Wild Cocoa Markets Push Europe’s Historic Chocolatiers to the Brink

(Bloomberg) — Paris’s oldest chocolate shop has occupied a street corner in the ninth arrondissement since 1761. Ownership of À la Mère de Famille has changed hands from family to family over the centuries, but it has endured through occupation and revolution thanks to the Parisian appetite for confectionery. 

The store’s current owners, the Dolfi family, took it over in 2000 and now sell more than 150 varieties, from nougat to pralines to marzipan, from 16 outlets across the French capital. “This is 100% a family business,” said Steve Dolfi, one of the four siblings who run the chocolatier. “We produce 100% of everything we’re selling.”

But the Dolfis have watched as many of their peers have gone out of business. Government records show that at least a dozen family-owned chocolatiers have closed down across Europe over the past year — casualties of a fourth straight season of tight cocoa supplies, which have driven up prices and squeezed margins across the industry. Larger companies, such as Nestle SA, Lindt & Spruengli AG and Hershey Co., have all taken hits to their share prices, but their scale has enabled them to ride out the disruptions to the market. Smaller artisanal companies have been faced with difficult calculations around what they can charge their customers. 

“It’s a tricky game,” Steve’s brother Jonathan said. “But if we don’t increase our prices the company will lose money, we will have to lay people off and we’re going to be in trouble. But if the increase is too much, it’s a risk. We are walking on eggshells.”

Europe is responsible for about half of global cocoa bean imports, which help fuel its $50 billion chocolate market. Switzerland and Germany consume more than 20 pounds (9.1 kilograms) of chocolate per person per year. Most of that is imported from West Africa, where harsh weather and virulent crop diseases have hit harvests hard.

In the 2023-24 season, the market experienced a supply deficit of 478,000 metric tons, the largest shortfall since at least the 1980s, according to estimates from the International Cocoa Association. That spurred cocoa prices to nearly triple last year, surging to just shy of $13,000 a ton, putting enormous pressure on some of the biggest chocolate and food makers. Swiss giant Nestle has passed some of the higher costs on to consumers, but has also had to take mitigating measures, such as adding a higher proportion of biscuits or wafers to some products to lower the amount of cocoa needed.

“The impact of rising costs is being felt across the industry,” Muriel Korter, director general of the Association of Chocolate, Biscuit and Confectionery Industries of Europe said. “However, smaller businesses, which often have fewer resources to absorb these price increases, have had to adapt quickly.”

Some have simply folded. German confectioner Leysieffer produced one of the country’s most popular chocolate pralines for more than a century. The company liquidated in November having previously filed for insolvency in 2022, citing sharp hikes in raw material and energy costs. Weeks earlier, Salzburg Schokolade in Austria, who have been in operation since the late 19th century, closed up its factory that once produced 57 million of its iconic Mozart-inspired chocolates annually.

Rising prices have forced smaller confectioners to make the same challenging decision as the Dolfis, who have raised their prices by 8%.

Austrian chocolatier Franz Hauswirth declared bankruptcy in November of last year after the surge in prices forced the maker of popular Easter bunnies to raise prices. That resulted in “demand destruction,” according to Roman Hauswirth, managing director at the company and a third-generation chocolatier.

This is a pressing concern for smaller companies, as higher prices may force consumers to switch from more expensive independent retailers to bigger mass-market ones. Hershey and Mondelez International Inc., two of the biggest bulk chocolate producers, said last week at the Consumer Analyst Group of New York conference that consumers will need to adjust to a new normal where chocolate is 40-50% more costly than it used to be.

“Consumers will shift from buying more expensive to cheaper chocolates,” Steve Wateridge, head of research at market analysis firm Tropical Research Services, said. “Some people are closing down because they can’t afford it and the market is competitive. It’s really on a knife edge at the moment.”

Data on cocoa grinds – where cocoa is turned into butter and powder to use in confectioneries – revealed that bean processing in Europe was the lowest since 2020 during the fourth quarter of last year, suggesting that global consumption might be dropping in response to record-high prices.

Larger companies are trying to reduce their costs by finding alternative ingredients, such as replacing cocoa butter with shea butter-based equivalents or substituting in sunflower or palm oil to cut costs. But artisan producers are reluctant to change their recipes.

Some are trying to find alternative sources, diversifying away from Ivory Coast and Ghana, where the supply shortages are most acute, and toward areas in Central and South America which are seeing their share of global cocoa production steadily increasing. 

In Bruges, Belgium, a country famed for its chocolate, Chocolatier Dumon has operated since the 1990s, serving traditional pralines to tourists visiting the medieval city center. The company produces roughly 500 kilograms (1,100 pounds) of chocolates per week.

“Like most of our colleagues in the past few years, we have been refocusing more toward South America. Mexico and Colombia have become very important for us,” Jelle Descamps, Dumon’s owner, explained. “The crops in Africa have felt the effects of climate change more.”

A busy Christmas period reassured Descamps that, at least for now, demand for Dumon’s chocolate hasn’t fallen significantly. “We are covered for the moment but of course, if cocoa continues at this level, we will have to cover ourselves again at even higher prices,” Descamps said. “That’s a scary thought.”

For chocolatiers looking to the market for a signal of what’s to come, analysts at JPMorgan Chase & Co foresee a smaller than anticipated supply shortfall for the current season, trimming their deficit estimates from 108,000 to 40,000 tons, largely due to high prices denting demand.

The likelihood of longer-term respite in prices however will rely on a degree of demand destruction, coupled with improved crop conditions in West Africa, Wateridge said. “When we look forward to 2025-26, as long as we haven’t underestimated the decline in production in Ivory Coast and Ghana and if demand falls further, we will generate a decent sized surplus.”

Even if supplies ease in the longer term, small chocolate producers have a tough year ahead of them. In Paris, the Dolfi family worry about what is lost when longstanding family businesses vanish.  “What’s sad in these cases is that recipes and skills are disappearing,” the Dolfi brothers said in an email. “There are a lot of traditions that are passed on by word of mouth.”

With prices still high, the Dolfi family worries about next Christmas, traditionally the most important time of the year for confectioners in Europe. By then, they forecast that chocolate consumers could be grappling with the highest prices in history. The family’s approach to survival between now and then, the brothers said, is like that of many of their peers: “Wait and pray.”

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