Global chocolate volumes, traditionally the largest in the confectionery market, are due to be overtaken by sugar by 2005, while gum is rapidly becoming by far the most profitable confectionery product available.
According to latest research by market analysts Euromonitor, the global chocolate market is set to increase by nearly 4 per cent to $56 billion (€49.6bn) in 2003. However, this growth, partly the result of a weakening dollar but also due to premiumisation strategies, conceals the lowest annual volume increase since 1998.
Chocolate confectionery value sales are forecast to grow even slower than the traditionally low-cost sugar market between 2003 and 2008 despite chocolate premiumisation strategies.
Part of the problem is already high per capita consumption in developed markets where chocolate is most popular, whereas many developing markets prefer sugar confectionery not only for cultural reasons but also because of the ease of local manufacture, transportation and shelf-stability of sugar products compared to chocolate.
Chocolate manufacturers, therefore, are largely restricted to developing ever-more ingenious ways of squeezing more profitability out of their developed market businesses, although both Nestlé and Cadbury Schweppes have experimented with liquid chocolate in India with the brands Chocostick and Chocki.
More typical strategies include bite-sized twist wrap developments and the growth of snack products like Kinder Maxi (Ferrero) or the launch of more premium boxed assortments and tablets. This includes a focus on quality, such as Nestlé's UK foray into premium chocolate with the Double Cream brand, in addition to a wider range of speciality products in line with wellness trends, such as organic, functional and sugar-free developments.
What these varying strategies have in common is the recognition that there are only limited opportunities for opening up new usage occasions or targeting new demographics, while the need to maintain product interest, resist downward price pressure by retailers and fight off competition from other manufacturers and new product categories such as snack bars becomes increasingly significant.
Sugar left to the specialists
Increasingly, sugar confectionery is being left to the specialists such as Perfetti Van Melle and a whole host of regional players like Haribo. Both Nestlé and Kraft have made significant sugar divestments including Nestlé's Fox's and XXX Strong Mint brands in 2001, and Kraft's Farley's and Sathers brands in 2002.
Licensing and novelty are key drivers in the sugar market, and while Cadbury Schweppes and Mars have chosen to make significant investment in licenses for film franchises Lord of the Rings and Harry Potter respectively, Kraft and Nestlé have decided to direct investment toward more lucrative sectors like bakery or ice cream.
The bottom line is that in an environment where old favourites like boiled sweets or liquorice are flagging, constant innovation is an expensive necessity. However, the return on sugar confectionery is very low, with unit prices depressed by the preponderance of local manufacturers and a cheap image. Even mints and medicated confectionery are unlikely to achieve more than average growth over the next five years as consumers turn to alternatives like gum for flavour, novelty, fresh breath and functionality.
Fee Fi Fo Gum
Gum looks set to achieve giant growth over the next five years, practically doubling that achieved between 1998 and 2003. A low volume, high value product which still has significant potential due to low per capita consumption, it is associated with wellness trends through the dental accreditation of sugar-free varieties, and by the explosive development of functional variants.
Functional developments have focused predominantly around oral care with whitening gums and toothpaste brand extensions including joint ventures between players like Nestlé and Colgate-Palmolive, or Wrigley with Procter & Gamble. Energising, cholesterol-lowering or skin improvement gums all exist, while by far the most successful functional brand is Wrigley's decongestant gum Airwaves.
Such is the perceived potential of gum, and functional gum in particular, that Cadbury has made it a key part of its strategy, acquiring key Kraft and Huhtamäki brands in 2000, Danish gum manufacturer Dandy and a controlling stake in Kent Gida in 2002, and the acquisition of Adams cleared in March 2003.
In addition, Wrigley's performance since it started to focus on NPD shows an increase in net profit of more than 10 per cent in both 2001 and 2002, and Euromonitor claimed it would be only a matter of time before more companies begin to focus on the sector, with Nestlé in particular expected to make a major impact.
However, although gum will have made a disproportionately high contribution to total confectionery growth by 2008, it could still turn out to have limited long-term growth, hampered by the very functional developments which currently drive it. An over-identification by consumers with gum as a functional product could restrict usage occasions in a similar manner to medicated confectionery.
The failure of Wrigley's antacid gum Surpass is a case in point. Its target market was already so restricted that it had little potential to build on, and the same could happen to decongestant or whitening gums if they stray too far into OTC or oral care territory.
Gum is already disadvantaged compared to chocolate as it cannot tap into snacking trends, and risks losing the edge in terms of novelty flavour, shape and texture variation against sugar confectionery. Manufacturers need to think carefully about their products' positioning so as not to lose the impulse market.
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