Incentive program (CELH)
Celsius updated its distribution agreement with PepsiCo by including an incentive program. The purpose is to “incentivize and compensate” PepsiCo. The agreement covers promotions and the exclusivity of the energy drink distribution. We have seen more impressive in-store displays recently. It’s an effort Celsius wants to encourage. There seems to be a sense from PepsiCo that its contribution and efforts in distributing Celsius were not fully appreciated. Celsius has been over-earning at this stage in its growth because it simply can not increase its spending at the same pace it has been growing. Celsius has plenty of margin to share with its partners. Incentives work both ways, and we do not view the program as a negative.
Cocoa record (HSY)
Cocoa prices reached an all-time high this week. Cocoa futures are up 227% in the past year and up 54% in the past three weeks. The largest supply deficit is behind the price increases with the harvest in Ivory Coast and Ghana estimated to be down by one-third. The recent surge suggests hedges and forward contracts are also playing a role. The crop’s prices have had other impacts including preventing cocoa plants from processing the beans to disrupting credit for trading partners and countries. Cocoa prices have already caused Hershey to change their plans for price increases and growth. The demand destruction signal is strong.