On the dark side

The chocolate market looks saturated, but consumers are showing a taste for premium and dark, says RTS Resource

With a total market value of euro 26bn, the EU chocolate confectionery market is a significant market sector, equivalent in value to the market for carbonated soft drinks. However, as per kilo prices of chocolate confectionery are comparatively high, this value equates to a volume of only 2.4Mt, which is slightly smaller than the consumption of frozen fruit and vegetables. This does mean, though, that we consume an average of 6.1kg of chocolate confectionery products per person per year - almost 17g a day.

The largest segment in terms of volume consumption remains that of unfilled (solid) bars, followed by filled bars, pralines (mainly boxed chocolates) and other chocolate sweets. By value, though, pralines is the largest segment because values per kilo are much higher for boxed and gift products.

The major challenge for chocolate confectionery is that market growth has been very slow, at around 0.5% per year in volume, although values have done slightly better at an annual average of 1.5%. Consumption in some sectors has even declined over the past five years. The overall results disguise much difference in performance between countries and between sectors. The result is that total per person consumption grew by only 0.3% per year between 2002 and 2007.

By country, the largest markets by volume are Germany (747,000t), the UK (594,000t), France (304,000t) and Italy (212,000t). In terms of value, however, the UK is the largest market, followed by Germany, France and Italy.

UK chocolate confectionery is the most costly in Europe and is becoming increasingly so with growth in the premium, high cocoa solids sector.

The highest average annual growth rates in consumption by country between 2002 and 2007 were seen in Finland and Ireland. By contrast, The Netherlands, Germany and the UK all experienced small declines in volume. Average per capita increases were highest in Finland, Ireland and Italy, with declines in The Netherlands, the UK, Germany, Austria and Sweden.

own Brands increasingly active

During the past five years, retailers' own brands have become increasingly active in the chocolate confectionery sector - a sector that hitherto had been left largely to the major European and trans-national brands. To some extent this has suppressed value growth, because retailers' own label brands tend to be less expensive than their branded equivalents.

While well-known brands still dominate, especially in the gift and filled bars (countline) sub-sectors, retailer own brands are making increasing headway in sales of unfilled bars and chocolate sweets. Major brands have been fighting back with new product launches and more added value products. Meanwhile, specialist chocolatiers have seen growth as consumers have been increasingly willing to pay more for something special, particularly in the gift and snack sub-sectors.

Europe's top chocolate brands and manufacturers include Cadbury, Nestlé, Kraft, Mars Masterfoods, Ferrero, Lindt & Sprungli, Ritter, Toms (including Anton Berg), Barry Callebaut, Migros, Chocolates Hosta, Thorntons, Storck and Cloetta Fazer. The market remains highly polarised, with the top five manufacturers controlling around 50% of sales.

Chocolate for good health

It may seem odd to associate confectionery with health, but in recent years the results of several research studies have linked the (moderate) consumption of chocolate to good health.

Chocolate (cocoa) contains flavanola, polyphenolic compounds that are antioxidants capable of neutralising damaging free radicals. Eating dark (high cocoa solids) chocolate can, it has been claimed, lower blood pressure, improve the body's ability to metabolise sugar, lower cholesterol and even ward off cancer. Other substances contained in chocolate allegedly improve mood and alertness. It all sounds almost too good to be true.

However, there certainly seems to be some evidence to back up these claims, although a good proportion of the beneficial polyphenolic compounds can be lost in processing the cocoa bean. This is one reason why companies such as Mars are looking at ways to improve the yield of polyphenols in the final product. Mars has started to use the brand Cocoavia to identify products that it has developed to be high in flavanols.

Clearly there is a limit, however. Consuming too much chocolate could start to do more harm than good - unfortunately. However, the health issue has spurred interest in chocolate, especially high cocoa solids products.

Trends and developments

Most overall growth over the past five years has been in EU sales of filled bars and specialist chocolate confectionery, including seasonal products. Meanwhile, consumption of unfilled bars (which still remains by far the largest volume sector) and chocolate sweets has remained relatively flat, although values have been rising as sales of quality products have risen within the mix.

The momentum towards quality and smaller, higher value packs has been responsible for driving up values by around 1.5% per year despite low volume growth. This value performance would be even more impressive if the increasing sales of lower value own brands were discounted. Some of the ways in which value is being added include the use of high cocoa solids tablets. These have become increasingly popular, especially boosted by the positive health connotations described. Brands such as Lindt, Cote d'Or, Zetti Poulain and Green & Black's (now owned by Cadbury) have products ranging in cocoa solids content from 63% to 85%. There are even 100% products now available and increasing numbers of lines from smaller speciality manufacturers and importers.

Ingredients are playing a more significant role. Instead of the usual nut and marzipan, for example, Lindt now has a range of 'hot chocolate' tablets that includes flavours such as grenadine, papaya and hot maracuja. Green & Black's Maya Gold uses a combination of orange and spices.

Then there are the developments in packaging and presentation, with small gift packs and individual indulgences becoming increasingly popular. Manufacturers such as Gubor and Ferrero have been active here.

Snacking is becoming an increasingly important part of everyday eating, as is the lunchbox. Here, developments such as mini bars and other snacking products are available from brands such as Kinder, Mars, Nestlé and Cadbury.

Products designed for sharing, such as Mars Celebrations, Nestlé After Eight and Quality Street, and Ferrero Rocher are now available in smaller pack sizes

The health theme continues with the development of low sugar and sugar-free products such as Canderel chocolate bars, as well as products combining chocolate with superfoods such as cranberries, blueberries and seeds. This is becoming especially important in the children's' sector as parents become more concerned about their offspring's diets.

Finally, as in other areas of food, ethical issues are affecting confectionery and both organic and fair trade products are showing good growth rates.

innovation needed to grow market

The main conclusion from this analysis is that the chocolate confectionery market in Europe has become highly competitive and needs innovation in order to achieve any further significant growth and development.

Consequently, manufacturers will also be called upon to work much harder simply to maintain their market share. With retailer own brands likely to take an increasing share overall, there will be even less room for branded products to develop.

In short, this market, which has traditionally been highly brand-dominated, faces a future of change. Not only will retailer own brands threaten to take an increasing slice of the market, but the market is now also opening up to smaller operators that make or import super-premium chocolates and specialities.

Meanwhile, the data could imply that the EU market for chocolate confectionery is reaching a point of saturation with most growth coming from within the market rather than from overall expansion.

Total expansion of the market does seem to be limited. Not only is European total population growth forecast to be low, but competition from other types of snacks and indulgences promises to reduce the potential for chocolate sales. So, on the surface, the future for chocolate confectionery in Europe does not look particularly attractive, except perhaps for major retail chains or smaller specialists.

As market growth potential is restricted, the chocolate confectionery market is set to continue to become increasingly competitive, with the possibility of further mergers and acquisitions taking place. While the sector for unfilled chocolate will remain relatively flat, modest growth is forecast for filled tablets and countlines, pralines and other chocolate confectionery (including seasonal items).

However, in order to take a share of this growth, it will be necessary for manufacturers to pick out the key markets on an international basis and to target products and distribution accordingly.

Opportunities exist in this increasingly competitive market, but they are becoming more fragmented and difficult to find.

''For more information, contact Jamie Rice at RTS Resource on +44 (0)1902 422282

Email: jamie.rice@rts-resource.com

Website: http://www.rts-resource.com''