As the dust settles on what’s been a tough economic year, the confectionery landscape has undergone some changes. Now that Mars and Kraft have assumed global leading roles, leaving Nestlé a distant third, competition for growth markets will intensify.
As this article goes to press, speculation abounds that Nestlé will acquire Wedel, which Kraft is being forced to sell because of EU competition regulations involving its takeover of Cadbury in February. And while there are other bidders involved, no one will be surprised if Nestlé opts for this bolt-on purchase.
Expect more of the same, says a Euromonitor International report on the after-effects of the Kraft/Cadbury mega-deal. Such strategic acquisitions are to be the norm for a variety of global as well as regional confectionery players.
As the research reveals, both Mars and Kraft now “command a near 15% share of global confectionery retail value sales each.” Nestlé, the authors note, has less than an 8% global share, while Hershey barely accounts for 5%.
This sudden landscape change will, as Euromonitor foresees, “likely prompt second-tier companies into action, including collaboration on a global/regional level or even further acquisitions, depending on their financial capabilities.”
A quick glance at the key regions within the global confectionery network reinforces what many suppliers have become acutely aware of during this past year: mature markets, while expansive in size, remain sluggish in growth.
Other areas such as Asia Pacific, the Middle East and Africa and Asia Pacific hold the most promise regarding dramatic gains. It’s not something that’s gone unnoticed by confectionery players of various sizes.
“A balanced market presence between developed and developing markets gained even more importance in companies’ strategic outlines, as the financial crisis restricted consumers’ purchasing power in developed North American and Western European markets,” Euromonitor states.
That said, certain dynamics remain within the global confectionery segment. First, many companies, particularly those who have participated in colossal deals, are stretched financially, thereby removing them from participating in any additional strategic takeovers.
Those that have been locked out of mega deals, specifically Nestlé, Hershey and Ferrero, no doubt are eyeing simpler pickups that either help balance their confectionery portfolio or enable them to penetrate markets via existing regional confectionery leaders.
One market that’s garnered extensive interest is Brazil, with both Barry Callebaut and Bell Flavors opening up production facilities in the country.
As Juergen Steinemann, Barry Callebaut’s ceo, pointed out at the recent inauguration of a new cocoa processing plant: “Brazil is the fifth largest country in the world, with a population of more than 190 million, and the country has returned much faster to its earlier growth dynamic than most other economies after the recent economic turmoil.
In addition, the Brazilian Government as well as the International Monetary Fund (IMF) are expecting a GDP growth of up to 6% for 2010,” he said. “Against this background, and based on growth forecasts for the Latin American chocolate market of more than 3% in volume terms, annually, over the next three years, we see a tremendous market potential - not only in Brazil but in the entire region.
But as stated earlier, other growth markets include the Middle East and Africa. Mars, for example, recently completed construction of a new $40-million plant in Dubai. The 6,000-sq.-meter (64,583-sq.-ft.) facility will produce MARS andSNICKERS bars.
As Ahmed Bayoumi, general manager of Mars CGG, noted, the subsidiary posted net sales of $450 million last year.
“We are pleased that consumer demand in the Middle East has and continues to provide general opportunities for stable long-term growth,” he said.
Pursuing markets abroad will not, however, work for everyone. Hence, midsized confectioners will have to remain vigilant in reducing manufacturing costs via supply chain enhancements, be they lean manufacturing techniques, just-in-time deliveries of various ingredients and packaging, or creative labor arrangements.
They also will have to remain attuned to changing consumer buying patterns. According to Business Insights, the Top 10 future trends affecting confectionery are the following: Emerging markets, heritage and provenance, healthy and functional, beauty, ethical - organic/fair trade, premium, natural, experimental and exotic ingredients, cereal/snack bar growth, and vegetarian and vegan products.
To capitalize on the trends, companies must carefully pick niche segments that align well with their strengths and capabilities. In the end, the recession may be over, but the challenges remain. Consolidation and even greater competitive pressures make navigating the new landscape tougher than ever.