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Lindt expects input cost pressures to continue

By Jane Byrne , 22-Jan-2010

The drop in demand for premium products in Europe impacted sales for Swiss chocolate maker Lindt & Sprüngli last year and the company expects pressure on margins to continue due to higher input costs.

“For the time being, Lindt & Sprüngli expects the challenging situation on the commodity markets to continue, especially for cocoa prices, accompanied by ongoing exchange-rate fluctuations and continuing subdued consumer sentiment,” stated the chocolate maker this week.

And the company said that, in this price sensitive environment, it would be limited in terms of adjusting the price of its range in order to offset rising commodity costs.

Lindt reported sales worth CHF 2.52bn in 2009 compared to CHF 2.57bn in 2008.

It said that due to adverse exchange-rate factors, annual sales in Swiss francs decreased by 1.9 per cent.

“In view of the challenging situation on the markets for premium and luxury products, this sales growth in local currency terms is a satisfactory result,” added the chocolate manufacturer.

It reported modest growth in Europe, with consumers there, it said, favouring low cost chocolate indulgences in a strained economic climate.

“Further proliferation of the hard discounters in which Lindt products are not available because of the company's selective distribution strategy, and demand for private labels which increases particularly strongly in times of crisis, had a corresponding impact on the premium business,” it reported.

Duty-free sales also declined in 2009, continued the Swiss manufacturer, due to fall off in airline passenger numbers.

However, the company said it registered above market share gains in North America and Australia last year, and that it will continue to focus on strengthening its market position through geographical expansion, with the opening of Asia’s first Lindt chocolate café in Tokyo imminent.

Lindt said it expects consumers to indulge more readily in premium products come the second half of 2010, predicting a gradual improvement of the economic environment and consumer sentiment in most countries from that time.

Meanwhile, rival Swiss chocolate maker, Barry Callebaut, claimed last week that the worst of the global economic crisis on chocolate is over but global market volumes will remain flat throughout 2010.

The company reported a 7.2 per cent increase in sales volumes in the three months prior to 30 November 2009, to 362,973 metric tonnes. Sales in local currencies were up 6.3 per cent, but 1.5 per cent in its reporting currency, to CHF 1,429.1.

The global chocolate market experienced a decline of more than 2 per cent in the past fiscal year, CEO Juergen Steinemann said. He believes the decline has now bottomed out.

The Western European market appears to have stabilised at a low level, but Eastern Europe, and especially Russia, is not yet showing signs of recovery.

Although still fragile, signs of recovery are evident in Asia; and US chocolate market appears to have bottomed out, but is not yet on its way back up.

In December cocoa prices reached a 33 year high in London as a result of fund buying and worries over the size of the 2009/10 crop from Ghana and Ivory Coast. Dairy prices, meanwhile, have last started to fall since the highs of last August; but sugar prices have risen and are now close to EU-regulated levels, says Barry Callebaut.