The recession-resistant global confectionery industry shows signs of stirring again. Chocolate remains a key driver as increasing activity in BRIC markets stirs multinational and regional investments.
By Bernard Pacyniak
Even the best prognosticators fail occasionally, as evidenced by the latest “End of the world” deadline failing to come about. Predicting the future, which often leans on assessing the present and reviewing the past involves not only sharp analytical skills, but also a knack for prescience, such as following the money trail, a journalistic technique that rarely fails.
One of the best indicators of optimism for the future stems from a willingness by companies - large and small - to invest in their segment. The conclusion of the most recently held interpack 2011 exposition in Dusseldorf, the largest show for confectionery processing and packaging equipment, provides a strong indication of what one can expect during the coming years.
According to the organizers of this year’s interpack, the event “closed as one of the most successful” in the exposition’s 53-year history. Interpack organizer Messe Dusseldorf pointed out that “many of the attendees came with specific orders and exhibitors expect an extremely lucrative post-show business.”
Among the visitors were “a particularly large number of international decision makers from the top management.”
Long-time exhibitor and confectionery equipment supplier, Gerhard Schubert, ceo of Schubert, says he’s “never experienced a better interpack than this one – and I’ve been at every single interpack since 1959. The mood is good, and the visitor quality was outstanding.”
Still, the proof will be in the signed orders, although there were many deals reportedly consummated on the show floor. Is this a sign of “Laissez les beau temps roulez?”
A glance at the most recent projections by Euromonitor International suggests a strong if not spectacular surge during the next five years. Global sales of confections were tabbed at $171.2 billion last year. Analysts at Euromonitor foresee sales reaching $213.3 billion by 2015, a compounded annual growth rate (CAGR) of just under 5%.
And while this doesn’t quite match the 5.6% CAGR posted between 2005-2010, it’s certainly healthy enough to match the optimism generated by interpack organizers and Schubert. More intense scrutiny of the chart finds particularly strong growth projections in Latin America, the Middle East, Eastern Europe Australasia and Asia Pacific countries.
It would be inappropriate to ignore mature markets such as North American and Western Europe, where CAGRs of 3.8% and 3% are projected through 2015. It is, however, encouraging that emerging markets, lead by Brazil, Russia, India and China (BRIC countries) provide a basis for global confectionery expansion.
It’s clear that Brazil is leading the drive in confectionery investments and consumption within Latin and South America.
With the world’s eight largest economy and a population of nearly 191 million people, Brazil has both the natural resources and the consumer base to support a healthy confectionery marketplace.
Thanks to a race-engine economy and a slight upshot in incomes amongst the poor, that’s exactly what’s been happening. It’s also clear that Brazilian confectioners have recognized that supplying domestic demand provides an opportunity to improve product quality, modernize operational and processing segments and introduce more sophisticated and innovative confections simultaneously.
Investments by multinationals and midsized confectionery companies reached $350 million last year. For example, the opening of a new $80-million production facility by Kraft Foods in Pernambuco, Brazil, represents the first phase of a $200-million investment program by the company.
This coincides with Barry Callebaut’s decision to open its first chocolate factory in Brazil last year. As Jeurgen Steinemann, ceo for the world’s largest cocoa and chocolate processor points out, Brazil “has returned much faster to its earlier growth dynamic than most other economies after the recent economic turmoil.
“Against this background and based on growth forecasts for the Latin American chocolate market of more than 3% in volume terms over the next three years, we see a tremendous market potential, not only in Brazil but in the entire region.”
Another key player within Eastern Europe, and a critical member of the BRIC group, is Russia. According to published reports, the Russian confectionery market in 2010 grew by 10% to $6.7 billion. Volume, however, declined by 4%.
As Euromonitor senior analyst Franciso Redruello writes in his assessment of the Russian confectionery market, “Demand for confectionery products in Russia is being underpinned by strong economic growth. The latter is boosting disposable income among middle classes, making indulgence products more appealing to mainstream consumers.
As a result, sales of confectionery products in Russia rebounded, although the final figure - a 1.2% in retail volume - is really very modest. Still, the meager gain marks an improvement over the recessionary period of 2009, when sales grew by a mere 0.4% in retail volume.
“Pastilles, gums, jellies and chews were the most dynamic product area in 2010, recording 10% growth in current value terms and seeing 2% growth in volume terms to reach almost 18,000 tons,” he adds.
The Euromonitor report also singles out the gum category for a rebound within Russia.
“Young Russian people who are active gum consumers view its consumption as a part of their image,” Redruello emphasizes. Furthermore, they are open to novelties and very keen to try new products, he adds.
As Russia gradually returns to economic stability, and confectionery consumption rebounds, India and China loom even larger as markets of not only the future, but of the present.
India, whose population totals 1.21 billion, making it the second most populated country in the world, is experiencing growth in both premium and affordable confections, a Euromonitor report states.
Datamonitor’s most recent report on India, Market Insights: Confectionery in India, projects that the country will jump from 25th to 19th place by 2014 as a confectionery market. Total sales should approach $2.28 billion by 2014, the study says based on a 12.4% CAGR growth rate during 2009-2014.
The projected CAGR follows a pattern that began in 2008, where annual growth reached 12.2%
Chocolate remains one of the most dynamic segments in India. Total chocolate sales for 2011 are expected to reach nearly $480 million, with everyday chocolate accounting for more than 80% of the total segment. Still, premium chocolate and seasonal chocolate are expected to grow at nearly 30% and 15% CAGR rates through 2016.
Last year, chocolate confectionery sales grew by 22%, thanks to manufacturers tapping into “both upper- and lower-income consumers,” the Euromonitor report says. Furthermore, chocolate gifting for festive occasions has returned as consumers become more confident about spending their income given the better economic situation in India.
On the sugar side, sales in 2010 were projected to grow by more than 10%. Much of that was driven by “increasing volume consumption of toffees, caramels and nougat in 2010, with manufacturers pushing these products to rural consumers, which are relatively affordable... during the better economic times,” Euromonitor states.
Medicated confections, which in India contain ayurvedic medicaments, were expected to grow by 17% last year. Ayurvedic ingredients are made primarily from herbs in combination with minerals and sometimes ingredients of animal origin. They have been used for centuries in Indian culture to cure illness and help maintain good health.
As the Datamonitor report notes, “Indian consumers are increasingly experimenting with new foods, and novelty consumption is on the rise as consumers increasingly like to treat themselves with ‘earned indulgences.’”
The notion of indulging as well as a healthy and robust economy in China are also driving chocolate sales in that nation. The most populous country in the world with 1.3 billion people continues to be drawn to the pleasures of chocolate. Both sales and volume grew by 10% and 8%, respectively last year.
According to Euromonitor, countlines outpaced all other chocolate products, posting 20% and 18% gains in sales and volume growth. Dark chocolate also recorded strong growth, thanks to health benefits such as lower fat content and increased levels of antioxidants.
For centuries, gifting has been a critical component of Chinese culture. Today, it’s powering the growth of boxed assortments, which grew by 10% from last year.
Markets and Markets assessment of chocolate acceptance in China projects nearly a 6% annual growth rate through 2016 to a total size of $1.27 billion. Everyday sales are forecast to account for more than 70% of all chocolate sales, totaling $910 million.
Nevertheless, it’s the premium chocolate segment that will deliver the fastest growth, almost 28% CAGR, accounting for $130 million of the Chinese chocolate segment five years from now. Seasonal chocolate will continue to grow as well, posting a 13% annual growth rate and reaching $230 million in sales by 2016.
Sugar confections, as tracked by Euromonitor, grew by 5% and 4% in sales and volume, respectively in China. Pastilles, gummies, jellies and chews proved to be the most dynamic segment within the sugar confectionery segment, topping last year’s totals by 8%.
Lollipops were also popular as sales grew by nearly 8%, thanks in part to a slew of advertising and promotional campaigns. It’s important to note that toffees, caramels and nougat - while only recording a 4% gain in sales last year - are expected to make a large splash this year as a result of new products launches touting health-related benefits, which emphasize more milk (whey) content and/or calcium.
As impressive as the previous growth and projections are for the BRIC countries, there’s also encouragement within the largest single confectionery market in the world, which remains the United States. Here, too, there are positive signs, albeit nowhere near the annual sales gain numbers referenced for Brazil, Russia, India and China.
According to data gleaned by Symphony IRI and the National Confectioners Association (NCA), the confectionery industry posted a 3.6% gain in 2010 – outpacing overall growth of food sales in leading channels.
For comparison’s sake, salty snacks experienced somewhat flat growth with a 2% gain over the previous year’s sales. It’s important to note that confectionery and salty snacks rank as the fourth and sixth largest product categories in overall food sales, respectively, and first and second among snack foods.
Major sales trends that helped shape confectionery growth, as determined by Symphony IRI and the NCA in 2010 include the following:
• Chocolate confectionery, which leads sales in 2010, is expected to deliver strong results through 2011 as new product launches will remain strong and consumer interest in potential health benefits of dark chocolate grows
• Multi-count and snack-sized packages to keep at home grew 8% last year
• On the go and individual chocolate sales were up 10%in 2010.
• Value products such as non-chocolate chewy items continued to gain momentum
• Gummy and chewy candies were up nearly 5%
• Licorice products continued to grow, up by nearly 3%
• Seasonal candy sales increased in 2010; with even more growth expected for 2011
• Non-chocolate Easter candy grew an astonishing 21%
• Chocolate products for Easter, Halloween and Christmas grew 5%
What can confectioners expect this year and the next?
According to brand-new research from NCA that’s expected to debut later this summer, consumers appreciate the unique role chocolate, candy, gum and other snacks play in their lives:
Older Americans have a higher preference for dark chocolate; research indicates that people over 45 consume more dark chocolate because it’s perceived as healthier.
Daily gum chewers are 34% more likely to view sports activity as a major motivator in maintaining or improving their health.
The average American consumes chocolate confectionery about 107 times per year.
Parents claim children who consume chocolate daily exercise nearly twice as often as children who eat chocolate weekly.
Gummy candy, driven by Halloween sales, is 23% more likely to be consumed in the fall than licorice or other chewy candies.
Licorice consumption increases in the warmer, summer months based on its portability.
All of these trends portend opportunities for confectioners. Thus, despite being buffeted by a global recession, the easy availability of affordable as well as premium treats resonates throughout the globe.
For the industry, it’s just a matter of delivering on the promise.