Domestic confectionery market to recover as more consumers demand premium, niche chocolate brands

By Zhang Hongpei Source:Global Times Published: 2017/12/4 17:48:39

Belgian experts build a ‘Great Wall’ made of handmade chocolate at an exhibition in Shanghai. File photo: VCG

On a per capita basis, the level of chocolate consumption in China still has plenty of room to grow in comparison to the global level, although the domestic chocolate industry has in fact witnessed a big boost in sales recently. With more top international chocolate makers tapping into the Chinese market, their growth engines rely heavily on the high-end and super high-end segments, where sales have soared as a result of the rapid overall consumption upgrade in China. Experts are also pointing their fingers at handmade and niche chocolate as the future craze in the Chinese confectionery market.

Demand for premium chocolate is quickly growing in the Chinese market as the country experiences rapid upgrades in consumption, with the niche and handmade chocolate markets becoming the new favorites.

However, experts have noted that it is proving difficult for domestic confectionery brands to capture the market's attention as foreign players continue to take the lead.

With "tremendous" demand for chocolate in emerging markets looking set to continue this season, the world's third-largest cocoa processor, Singapore-based Olam International, is projecting a sharply smaller global surplus. Excess cocoa supplies that reached a record last season will probably drop to about 50,000 metric tons this time around, Gerry Manley, head of cocoa at Olam International, was quoted as saying in a Bloomberg report released in November.

Particularly, demand has picked up in Asia, whereby countries including the Philippines, Indonesia, India and China are demanding more and more cocoa powder for products like cookies and ice cream, the report said.

According to a report by Euromonitor International, a global consulting firm, China's chocolate market is likely to recover by year-end after it experienced a 3 percent decrease in 2015 and a further 1 percent drop in 2016.

With the decline starting at the beginning of 2015, the domestic chocolate market witnessed about 120,000 tons in sales in 2016, down 3.84 percent year-on-year, data from the consultancy showed.

Zhu Danpeng, a food industry analyst, told the Global Times on Sunday that these sliding figures only indicate that sales were down in the mass market, as shown through official statistics channels.

"Actually, the whole industry has witnessed strong growth, particularly in the high-end and super high-end segments where products are usually bought via cross-border e-commerce, independent shopping agents [also known as daigou] or other channels, which are not calculated in the official statistics," Zhu explained.

The consumption of chocolate in China is less than 1 kilogram a year on a per capita basis, a mere tenth of the figure in Europe, meaning there is much room for consumption growth in the future, according to domestic market research firm Ebrun, South China Morning Post reported in September.

Valued at about 20 billion yuan ($3.02 billion) in 2015 in terms of sales, the market for chocolate in China is expected to grow to 40 billion yuan by 2020, Ebrun was quoted as saying in the report.

Foreign brand dominance

It has become more difficult for Chinese brands to tap into the domestic chocolate market due to fierce competition from foreign players, Zhu said.

The top 20 global chocolate brands, which originate from countries such as the US, Belgium, Germany, Switzerland and South Korea, have been striving to cater to Chinese consumers as they have high expectations for the nation's chocolate market.

According to an industry report released by China Merchants Securities, famous chocolate brands such as Dove and M&M's under Mars, the world's largest candy maker, took up 39.8 percent of the domestic market share in 2016, and Ferrero Rocher, the Italian chocolatier, enjoyed a 17.8 percent stake, with other foreign brands including Hershey and Nestle following closely, domestic news site reported in February.

Although such foreign brands have gained some recognition in the mainstream market in China in recent years, they have nevertheless witnessed sliding growth rates.

For example, US chocolate giant Hershey Co has been struggling to find growth in China. Chief financial officer Patricia Little said during an earnings conference call in October that the company was expecting its chocolate sales in Chinese stores to be flat-to-slightly-up this year, though its online sales were projected to rise 15 percent, Reuters reported in November.

It is becoming gradually obvious that domestic chocolate brands have become more high-end recently, not only by achieving growth in the luxury food segment, but also through customers' desire for better quality and better tasting everyday products, according to a note Nestle sent to the Global Times on Sunday.

"During the 2012-13 period, Ferrero Rocher was considered high tasting and a precious gift, however, now, it has lost its halo as it has become more normalized and common among Chinese consumers," Zhu said, noting the Italian brand is now only considered slightly above the medium-end and has lost its prestige over time.

Qi Jianing, a teacher based in Tangshan, North China's Hebei Province, told the Global Times on Monday that she does not highly desire the Italian brand and that Dove chocolate suffices, of which she buys a box of every several months, costing her around 60 to 70 yuan.

"Every day, I'm very busy. Maybe I'm reminded to buy some chocolate during the Christmas and New Year holidays," Qi said.

With high-end and super high-end confectionery becoming the new growth engines for China's chocolate market, mass-producing brands are all ramping up efforts to attract more consumers in two main ways: by taking advantage of e-commerce and targeting younger generations.

For instance, Nestle has been introducing premium chocolates to China via e-commerce platforms since 2015, including the iconic Italian brand Baci, and this year, it introduced the British chocolates assortment brand Quality Street. The company has also upgraded its current products in order to cater to the young generations who want to experience new things, said the Nestle note.

Meanwhile, Belgian luxury chocolate maker Godiva had about 100 retail outlets in China at the end of 2016 and plans to triple that number by 2020, media reports said.

Niche chocolate trend

Entering the Chinese market in 2014, handmade and exquisite chocolates, such as those with smaller names from Belgium, achieved fast sales growth in the 2016 Spring Festival period, quickly becoming a new favorite among Chinese consumers, Zhu said.

Zhu noted that the gold-ingot-shaped Chinese chocolates consumed during the Spring Festival in China are scattered across dining room tables mainly due to tradition and decoration purposes rather than for taste appeal, compared to consumption purposes of niche foreign brands.

"Besides its basic function as a tasty chocolate brand, the niche product has been associated with effective social media marketing, in which it can represent the gift giver's high taste as well as arouse the interest of the gift receiver, thanks to its uniqueness," Zhu remarked.

Besides niche Belgian brands, unique Japanese chocolate brand Royce', famous for its "Nama" (raw) taste and one-month shelf life, has also won popularity among Chinese traveling to Japan over recent years.

"Priced at 65 yuan a box, I often buy around 100 boxes at one time as they quickly sell out because domestic consumers have strong demand for it, especially in the winter," an independent shopping agent surnamed Zhang told the Global Times on Monday.

Du Ni, a Beijing-based white-collar worker, told the Global Times on Sunday that she likes to eat Royce' and Godiva chocolate mainly due to their tasty flavors. "I usually buy Royce' when I travel to Japan as there are no physical stores in Beijing," she said.

Newspaper headline: China's aching sweet tooth


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