Rabobank predicts a third consecutive cocoa deficit for the 2014/15 crop year that will see prices soar 23% from Q3 2013 levels to $3,000 per (MT) by Q3 2014.
Expect the big players to tweak formulations to mitigate the cost. Simply bulking out bars with more sugar is an option, but Rabobank predicts that sugar prices will also edge upwards of 8% in 2014.
Sugar alternatives such as steviol glycosides are options, but are rife with limitations including added cost and negative taste affects, so don’t anticipate that manufacturers will turn to healthier sweeteners on mass in 2014.
Rethinking portion sizes and shape
So how about a smaller bar with the same retail price? The press will have field day, but it’ll soon become yesterday’s news. That’s a strategy Mars in the UK has already employed for its Mars and Snickers bars.
The company claimed that reformulation had gone as far as it could to reduce calories for now – a claim scientists who contacted ConfectioneryNews in the aftermath firmly refuted.
Manufacturers may also rethink the shape of well-known brands to disguise downsizing. Mondelez for example in late 2012 changed Cadbury Dairy Milk to rounded shape chunks, reducing the size from 49g to 45g, but keeping the price the same.
Increased cost of manufacture
Mintec recently said that the negative cocoa outlook had already caused cocoa butter prices, which account for a quarter of the ingredients cost of chocolate, to rise 80%, meaning UK chocolate producers who were once paying £0.16 ($0.26) for cocoa butter to produce a 100g milk chocolate bar in January 2012, were paying £0.21 ($0.35) in July 2013 – a 31% hike.
Industry experts widely expect chocolate to develop into a two-tier market. Brands will position themselves as either premium or affordable.
Jean-Marc Laurens, quality and R&D Manager at French chocolatier Cémoi, believes premium chocolate will develop like the wine sector with cocoa origin blends tailored to meet aromatic profiles.
Meanwhile, economical chocolate could explore more cocoa butter equivalents (CBEs) and alternatives to allay the rising cost of cocoa butter. The Global Shea Alliance, an advocate for CBEs derived from a mix of shea stearin and palm mid fraction, told us last year that while global chocolate sales grew at about 3-4% per annum, annual growth in demand for CBEs was about 10%.
There are however limitations to CBEs, which are restricted to 5% in chocolate in the EU and any product using CBEs in the US must be labelled a ‘chocolate flavored’ product.
The race is on in China
The $12bn Chinese chocolate market will be where the race for global supremacy is won and lost. Hershey has made a late shopping-spree to shorten its odds when it acquired the Shanghai Golden Monkey Food Company last month for $584m.
But the Chinese chocolate sector is already highly consolidated with the top 3 players Mars, Nestlé and Ferrero, commanding almost 70% of the market.
Don’t discount local Asia player Lotte, which has earmarked China as its international growth priority as it aims to grow sales outside the Korean market over 40% by 2018 to $3.5bn. However, the company’s chocolate category only accounts for 5% of sales with its China sales coming mainly from gum and chocolate pie.
Premium products developed to Chinese tastes could be the key to increasing China’s low (1.2 kg per capita) chocolate consumption among the country’s increasingly affluent population, according to market analyst at Canadean.
In September last year, Barry Callebaut’s cocoa flavanol heart health claim was finally approved by the European Food Safety Authority (EFSA).
The first chocolate made by Callebaut’s flavanol-preserving Acticoa method is likely to hit the EU market this year and will test how far the health claim can be taken.
We already know that the origin of the cocoa affects the percentage of cocoa flavanols in the final product, with Central and South America origins containing more flavanols than cocoa from the big producing nations in West Africa.
A likely R&D priority for manufacturers will be to observe how cocoa flavanols and added functional ingredients in chocolate such as phytosterols are impacted by manufacturing processes, particularly those using heat.
The big acquisition
Analysts have long prophesized that the only thing missing from Nestlé's confectionery portfolio is a leading premium brand.
The company allegedly approached Ferrero during 2013, but could this be the year it considers another recognized name, perhaps one closer to home?
The third largest cocoa processor ADM Cocoa is also likely to change hands in 2014, which could lead to a very consolidated market if the likeliest contender and number two player, Cargill, is the buyer.