CORRELATING FORCES: THE ROLE OF PREMIUM AND SUSTAINABLE IN DRIVING GROWTH WITHIN CHOCOLATE CONFECTIONERY ALAN ROWNAN ICCO 2016
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THE CHALLENGES FACING CHOCOLATE CONFECTIONERY DIVERSIFYING TO ANSWER DEMAND A SUSTAINABLE FUTURE?
Tonnes % THE CHALLENGES FACING CHOCOLATE CONFECTIONERY Chocolate confectionery dominates, but better growth elsewhere? 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 - Cocoa Ingredients: Global Volume and Growth by Application 2010-2015 Chocolate Ice Cream and Confectionery Frozen Desserts Sweet Biscuits Pastries Cakes Hot Drinks Dairy Volume (2015) % CAGR 2010-2015 5 4 3 2 1 - Chocolate confectionery 45% Ice cream and frozen desserts 15% Sweet biscuits 10% Euromonitor International 5
THE CHALLENGES FACING CHOCOLATE CONFECTIONERY Growth prospects and constraints Cocoa Ingredients: Absolute Growth by Main Applications and by Region 2015-2020 Asia Pacific Middle East and Africa Latin America Western Europe Australasia North America Eastern Europe -20,000 20,000 60,000 100,000 140,000 180,000 Tonnes Hot Drinks Cakes Dairy Sweet Biscuits Pastries Ice Cream and Frozen Desserts Chocolate Confectionery Euromonitor International 6
THE CHALLENGES FACING CHOCOLATE CONFECTIONERY Traditionally reliable markets faltering. Euromonitor International 7
THE CHALLENGES FACING CHOCOLATE CONFECTIONERY Chocolate market in Middle East ripening? UAE Turkey Saudi Arabia Euromonitor International 8
000 tonnes % THE CHALLENGES FACING CHOCOLATE CONFECTIONERY Category characteristics.. 2,500 Chocolate Confectionery: Growth by Value and Volume 2015-2020 (constant terms) 5 2,000 4 1,500 1,000 3 2 1 500 0 0 Tablets Countlines Chocolate Pouches and Bags Boxed Assortments Seasonal Chocolate Other Chocolate Confectionery Chocolate with Toys -1 Volume (2015) % CAGR (Value) % CAGR (Volume) Euromonitor International 9
THE CHALLENGES FACING CHOCOLATE CONFECTIONERY Overcoming the lack of affordability challenge Sugar confectionery vs. chocolate confectionery in China Other categories continue to be mainstay of Chinese snacking Until this is addressed, opportunity remains limited Euromonitor International 10
THE CHALLENGES FACING CHOCOLATE CONFECTIONERY Consumers In Many Countries Buy More Sugar Than Is Recommended 120 100 80 60 40 20 0 Grams per capita per day140 Daily sugar purchases compared to recommended intake, 2014 Sugar (g) 5% WHO recommended intake 10% WHO recommended intake Euromonitor International 11
The challenges facing chocolate Diversifying to answer demand A sustainable future?
US$ per metric tonne % y-o-y growth DIVERSIFYING TO ANSWER DEMAND Cocoa price increases place pressure on unit prices Cocoa Prices (US$ per Tonne) and Chocolate Confectionery Unit Prices (US$ per Kg) 2002-2016 4,000 40 3,000 30 2,000 20 1,000 10 0 0-1,000-10 -2,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Cocoa Price - US$ per tonne % Y-o-Y Growth Chocolate Confectionery Unit Price % Y-o-Y Growth -20 Euromonitor International 13
DIVERSIFYING TO ANSWER DEMAND Premium the name of the game in the West Single origin Diverse flavours (eg. mint, chilli) High cocoa content (70-90%) Private Label stealing market share Big companies to redevelop and/or acquire Premium private label products Niche products (eg truffles) and manufacturers Euromonitor International 14
DIVERSIFYING TO ANSWER DEMAND Mars: Extending the Snickers brand into the road less travelled Conventional Snacks Snack Replacements Many chocolate confectionery brands have extended their brands into other snack categories such as snack bars and ice cream. Few, however, have ventured into dairy drinks or yoghurt. Snickers is perhaps the best case example in how far a brand can extend and has successfully leveraged it brand familiarity in snack replacement products. Rest of Packaged Food Euromonitor International 15
The challenges facing chocolate Diversifying to answer demand A sustainable future?
A SUSTAINABLE FUTURE? Sample strategies Expansion Develop long-term outsourcing agreements and supply partnerships. Accelerate growth in Gourmet & Specialties Products business. Innovation Continually improve current portfolio of products and recipes. Focus on health properties of the cocoa bean and develop products accordingly. Cost Leadership Improve operational efficiency, with a target of reducing manufacturing costs. Sustainable Cocoa Increase focus on mid- and long-term sustainability of the cocoa supply chain, securing the volume and quality of cocoa for the company. Achieved through sustainability initiatives to improve farming practices, farmer education and farmer health. Euromonitor International 17
A SUSTAINABLE FUTURE? Supply chain issues present long-term problems Climatic /political instability Demand growth Unattractive employment Long-term supply-side instability Euromonitor International 18
US$ billion, fixed exchange rates Year-on-Year growth A SUSTAINABLE FUTURE? The divergence of CSR and Packaging claims Fairtrade, UTZ Certified and Other Sustainable Trade and Farming Schemes 2015-2020 250 200 150 100 50 0 2015 2016 2017 2018 2019 2020 70% 60% 50% 40% 30% 20% 10% 0% Claims in CSR Reports Claims in CSR Reports Claims on Packaging Claims on Packaging Euromonitor International 19
Value for money All natural Superior taste Non-GMO (genetically modified Locally sourced or manufactured Health and nutritional properties Free range Low price Hormone free 100% organic Environmentally conscious or eco- Sustainably produced or raised Grass fed/pasture raised Fair trade Ready to cook Strong or well-known brand Supports local communities Specialty or new variety Supports a charity or charitable High price None of the above I do not buy fresh food A SUSTAINABLE FUTURE? What are consumers looking for? 60% 50% 40% 30% 20% 10% 0% Euromonitor International 20
A SUSTAINABLE FUTURE? The Future of Sustainability Claims? QR Code Consumers CSR Euromonitor International 21
US$ million RSP A SUSTAINABLE FUTURE? Clean label confectionery Chocolate confectionery in Western Europe, clean label claims 2,500 2,000 1,500 1,000 500 0 The emergence of a hierarchy No Artificial Colours No Artificial Preservatives No Artificial Flavours All Natural No Artificial Additives Euromonitor International 22
US$ million A SUSTAINABLE FUTURE? A world of increasing sustainability credentials Sustainable Trade and Farming Labels in Chocolate Confectionery Globally (US$ million) 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 Chocolate with Toys Seasonal Chocolate Chocolate Pouches and Bags Tablets Boxed Assortments Countlines 5,000 0 2015 2016 2017 2018 2019 2020 The future of sustainability? Euromonitor International 23
A SUSTAINABLE FUTURE? What next for chocolate confectionery? Chocolate faces a tipping point Greater competition from new snacks provides threat in the West Chocolate will continue to have a limited audience in the Middle East and Asia Sustainability strategy could be the difference between success and stagnation Euromonitor International 24
THANK YOU FOR LISTENING Alan Rownan Ethical Labels Analyst @Emi_ARownan www.blog.euromonitor.com www.euromonitor.com