Chocolate manufacturers can grow further in India with premium products after already opening up the market to low-income consumers, according to an analyst.
Deepa Dsouza, trend and innovation consultant at Mintel, told ConfectioneryNews.com “While affordability is a key need when catering to the mass market, so is the growing market for premium chocolates.”
“Aspirational buying is a key trend seen across food and non-food categories in India. There is an opportunity for foreign brands to revamp their products to better suit Indian tastes while offering a premium promise through personalization, mass customization and gourmet appeal.”
According to Mintel, dark chocolates have grown 160% in 2011 versus 2009 and present a positive marketing category for adult consumers.
Dsouza added that another option was seasonal gifting that could appeal to both the mass market and premium space.
Mondelez domination and growth prospects
However, she warned that manufacturers faced a duopolistic market with strict government sugar regulations and cocoa sourcing constraints.
She said that India was the fastest growing chocolate market globally with volume sales up 21% between 2008 and 2011.
The market leader Mondelez International, which commands 70% of the market through Cadbury, said in its Q3 results yesterday that demand was so great in India that it had reached capacity at its factories and needed to add new production lines.
Up consumption with dark chocolate and gifting
Although the market is growing, per capita chocolate consumption is still among the lowest in the world, said Dsouza, at 70g per head compared to 8 kg per head in Germany.
“One of the reasons for this low consumption could be that Chocolate confectionery until recent years was considered a premium in comparison to gum and sugar confectionery, “ said the analyst.
She said that chocolate was now sold for as low as Rs. 2 ($0.4c) per pack, which has helped companies penetrate rural markets.
Barrier: Sugar regulation
One major challenge for manufacturers in India is access to basic raw materials such as sugar and cocoa, said Dsouza.
“Sugar has been under the influence of high inflation creating a very volatile market,” she said, adding that the sugar industry in India was highly regulated.
“The regulations could differ between state and central [Government] putting a lot of pressure on chocolate manufactures to absorb and sustain the steep rise of sugar prices,” she said.
According to Dsouza, confectioners need a deregulated market to benefit in the face of domestic sugar prices that have risen higher than international prices.
She said that “an unimaginable shortage of cocoa is forseen in the next few years”, which has led to doubling cocoa prices over the decade.
Manufacturers in India are looking to source cocoa locally to avoid a 30% import duty and high transportation costs from West Africa, she said.
“This self-sufficiency will help drive lower prices to cater to the mass market that is highly price sensitive,” she added.
Weather conditions are another challenge, according to Dsouza. But companies have been developing temperate tolerant chocolate using vegetable oil to replace cocoa butter, she said.