What Cadbury chocolates reveal about Brexit

Even with Brexit on the horizon, the iconic chocolate company is committed to staying in Britain. But if Cadbury can't boost productivity, higher prices and smaller products may be coming.

From smooth Dairy Milk to gooey Creme Eggs, Cadbury’s iconic milk chocolate has delighted – and employed – generations of Britons. That legacy is precious to the company, but in the wake of Brexit, keeping manufacturing operations in Britain may require sacrifices elsewhere.

Speaking to the Guardian on Friday, Glenn Caton, who heads up Cadbury’s British operation, offered a preview of the chocolatier’s post-Brexit strategy. Keeping manufacturing in Britain is a top priority, he said. Parent company Mondelez International has invested heavily in the island nation since taking over the brand in 2010. But like other British manufacturers, Cadbury has experienced a loss in revenue since the June Brexit vote, and the one-fifth drop in the value of the pound is making imports more expensive.

That’s a challenge confronting British manufacturers and retailers as a whole following the country’s vote to leave the EU last June. Cadbury’s approach may provide a roadmap for other companies committed to remaining in Britain once Parliament triggers Article 50 and begins the withdrawal process, expected to happen on Wednesday.

“While politicians can deny reality, a shampoo produced on the continent is now 17 percent more expensive,” Bernstein analyst Bruno Monteyne explained to the Wall Street Journal.

In a competitive grocery market that already operates on razor-thin margins, manufacturers can’t afford to simply absorb the losses. For Cadbury, covering the revenue shortfall will start with efforts to increase productivity. That has worked for the company in the past, noted Mr. Caton, saying British chocolate used to cost three times as much to make than German chocolate but has become cost-competitive over the past decade.

Ultimately, however, the company will probably end up passing increased costs on to the consumer. Across the industry, price hikes are expected to result in a 5 percent inflation in food prices by October, Chris Haskins, former chair of consumer goods firm Northern Foods, told the BBC. Consumer goods giant Unilever was one of the first to endorse this approach, causing a temporary standoff with grocery chain Tesco when it proposed raising prices by an average of 10 percent across its product lines, which include Ben and Jerry’s ice cream and Dove shampoo.

Cadbury will likely turn to a variant on the price hike, known as ‘shrinkflation,’ reducing the size of products while increasing prices. That way, Caton said, Cadbury will ensure that the quality of its chocolate remains high. 

The company will always “put the consumer at the heart and never compromise on quality and taste,” he said, the Guardian reported.

But consumers have been unimpressed by similar efforts by Cadbury parent Mondelez. In November, for instance, they took to social media after the company decided to change Toblerone’s iconic shape to flatter peaks, reducing the weight of the bar to counter high sugar and milk prices.

“You have a somewhat premium chocolate bar ... known for its distinctive shape,” wrote Facebook user Michal Tat, “and to save money you change the shape?”

Other companies, including Vodafone, have weighed moving inside the EU since the Brexit vote. By betting on Britain, Cadbury may seek to protect investments it has already made.

After Britain leaves the EU, “It is still going to be a huge market. It is still going to be the home of chocolate manufacturing, it is still going to be the home of global research and development,” Caton said.

Cadbury executives may also hope they can influence outcomes after Article 40 is invoked. Free trade and free movement of people are key to the company's success, Caton emphasized. Minimal trade barriers will help keep costs low, while the research and development wing of Cadbury, which he said employs people of more than 50 nationalities, would be affected if EU nationals could not continue to live and work in Britain.

Without these guarantees, Cadbury may have to reconsider its Britain-based plans. But for now, at least, Caton sees Cadbury as a British institution.

“I think this is really modern British manufacturing at its best,” he said.

[Editor's note: This article has been updated to correct the article under which Britain will begin its withdrawal process from the EU. It is Article 50.]