Detailed Narrative
Europe Market Dynamics and Strategic Adjustments
Consumer confidence in Europe remains stable, with biscuits, cakes, pastries, and meals performing well. However, the chocolate business, particularly in the UK and Germany, faced pressure due to competitive pricing and retailers taking higher margins. The elasticity for chocolate was higher than expected at 0.7-0.8, compared to a historical range of 0.4-0.5, following approximately 30% price increases driven by cocoa costs. Management is addressing this through innovation, increased A&C investment, improved promotional effectiveness, and targeted price point adjustments, expecting significant improvement going forward⏳.
US Market Challenges and Growth Strategy
The US biscuit market experienced a volume decline of 4% in Q3, worsening from a 2.8% year-to-date average, driven by consumer economic concerns and value-seeking behavior. Snacking categories are perceived as less essential, and promotional strategies have not yielded expected volume effects. The company is responding by increasing its presence and market share in growing channels like club, value, and e-commerce, adapting its price pack architecture (PPA) to hit $3-$4 price points, and doubling down on premium and better-for-you brands such as Tate's, belVita, Hu, Perfect Bar, and BUILDERS.
Cocoa Impact and Future Outlook
Unprecedented🌐 cocoa costs necessitated significant price increases, particularly for chocolate tablets, leading to higher-than-expected elasticity in Europe. This also impacted operating income in North America due to chocolate content in products like Oreo. Looking ahead, cocoa is anticipated to be deflationary in 2026. The company is well-protected and covered, with strategies in place to benefit from potential further declines, which is expected to positively impact profitability and allow for increased investments.
Emerging Markets Performance Review
Emerging markets generally performed as expected, though Q3 volume was down 4.7% due to significant impacts from hyperinflation in Argentina and downsizing in India. Excluding these, the volume decline was 3%. China experienced negative low single-digit growth in Q3, a new trend, but the company expects consumer confidence to gradually return. Brazil delivered double-digit growth in Q3, and Mexico showed improving mid-single-digit growth, indicating overall resilience and strong execution in key markets.
North America Supply Chain Program
Mondelez is implementing a new multi-year North America supply chain program, developed over the past 6-9 months. This initiative aims to address costs in US bakeries through increased automation and to resolve capacity constraints. Additionally, it focuses on optimizing the Direct Store Delivery (DSD) logistics system by potentially reducing the number of distribution centers and automating operations. This program is expected to deliver meaningful cost savings and improved service levels for retailers starting from 2027, all while remaining within the company's cash flow goals.
Investment and SG&A Strategy for 2026
For 2025, SG&A saw a decline in working media and controlled non-working media. In 2026, the company plans a significant step-up in working media investments, leveraging the expected favorability from cocoa costs. Non-working media will continue to be managed in a declining mode, and overheads are expected to remain level with 2025, excluding incentive plans. This continuous investment model aims to strengthen brands, drive balanced volume and price growth, and support strategic initiatives in incremental spaces like snack bars and cakes and pastries.