Same Cocoa Shock, Two Answers

Cocoa prices more than tripled, and Hershey and Mondelez each lost more than ten points of gross margin. One cut advertising by a fifth. The other kept spending. Both decisions are in the public filings.

If you run a brand, your budget arrives as a number from finance. You can argue about how to spend it. You rarely get to argue about the number itself, because it was set further up, by the margin the business expects to earn. When that margin moves, the budget moves with it, and the reason can sit a long way from anything marketing did.

The last two years produced an unusually clean example. I pulled the filed gross margins of seven US packaged food companies for their latest fiscal year, and what each spent on advertising, straight from their annual reports to the SEC.

Every margin fell. Five fell by less than two and a half points. Two fell by more than ten: Hershey, from 47.3 percent to 33.5, and Mondelez, from 39.1 percent to 28.4. They are the two largest chocolate businesses in the set. A year earlier, Hershey was earning more than a dozen points more on each dollar of sales than most of the companies around it. It now earns about the same.

The cause is on the commodity chart

Cocoa averaged about $2,340 a tonne in 2019. In 2024 it averaged $7,391. In January 2025 it reached $10,710, and it stayed above $8,000 through the first half of that year before falling back.

Both companies say so plainly. The more interesting question is why Hershey's hit landed in 2025 rather than 2024, when prices first spiked. The answer is hedging. In its 2024 annual report, Hershey said gains on the derivatives it uses to lock in future purchases more than offset higher commodity costs that year. In 2025 those gains turned into losses, and the company put the fall in margin largely down to higher commodity costs and unfavorable mark-to-market on those contracts.

That matters for how you read the table. Filed margins include these hedge swings, so the drop looks steeper than the change in the underlying business. Hershey's own guidance for its adjusted margin, which strips the swings out, was a decline of about 675 to 700 basis points for 2025. Roughly half the headline. The direction is the same either way.

Two answers

Here is where the two companies part. Mondelez cut advertising by 21.6 percent, to $1.66 billion. It did not hide the choice: its full-year results named lower advertising and consumer promotion costs among the things that lifted its adjusted operating margin. Hershey went the other way, up 2.0 percent across the year to $612 million, though not in a straight line. Its advertising rose 35.5 percent in the second quarter of 2025 and fell 5 percent in the third, mainly from lower agency fees.

Same shock. Same year. Opposite calls on the one budget line a brand team can see and argue for.

Who was right is not answerable yet

The honest answer is that nobody knows. Advertising works over years, and the real test is volume and share across 2026 and 2027. Cutting may have protected Mondelez's earnings at the cost of brand strength it is now paying to rebuild. Holding may have cost Hershey profit it never gets back. The filings will settle it in two years, and this piece will be checked against them then.

Not every cut is a margin decision

One more company in the table is worth a second look. Simply Good Foods, the smallest of the seven, cut advertising by more than either chocolate maker: down 26.1 percent. It was exposed to cocoa too. Its management said it had contracted cocoa at historically high prices to secure supply, and that this weighed heavily on margins in the second half of its fiscal year.

But its cut had a different cause. The company's results put the fall in marketing spend down to a planned reduction for Atkins, a brand losing distribution. From the outside, the Simply Good cut and the Mondelez cut look alike. Only the note in the filing tells you that one is a margin decision and the other is a brand decision. Anyone reading competitors' spend from the outside needs to read that far.

What this means for the marketing team

Budgets are set by margin, not by how well the marketing is working. A brand team with good results can lose a fifth of its spend because of a bad harvest thousands of miles away. Knowing which input costs sit under your category is therefore a marketing skill, not a procurement one. It tells you months ahead when the budget conversation is going to change, and it lets you walk into that conversation with a plan instead of a defense.

How this was measured

Gross margin is net sales minus cost of sales, divided by net sales, from each company's own filed figures for the same fiscal year. Kraft Heinz reports sales including certain taxes collected from customers, which slightly understates its margin next to the others. Companies define cost of sales differently, so compare the direction of change across companies, not the exact levels. Fiscal years differ: General Mills and Conagra end in May, Campbell's and Simply Good Foods in August, the rest in December, so each caught a different stretch of the price spike. Advertising is each company's own reported line and is not defined identically across them. Campbell's and Simply Good Foods both made acquisitions in 2024 (Sovos Brands and OWYN), which affects their year-on-year comparisons.

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