in our brands and not trying to drive the bottom line at any cost but always reinvesting half of the extra margin we grow every year into our brands has proven to be a very good recipe for us. So that's, for sure, something that we will continue to do going forward. We've done it in the last five years. It has worked well.
BRIAN SOZZI: The last time we-- the last time-- yeah.
DIRK VAN DE PUT: Go ahead.
BRIAN SOZZI: Yeah. Last time we talked, Dirk, you put a lot of emphasis, and I think it was Milka last year. A lot of emphasis on the Oreo brand and how big that brand has gotten in terms of importance for your company in terms of sales, in terms of profits. How do you unlock further growth in a big growth driver like that?
DIRK VAN DE PUT: Well, the two biggest markets for Oreo are the US and China. And there the brand has over 10% market share in the biscuits market. There is no other country in the world where Oreo has that type of a market share. But it's a yardstick. It's where we can get. So there is this geographical opportunity in all the other countries in the world to bring Oreo to the same level as the US and China. And then in the US in China, it's about keeping the brand active.
If I look at Oreo, the penetration per year is quite high in the US. But there is still opportunity. And it's only once a year. So we can increase what we call the frequency of consumption many, many more times than we have today. So even in the US in China, there's a huge opportunity for us by just getting consumers-- irregular consumers to be more regular consumers.
And then I would say, to keep the brand alive and to make sure that it really connects, we try to link it to the actuality of the moment anywhere in the world. So we were in the Super Bowl with our spot, there's big things coming in the second half. We've done Pac-Man, we've done Lady Gaga. So we keep the brand active. And that attracts consumers. They want to have the special edition related to that.
And we have a whole pipeline of things we can do with the brand. So keeping it top of mind of consumers. Driving the penetration and driving the frequency. I think the runway for Oreo is really big for the future.
BRIAN SOZZI: One of my interpretations, Dirk, from the presentation was that Mondelez is ramping up efforts to make a larger push at US convenience stores. What does that exactly look like, and how large is that sales opportunity?
DIRK VAN DE PUT: Oh. It's well over a billion dollars or more for us. As a company, we are very well represented in the grocery stores. That's our strength. Where we're not so well represented in convenience store. Yes, of course, you will find Oreo, you will find rates, you will find Clif Bar. But it's a bit fragmented. It's not the nice solid presence that you would expect. And so we have a real opportunity there. And so for us to get organized to really work on the route to market, our in-store presence represents a really big opportunity for us in the US.
BRIAN SOZZI: Consumers have really-- and we saw a little bit of this yesterday in Walmart's earnings. Consumers appear to be pushing back on a lot of the price increases that were taken during the pandemic from a lot of food manufacturers. What do you just say to consumers that are tired of these price increases? And are you seeing costs come down for your business?
DIRK VAN DE PUT: I'll start with the last part. Unfortunately, we don't. I know it has to happen at a certain stage. And what is annoying for us is that whatever the increases were two years ago and last year, those cost-- it was transportation or it was packaging or it was some of the oils we use, they're not increasing anymore. And some of it is coming down. But this year cocoa, sugar, and hazelnuts are really going up in a quite significant way.
So it obliges us, again, to do price increases. We would prefer not to. But unfortunately, the inflation on the cost side for us is not stopping. What I would tell consumers is that it's an affordable indulgence or affordable luxury. It's time for yourself, it's not a big spending, it's something you can do on a day to day basis. And that's what we see from consumers. We've had to increase our prices in the last two years quite significantly.
But we saw almost no elasticity. Consumers want their Oreo. They want their Ritz. They want their Clif Bar. And so I would say I hope that the consumers will stick with our brands, for another round of prices. It's not that big in the US because it's largely the chocolate brands-- Milka, Cadbury that are affected this year because of the cocoa prices.
So the price increases in biscuits are very limited. So I hope the consumer will understand that and be loyal to our brands, which so far they've done. So I feel pretty confident about that.
BRIAN SOZZI: What are your competitors in the chocolate category? Hershey, yesterday, talked about double digit price increases because to your point, cocoa prices have-- they've gone through the roof. Are you looking at similar increases?
DIRK VAN DE PUT: Yes. Yes. We are not very represented in the chocolate market in the US. The US consumer will not necessarily see that in our brands. But in Europe, where we have Milka and Cadbury and so on, yes, we are looking at the same double-digit price increases in chocolate.
BRIAN SOZZI: Under your leadership, Dirk, you really have repositioned or reinvented Mondelez-- a Clif Bar acquisition, a series of acquisitions. You have a really-- I think a lot of folks on the street commend you for the work you've done there and also improving your balance sheet, a lot of cash. Are you open to doing another deal this year? And what's your sense on the valuations on some snack brands?
DIRK VAN DE PUT: Yes. We are open. M&A well-thought through. Financially disciplined M&A is part of our equation. It has worked well for us. I think we're good at it. But we won't do it at any cost or at any price. It's not like we have to-- we have very solid organic growth as a company. And we can make the company grow-- outgrow, I think, most of our competitors just in an organic way.
But M&A helps because it fills the gaps that we have around the world. What I'm seeing is there is certainly more interest in deals. Valuations are not coming down because there is more interest. The expectations of valuations are going up. But with a higher interest rates and the slower growth, it's much more difficult to get a return on your acquisition.
So we don't want to do crazy things. Like I said, we're disciplined. If it financially doesn't make sense to us, we won't make the deal. But there will be opportunities. And yes, we are working on potentially more deals this year. But I cannot tell you if they will come through, yes or no, at this stage.
BRIAN SOZZI: Before we let you go, you teased some more big potential partnerships. Anything in the works with Taylor Swift. That's a standard question now, Dirk. We have to ask all companies, if they're working with her.
DIRK VAN DE PUT: I cannot say anything until it's signed. So I have to stay mute on the subject. But there is some very interesting stuff coming up on Oreo. I can tell you that.
BRIAN SOZZI: All right. Fair enough. Thank you for always making time for us. Dirk Van de Put-- Mondelez Chairman and CEO. We'll talk to you soon.
DIRK VAN DE PUT: Thank you.
