The confectionery corporation Mondelez International Inc. has announced it will be downsizing its beloved Swiss chocolate bar Toblerone due to the high cost of ingredients. The Illinois-based company said in a Facebook post: “We carry these costs for as long as possible, but to ensure Toblerone remains on-shelf, is affordable and retains the triangular shape, we have had to reduce the weight of just two of our bars in the U.K.”
Adjusting the size and weight of their products is a common practice for manufacturers of food and beverages. It’s called “shrinkflation” and works as a cost-cutting maneuver. In adjusting the Toblerone, the manufacturer reduced its iconic row of triangular shaped pieces, expanding the gaps between each.
In response, many customers are using social outlets to lament the bar’s new look and weight loss. The reaction isn’t surprising. Customers are much more sensitive to changes in price than changes in amount. Increasing the gap
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sizes in the chocolate bar while keeping the basic shape, allowed Mondelez to maintain the same Toblerone packaging.
Mondelez (formerly Kraft Foods Inc.) operates in 165 countries and owns many of the world’s oldest and most popular snack and food brands, including Oreo and Nabisco. Like other international corporations, the company’s profits are sensitive to global events. Mondelez is one of the latest businesses affected by post-Brexit inflation in the U.K., which has seen the pound dip and imported raw material costs rise. Chocolate producers are feeling bitter over the higher prices on commodities like cocoa butter and sugar, according to Bloomberg.
In a Q3 report to investors late last month, CEO Irene Rosenfeld addressed the company’s cost-cutting measures after a 6.6% drop in revenue and 10 basis point drop in gross profit margin:
“In the face of challenging market conditions, we’re building a stronger, more streamlined company that is well positioned to deliver sustainable, profitable growth and attractive cash generation.”
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Combating inflationary pressures with specific countries like the U.K. is a constant problem for international corporations like Mondelez, which also had to maneuver around Venezuela’s runaway inflation in 2015. In a report to investors, the company explained it would move to a cost method of accounting due to the “loss of control” and “inability to operate in the normal course of business and the lack of currency exchangeability” with its Venezuela subsidiary.
The new Toblerone underscores the impact central banking monetary policies, negative interest rates, and quantitative easing have on inflation. With an inflated money supply comes a higher price for goods and services. Like Mondelez, central bankers have created a similar empty calorie currency, an economic “chocolate bar” with the same packaging, but much less filling.
Reprinted from ShiffGold.com.