Crossroads for chocolate? The uncertain future of confectionery's favorite food.
Current indicators point to more complex choices on the horizon, ranging from healthy to hedonistic, from simple to sophisticated.
Less than a year ago, it seem chocolate’s future teetered on the brink of extinction, a series of apocalyptic and man-made events, ranging from the Ebola epidemic to rainfall shortages, from unabated demand for chocolate in China to a lack of youngsters willing to be cocoa farmers, dooming it to shortages and luxury pricing.
Well, almost midway into 2015, the mood has improved slightly. First, the Ebola epidemic, thankfully, seems to be under control. Secondly, weather conditions and harvest estimates for the Ivory Coast and Ghana, although always under revision, aren’t as bleak as once thought. Nonetheless, demand for chocolate in China and Asia overall still remains strong, and keeping the younger generation on the cocoa farms poses a continuous challenge.
But as John Zima, ADM Cocoa’s director of retail confectionery sales, points out, “Forecasts for the supply and demand of cocoa for the previous and upcoming crop year are projected to be in balance or a slight surplus. Based on this, we should avoid any significant cocoa shortage for the near future.
“Longer term, there is always the potential for demand growth to outpace the growth in cocoa harvests, but recent years have shown production increases in the major growing regions — notably Ivory Coast and Ecuador. Historically, there have been years where demand outpaced supply, and in those years the market price has responded by moving higher. Generally, the markets are efficient, so higher prices can entice an increase in the supply, or keep the demand growth in check.”
Of course, there can be some latency between a harvest shortfall/demand increase, he acknowledges, the resulting price reaction and a reactionary change in supply and/or demand increasing volatility.
But then, what isn’t prone to volatility these days?
Moreover, as Kip Walk, Blommer’s corporate director, sustainability, adds, “The overall strong market levels are stimulating investment in the cocoa farming sector. Farmers are able to purchase fertilizer and other inputs to increase yield in West Africa and new planting is continuing in the Americas. These activities will help to avoid the often mentioned ‘million-ton’ deficit. Although nightmarish deficits may be unlikely, farmers will need to continue to see the benefit of growing cocoa versus other alternative crops if we are to stay on pace with consumption.”
Still, Walk cautions that there “remains a significant amount of work that needs to be done to ensure that the industry’s 2020 goals are realized. [Editor’s note: Several multinational chocolate manufacturers have committed to using only certified cocoa in their products by 2020.]
OK, so it looks like rationing of chocolate isn’t necessarily a given. So what’s the marketplace like today for chocolate? Stratified is a good way to describe it.
As Jessica Blondeel, product manager - SBU Chocolate at Puratos, says, “At Puratos, we believe that consumers will pay more and more attention to the quality of their food. American consumers spend a lot of time examining a product’s label and want a snack that is at the same time healthy and indulgent. This is translated into a growing presence of organic labels on chocolate products since consumers associate organic with something that is ‘good for them.’
“Dark chocolate is also gaining market share,” she emphasizes, “partly because it is perceived as healthier and partly because the chocolate market is maturing and gradually moving away from sweet into more adventurous bitter or aromatic chocolate.”
According to Blondeel, the plain chocolate bar is seeing a serious decline in sales while products with mixed ingredients such as nuts and nut flavors are on the rise. However, there has been an uptick in the miniaturization of traditional products, whereby classic brands popping up in smaller sizes or in a “shareable” packaging format. Enter guiltless snacking.
The economy’s recovery has also prompted a resurgence in indulgence, which has boosted premium chocolate sales. The numbers don’t lie, says Courtney LeDrew, Cargill Cocoa & Chocolate’s marketing manager.
“Yes, we’re certainly seeing a shift toward premium,” she says. “In fact, according to the National Confectioners Association, the premium confectionery sector grew 10.9 percent and contributed $132 million to the overall chocolate category in 2014. Today, the premium market is continuing to outpace the overall chocolate confectionery market in terms of percent growth.”
However, it’s not just limited to players in the premium sector, LeDrew notes.
“Store brands are still gaining market share as well, and discounters are gaining wider public acceptance,” she explains. “Coinciding with this trend is a rise in private-label chocolate confectionery – and this is where we’re seeing a combination of the two trends. More and more, private-label chocolate products are being positioned as premium; we are seeing more explicit claims on labels, from organic and sustainable certifications, to allergy-free and origin claims.”
Then there are those Millennials, ever anxious to flex their smart phones. More prone to the latest viral wave than Baby Boomers, they are constantly looking for the best value.
But as Rose Potts, corporate manager – sensory and product guidance, explains, “Value is measured differently, especially by Millennials who want quality and excitement, but still at a reasonable price. They are willing to pay for originality and measure that as part of their value equation.”
So, does health factor into that equation? Well, yes, and no. There’s the perception of health and then the reality of government-regulated health claims.
As Zima points out, “We continue to see dark chocolate and cocoa powder getting a health halo because of the ever growing body of research, which continues to show potential health benefits to consuming cocoa.”
That halo also extends to organic products.
“As mentioned before, consumers seem to associate organic products with products that are healthy and good for them,” says Blondeel. “Since there is a clear regulation on organic products and the price premium is already accepted, this is becoming an interesting segment to play in without having much ‘grey area’ when it comes to FDA regulation.”
Indeed, the U.S. government has very “black-and-white” rules regarding making claims. Consequently, “The current environment makes it very difficult to give specific health claims unless every lot of a product is tested for antioxidants, for example,” Pott explains. “That is also risky as antioxidant content changes with time and conditions.”
That said, is milk chocolate losing ground to dark and white chocolate in popularity? Let’s say, some shifting has occurred.
Blondeel asserts that milk chocolate continues to be the preferred chocolate flavor in the American market.
“However, we have noticed that consumers are gradually moving away from their milk ‘comfort zone’ and exploring opposite ends of the flavor spectrum, namely dark and white chocolate,” she says.” The biggest growth of white chocolate product launches can be found in chocolate confectionery, where its “blank canvas” allows for a variety of flavor combinations.
The second largest growing area of white chocolate is the bakery aisle, where the luxury connotation of white chocolate works as a catalyzer for its growing attractiveness,” Blondeel says.
Zima echoes those sentiments. “We continue to see strong demand for white chocolate products,” he says. “Additionally, as people move towards cleaner and clearer labels and remove hydrogenation from products, we have seen that white chocolate is an attractive alternative for those that have traditionally used white confectionery coatings.”
Dark chocolate is also making inroads into milk chocolate, asserts Blondeel.
“It is slowly but surely creeping up on milk chocolate in terms of preference,” she says. “Consumers pay more and more attention to the quality of their food and dark chocolate often has less fat and less sugar than its milk or white counterparts, adding to its popularity.”
At the same time, it’s important to keep perspective. LeDrew shares some numbers again.
“Yes, sales of white chocolate have increased since 2011, but it remains a small part of the chocolate confectionery segment,” she says. “Today, white chocolate makes up approximately 2.35 percent of the chocolate confectionery category in terms of volume, compared to a 1.78 percent share in 2011 (Nielsen Data, 2/14/2015). However, when looking at growth, the real winner is dark chocolate. Recently, demand for dark chocolate has grown faster than milk and white chocolate, although milk chocolate remains the most popular flavor in terms of sales.”
And as Potts suggests, the white chocolate phenomenon may have peaked.
“Yogurt-flavored coating, especially Greek style, is still holding its own and may be stealing some of the market share of white chocolate,” she says.
So what about that long languishing sugar-free chocolate segment?
Well, there’s no doubt that there’s still a need for dietetic chocolate products, LeDrew says, “but the segment is small and has been shrinking for the past two years.”
Moreover, Zima says that ADM Cocoa has seen greater interest in reduced-sugar products than sugar-free type products. And while alternative sweeteners are readily available, one can expect new alternative, natural sweeteners to emerge, such as coconut sugar, maple syrup and honey, predicts Potts.
So is the chocolate market, indeed, at a crossroads in the United States, and are we seeing the 2.0 version of a chocolate renaissance?
Blondeel believes so.
“According to a Mintel report, about 55 percent of Americans adults eat chocolate on a weekly basis,” she points out. “Although American consumers are traditional in their purchases and do not easily step away from their favorite products, they are gradually looking for new ways to enjoy their chocolate. This can range from an unexpected flavor combination to new textures, flavors, sizes or ingredients. Instead of the classic method of using chocolate in desserts, companies are now trying to introduce desserts as an ingredient in the chocolate itself. This way, the dessert is becoming the flavor.”
Let’s just say that America’s love affair with chocolate continues, adds Potts. In this instance, the crossroads represents multiple choices, not necessarily an either-or.