Chocolate melts, spice sells

The age-old debate has always been sweet vs. savory—but right now, the real divide is sweet vs. spicy.

Cocoa chaos

First the (not so) sweet: Chocolate companies are struggling to navigate an unusually volatile cocoa market: Prices fell from $12,000 per metric ton in 2024 to $2,900 as of Febuary—a 75% drop in just over a year. But even though cocoa’s cheaper than it once was, demand hasn’t recovered: European demand is down 7.8% year over year, and North American demand fell 3.8% in the first quarter, according to the Wall Street Journal.

For chocolate companies like Barry Callebaut and The Hershey Company, that’s a pretty tough setup. Many bought cocoa at elevated prices, only to face weakening consumer appetite, while the recent drop in cocoa prices has come too late to ease their costs. The result: They’re selling less chocolate, made with more expensive inputs, into a softer market—compressing margins and raising the risk of losses if prices don’t rebound ASAP. In fact, Barry Callebaut has already lowered its outlook, warning that the rapid price decline is weighing on profitability.

In response to this volatility, companies are increasingly looking to reduce their reliance on cocoa altogether: Many manufacturers are reformulating recipes, using fillers, substitutes, and even experimenting with lab-grown cocoa to manage costs and limit exposure to price swings.

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But while chocolate makers pull back, spice companies are leaning in. Pantry staples like herbs, seasonings, and extracts have quietly become one of the strongest categories in grocery stores, with volumes up 10% over the past year compared with four years ago, according to NielsenIQ.

McCormick in particular is pushing aggressively into that demand, pursuing a multibillion-dollar deal with Unilever’s food division to scale its flavor business globally. It’s also leaning into the hot sauce boom, where Gen Z and millennials now outspend every other generation, according to the WSJ.

Competitors are moving in the same direction: Nestlé is entering the US condiments market with a new line aimed at home cooks, while Kraft Heinz is channeling more capital into its Heinz sauces as part of a broader push into flavor-forward products.

How to play it: Chocolate is melting under pressure, but Hershey’s strategy is to increase R&D spending by 25% this year in hopes that innovations like AI can help it find cost savings in its production process. For now, 15 out of the 19 analysts covering Hershey give it a “hold” rating—they’re waiting to see how things shake out with cocoa prices.

Meanwhile, spice is heating up: Wall Street is largely bullish on McCormick’s deal with Unilever, and Bank of America analysts reiterated their “buy” rating earlier this month, citing the combined company’s global scale and McCormick’s opportunity to leverage Unilever brands like Hellman’s and Knorr.

TLDR: The next phase of growth in the consumables industry might just be served with a little kick.—SY