NEW YORK – When confectionery group Mars made a quiet tweak to its popular Galaxy chocolate bar in 2023, shaving 10g off the standard product size and repackaging the leaner treat without lowering the price, British shoppers were surprised, but cocoa traders were not.

The 113-year-old company, best known for its packaged sweets including Twix and M&M’s, appeared to be taking a well-used page from the confectioners’ playbook: When the cost of cocoa rises, they find ways to sell households smaller doses of chocolate – or, for some candy makers, new goodies with no chocolate at all.

Cocoa prices have climbed to record highs, and market participants do not expect any near-term relief.

Prices have skyrocketed as the world’s biggest producers in West Africa grapple with drought and disease, as well as structural problems that could linger for years to come. Futures traded in New York averaged well below US$3,500 a metric tonne every year from the 1980s until 2023. On Feb 22, cocoa futures surpassed US$6,000 a tonne for the first time, and the market worries they could still have further to run.

“We have been actively trying to find ways to absorb the rising costs of raw materials and operations,” a Mars Wrigley British spokesperson said in an e-mail. “Reducing the size of our products is not a decision we have taken lightly.”

So far, companies have been passing on higher costs to consumers. But no one needs chocolate to live, and every price hike risks sales. Consumers are most likely to cut spending on chocolate and candy if inflation continues, behind only alcohol and make-up, according to a survey from September by consumer intelligence company NIQ.

Facing limited room for additional price hikes, companies are shrinking packages, using automation to trim production costs and promoting products with less cocoa or other starring flavours.

Nestle recently introduced in Britain a hazelnut flavour in its bubbly Aero line of chocolate bars, which – at 36g each – are about one-third the weight of competing chocolate bars, thanks to their namesake air pockets.

In the United States, where Kit Kat bars are made by Hershey, the latest addition to the permanent flavour line-up – Chocolate Frosted Donut – relies on a partial dip of chocolate, not a full coating. This reduction pushes chocolate and cocoa butter further down the ingredient list than in the classic Kit Kat.

Today, more than 40 per cent of moulded and segmented chocolate bars sold in the United States are filled with something else, be it caramel, nuts or fruit, said Mr Carl Quash III, head of snacks and nutrition at Euromonitor International.

“This trend was going down for a while, but now, with the high costs of cocoa and consumers looking for indulgences, we will see more of these innovations come to market,” he said.

This shift was on full display for the nearly 124 million people watching the Super Bowl telecast in February. Instead of selling consumers on rich, traditional solid-chocolate options in multimillion-dollar commercial slots, Mars and Hershey respectively pitched peanut butter-filled M&M’s and Reese’s cups with added caramel.

Cocoa butter, produced when beans are ground, is a key ingredient in chocolate. An average milk chocolate bar contains about 20 per cent cocoa butter.

But some food manufacturers are finding ways to replace some of the cocoa butter in their products with cheaper substitutes such as palm oil.

Swedish company AAK, a maker of cocoa butter alternatives, said the high price of cocoa and cocoa butter has led more customers to consider its products, although the wider trend of smaller candy bars – called “shrinkflation” in the food industry – has somewhat muted the impact.

The switch from cocoa butter to non-cocoa substitutes works better with non-premium chocolate applications, such as thin coatings on granola bars and fillings in bakery items, rather than more traditional chocolate bars. Non-cocoa substitutes have long been more common in hot countries, where cocoa butter’s low melting point can pose a problem.

Chocolate makers typically use the futures market to hedge risk, buying cocoa futures eight to nine months in advance as protection. Due to higher prices, some manufacturers let that protection slip to as low as six months at the end of 2023 in the hope that prices would come down.

But cocoa kept on rising, forcing them to re-enter the market; they are still protected for only about seven or 7½ months, said commodities broker Marex Group.

Analysts at Morgan Stanley recently downgraded Hershey stock to underweight and noted that “the run-up in cocoa that started in mid-2023 is likely to catch up with the company in 2025”.

High prices are encouraging companies to continue diversifying beyond chocolate.

At the annual Consumer Analyst Group of New York conference in late February, Hershey unveiled its latest plan for the future. The company, which has been manufacturing its iconic Kisses for more than a century and still counts Reese’s as its biggest brand, plans to boost its gummy candy capacity by 50 per cent in 2024. BLOOMBERG