Retail expansion favours own label supplier

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Zahor, Spain's biggest own label confectionery producer, is hoping
for strong growth this year following its merger with cocoa
processor Natra Cacao. Access to cheaper raw materials and more
R&D capacity following the deal will certainly help, but it is
the expansion of the global retaul sector which is likely to give
it the biggest boost, suggests Chris Jones.

Zahor is Spain's third largest chocolate producer (processing 25,316 million tons in 2003), its fourth largest sugar confectionery producer (with a 7 per cent share) and the biggest supplier of own label chocolate snacks and tablets with sales of €79.7 million in 2003.

The €55 million merger with Natra Cacao, part of the Natra group which also has operations in the functional food sector, will give Zahor access to cheaper raw materials, and allow it to expand its research and development (R&D) capacity - a vital part of ensuring that the group remains competitive in a market dominated by shifting consumer demand for health, indulgence and convenience.

But while Zahor has a solid position in its domestic market, Spain is unlikely to be the source of much of the hoped-for growth, according to company president, Juan Ignacio Egaña.

Own label already has a relatively large share of the Spanish confectionery market - 17.2 per cent according to the Private Label Manufacturers' Association (PLMA) - and while growth was a respectable 1.3 per cent in 2003, Egaña suggested that there were better prospects elsewhere.

The recent acquisition of the France-based Excella own label business from Israeli group Strauss Elite back in June has given the company a good foothold in that market, as well as a burgeoning presence in the UK and Canada.

The UK is Europe's biggest market for retailers' own labels - some 40 per cent of grocery volumes - and the penetration of the confectionery market there is already 20 per cent, but Egaña said that there were still opportunities there, not least because of the relatively high prices there - in Spain, own label has an 11 per cent share of the confectionery market by value, while in the UK it is nearer 18 per cent, according to the PLMA.

Growth in France is perhaps more difficult to achieve - own label confectionery volume and value shares both fell in 2003 following low levels of consumer spending - but the relative weakness of the French retail market could still prove a boon for Zahor.

One of its biggest customers is Carrefour, France's leading retailer, and the second-largest grocery retailer in the world, and its rapid expansion into emerging markets such as China, Argentina and Brazil (in part as a result of poor trading conditions or restrictions on new store developments in both France and Spain) is likely to mean greater opportunities for the own label confectioner, Egaña said in an interview with Spanish paper El Diario Vasco​.

In the short term, the merged company is setting its sights on the rather more modest sales target of €200 million for 2004 - Zahor's sales prior to the merger were around €125 million - but will clearly hope that a combination of new product development and retail growth will help it consolidate its position in an increasingly concentrated international confectionery market.

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