Dirk Van De Put: Yes. I would say, first of all, as it relates to the client negotiations, they largely are going exactly as we would have expected. As we know that we had — as we knew that we had increased prices, we foresee that in our forecast for the year. And at the moment, it’s playing out as expected. As Luca mentioned, there’s still one buying group that we need to finish. Hopefully, we will do that in the coming weeks. And then we should be done for a while. As it relates to the current situation in Europe, obviously, there will be a recuperation because we have not been delivering for a while some clients. And as we get agreements, we start to fill the pipeline again. So that will help us. But overall, I would say that we are not expecting to see for the full year a big difference in our European performance.
We’re not expecting to see an upside. We are convinced that we have more stability. We feel more assured about delivering what we are expecting to deliver in Europe. But we’re not counting yet on an upside for the year.
Steve Powers: Okay. Thank you very much.
Dirk Van De Put: Okay.
Operator: We’ll take our next question from Alexia Howard with Bernstein. Please go ahead. Your line is open.
Luca Zaramella: Alexia, are you there?
Operator: And Alexia, your line may be muted.
Shep Dunlap: Let’s go to the next question.
Operator: Our next question comes from Chris Carey with Wells Fargo Securities.
Christopher Carey: Hi, everyone.
Dirk Van De Put: Hi.
Luca Zaramella: Hi, Chris.
Christopher Carey: Dirk, in the comments that you made around the consumer in North America, elasticity is picking up a little bit and some expectations into Q2 in the back half of the year, I guess I’m just trying to understand a couple of things. First, in Q1, is there anything within the portfolio that you would deem not elasticity-related? You mentioned some competitive activity in CLIF that you’re going to be responding to. Say, anything competitively or fundamentally that you would point to that you would see improving into Q2, where it gives you a little bit of confidence in North America? And then the second thing would just be regarding the consumer into the back half of the year. Did I catch you right that there’s an expectation that the consumer in North America gets a little bit better and that your volume trends as such should improve sequentially?
So, perhaps just any help on portfolio dynamics in the quarter and also just, I guess, more of like the macro and the consumer.
Dirk Van De Put: Yes. Well, I would say that if you look at the market share evolution, the brand that’s most affected is Chips Ahoy!, and Chips Ahoy! is the most susceptible to private label. And Oreo or belVita are gaining market share. And so I would say, if there’s anything that’s pointing, I wouldn’t call it necessarily not susceptible to elasticity. We see some elasticity on those brands, too. But overall, the activations that we have and the interest we’re getting from the consumer on those two brands offset the elasticity effect that we’re having. As it relates to what we need to do going forward, it’s largely now trying to figure out in which way can we get the frequency, particularly from the lower income consumers that we would like to see.
So, price points certainly play a role, and we will need to work shorter with promotions, longer term probably working on the size of our packs to make sure that we hit those right price points. Because if we see anything in the elasticity, it is that we have surpassed certain price points and that that is having a big effect. Now, I would say, that movement is happening already. So, that’s what we gradually will expect to improve in the coming months, i.e. that our promotional and pricing strategy gets better, that we understand better how to get the frequency and the volume from the consumer. I’m also expecting that the overall consumer confidence in the second half of the year will improve. That will have an effect for us. These are lapping effect.
Last year, we had 16% growth in North America. Of course, that plays a role. The lapping later in the year will be easier. Those are the things that I would see that make me believe that the second half of the year will look better for us in North America.
Christopher Carey: Okay. Thank you. One quick follow-up on cocoa. Luca, you gave a lot of helpful commentary around some of the things that you’re going to be doing or are doing now contractually. And you also have an expectation in September and October. I guess the question is, what if cocoa sustains these really high levels that we don’t see the fundamental break expected going into next year? Is it still appropriate to think about pricing as the core mechanism to cover the inflation or given the lead time that you have to prepare? Maybe there are other alternatives like accelerated savings, RGM, the sorts of things that you can do when you have many months to prepare for such cycles, if indeed you believe that the cocoa prices at some point will eventually break. So, it’s just more game theory. But any context on that would be helpful.
Luca Zaramella: Yes. I believe it’s absolutely critical for us to get ready for potentially cocoa staying at these levels. I just want though to call out one thing, which is, the forward curve for cocoa is heavily inverted. And that means in general that even today we could potentially get physical coverage into 2025 at cheaper prices than the current spot price that we see today. But rest assured that as a Company, we are looking at all possible scenarios. And as a matter of fact, we are taking a fresher look at some of the costs we have, making sure that we try to understand the level of flexibility that we have. We are looking thoroughly into additional RGM. We will stay absolutely true to the concept of protecting price point, particularly in emerging markets.
We are not going to move the LUP, low unit price points in India, for instance. But we will be looking into potential RGM in terms of promo, in terms of downsizing, etc. So to say that we will have to make sure that elasticity stays in control. In the end, we are going to be managing 2025 in light of what we think a more plausible cocoa level is, despite the fact that it might feel very high, because we fundamentally believe that in a couple of years’ time tops, the cocoa price will correct. And at that point in time, we will have to have retained our volume, our share, our competitive advantage both in developed and in emerging markets. And that’s the way we are looking at this. But rest assured, we are looking at all possible scenarios. And we’re going to be sitting down soon with the teams to make sure that we put in place already all the possible actions that would allow us to go through a potential worst-case scenario in 2025.
Shep Dunlap: Next question, please.
Operator: We’ll take our next question from Rob Dickerson with Jefferies. Please go ahead. Your line is open.
Rob Dickerson: All right.
Shep Dunlap: Rob, are you there?
Operator: One moment. Let me return — yes. Rob, please check your mute function.
Rob Dickerson: Can you hear me?
Operator: Yes, we can.
Dirk Van De Put: Yes.
Luca Zaramella: Yes.
Rob Dickerson: Oh, great. Thank you. Sorry about that. So, just one quick one on cocoa again, Luca. Just in terms of your comments around maybe the mid-crop coming in a little bit better. Your kind of expectation maybe things could ease and improve a little bit kind of in the almost pre-main crop period. I mean I — kind of what you’re saying is just the expectation here is that supply should be up, right? I mean we’re clearly running at a deficit but then we should assume that supply should be up in the next main crop. Is that fair?
Luca Zaramella: Yes. I think that’s fair. I mean when you look closely at the numbers, Ivory Coast and Ghana, the main crop was down year-on-year and about 20%. The total cocoa supply was positive as aware, in total it was down minus 10%. Do I expect the main crop to be down 20% in Africa or 10% in total again? I don’t think that’s a plausible scenario at this point in time. But as I said, we will know more as we get closer to the main crop, but fundamentally nothing has really happened that structurally impairs the production capability of Africa specifically to that level. So, yes I’m hopeful that there will be a better main crop and I think you will see prices for cocoa adjusting. Having said that, we are looking into all possible scenarios and we are going to be implementing some non-regret opportunities that we see before year end, but we’ll have to wait for us to be able to tell you what those are and I think as we move throughout the year, we’ll keep you updated on what we see for cocoa into 2025.
Rob Dickerson: All right. Lovely. And then just quickly on the top-line, I think originally Q1, you had said might be below the algo for the year just kind of given some of the European disruption, but I think Europe did better than we all probably saw it. North America is a bit softer, so I’m just curious, are you still thinking there could be slightly positive volume mix for the Company for the year? And then, I think you’ve also said likely for each of the segments once we ex out some of the European disruptions. And then lastly, I think you had also originally said it was probably more high-end of the 3% to 5% sales growth, so just curious in the volume piece and then if you’re still at the high end.
Luca Zaramella: Look, the volume piece is, we expect volume to be flattish for the year. Reality is, as we gave guidance, we had a little bit of headroom as you might expect. I think that headroom is still for the most part there. We’ll have to see how a couple of ticket items play out for the remainder of the year, particularly the boycott in AMIA as it relates to some of our brands. How will that play out in the quarters to come. And the other thing is, the share recovery particularly in the US. I feel confident about the plans that the US is putting in place. I think we are moving a little bit the price points of Chips Ahoy! and that would allow us to recuperate share and volume, and Chips Ahoy! is the number one driver of the volume declines that you see in the North American segment.
But then, we will have to see how elasticity plays out as well. I feel quite good about the Latin American business. As I called out, I think three out of the four business units and the only one that is declining in volume in real terms is Argentina, but the other three are doing quite well. We feel good about China. I think India we’re going to see some slowdowns, but all in all, it should be fine. And then, I could go around the globe and tell you that reality is, once we land the final customer in Europe, we hopefully see some re-piping of the straight stock and hopefully the Chocolate market will continue displaying acceptable elasticity. So, a long answer to say expect flattish volume but reality is there are some puts and takes and we want to keep some flexibility within the plan.
