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In dark times, people turn to chocolate. The pandemic curbed gift buying but not personal consumption according to Swiss chocolate maker Lindt. US confectioner Hershey reported a 40-50 per cent jump in demand for its milk chocolate bars in zip codes with high rates of infection. Cadbury owner Mondelez reported that its market share expanded as consumers went back to brands they knew and trusted.
Overall, the pandemic held back a global chocolate industry worth more than $100bn. Sales collapsed at airports, snack bars and speciality shops. The amount of cocoa processed by the industry fell by about 4 per cent worldwide in 2020, according to industry association data. Farmers were hard hit, amid tensions between manufacturers and west African producers over prices. Shares of leading chocolate companies such as Lindt, Hershey and Switzerland’s Barry Callebaut are worth 5 per cent or so less than a year ago.
Longer term, the premium chocolate market is growing at about 4 per cent a year. Lindt is a pure play that explains its lofty valuation. Its trailing enterprise value-to-ebitda ratio is 29 times according to S&P Global, almost 50 per cent higher than Hershey and Barry Callebaut. British chocolatier Hotel Chocolat is not far behind on a multiple of 24 times.
Chocolate makers cannot rely on tried-and-tested favourites. There is competition from new brands with an ethical or healthy eating slant. An example of the former is Tony’s Chocolonely, a challenger brand focused on eradicating child slavery from the cocoa industry. Paleo-inspired chocolate-bar maker Hu uses unrefined, vegan ingredients. It was acquired in January by Mondelez, in a sign that once-niche dietary preferences are moving into the mainstream.
Chocolatiers have proved their defensive qualities. There will be drive to tackle obesity as nations come out of lockdown. But people will also socialise more, bearing sweet gifts to friends and family as they do so. After a pandemic that has entrenched socio-economic divides, the opportunities for investors are at the upper end of the market.
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