Cadbury’s Not So Secret Formula

It is almost becoming rote to even read the stories on profit increase fueled by price increase.  This time it is Cadbury of UK.

Price realisation, which includes price rises, adjustments in promotional frequency and product and package resizing, has been essential to recover cost pressures throughout the year, particularly in cocoa, sweeteners and oil based materials.

Cadbury increased prices in some cases  15%. The volume growth was only 1%.

Some analysts are wondering about the impact of price increase on future revenues.

Analysts said Cadbury’s revenues this year could be adversely affected by the price increases, which were up as much as 15 per cent in some markets.

Julian Hardwick, food analyst at RBS (LSE: RBS.Lnews) , said: “The big question for 2009 is: what is going to be the impact on volumes of the pricing they are taking?”

That is actually the wrong question, addressing the volume instead of the bottom line. The real question is does Cadbury has enough brand value to keep charging higher prices and continue grow its profit.

Of all the talk of deflation, higher prices in branded products are here to stay as brands decide to focus on profit maximization rather than winning the market share battle.