In its ongoing attempts to keep Kraft's takeover at bay, British chocolate maker Cadbury may shrink the size of its candy bars to cut costs
Cadbury is proposing to shrink the size of its chocolate bars to disguise price rises it will be forced to make next year because of high cocoa costs. The move will boost the firm's projected profits, as it fights a £10bn bid from Kraft Foods.
Finance director Andrew Bonfield said: "If cocoa prices stay at their current level, there will be no choice but to increase the price of chocolate."
But he admitted that the company has already decreased the size of bars abroad to keep prices below key levels which would deter buyers. "For example, in Australia, we've relaunched Cadbury's Dairy Milk in a new pack size. We were able to use price points and the promotional strategy as a way of actually realising higher prices without necessarily a headline price increase," he said.
"These are the sorts of things we'll continue to look at as we go into 2010."
The price of cocoa, just £850 a tonne three years ago, has more than doubled since 2007 to over £2,000. But raising the price of chocolate bars will be difficult, he warned. "With the consumer price index for food heading towards zero, or negative, we are going to be challenged to get price increases through," he said. "But there are some things we can do and we've been looking at. We think we have scope for modest price rises in 2010."
Cadbury's chief executive, Todd Stitzer, said: "We continue to be dedicated to ensuring that we cover input cost inflation with intelligent price increases. This delivers the margin of growth we are committed to."
Cadbury's defence against the hostile bid from Kraft is expected to include a profits forecast.
Mr Stitzer conceded that an independent Cadbury will be smaller than the giant Kraft, which has annual sales of more than $40bn (£25bn) from the likes of Toblerone and Terry's Chocolate as well as Kenco Coffee and Dairy Lea products, or the newly combined rivals Mars and Wrigley. But he argued that "big is not necessarily better". The Takeover Panel is investigating comments made by Mr Stitzer at a recent investors' meeting referring to valuations.
"There's a point where scale works," he said, adding: "From our perspective in confectionery, there's a point where scale may not work." When big stores have separate buyers for different products, he said, there is no synergy in having a diverse range of goods.
Kraft's chief executive, Irene Rosenfeld, is looking for $625m a year synergies. "Kraft is currently four times our size, Mars Wrigley is private," he said. "Clearly, they can invest for the longer term, but we believe, by being faster, by being focused, by doing the things we can do, we can compete with these companies. If you put Cadbury, a $10bn business, in a $40bn conglomerate, you are going to lose some of the benefits of that varietal model."