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Confectionery and chocolate: SA market insights from BMI

BMI Research has published bites of data from its various and latest annual reports into SA’s confectionery and chocolate sectors…

Chocolate

BMI’s annual confectionery quantification report reveals some interesting chocolate facts.

Chocolate slabs are by far the most popular chocolate confectionery type in South Africa and hold an over 50% share of the market. Chocolate slabs lost some share to specialty chocolates in the base year to contribute 52.4% to total volumes, reflecting a 3.7% share decline from 2009 levels. The chocolate slabs category returned to near pre-recession levels in 2010, with 8.6% growth recorded.

In 2010 growth in the specialty chocolate market was experienced across all three categories, with boxes, packets and novelty chocolates experiencing 38.5%, 16.2% and 36.3% growth respectively.  The category is expected to remain stable in the medium term. Several factors contributed to the good performance of the specialty segment. Increased manufacturer focus on boxes and novelty chocolate, notable growth was seen in the import market and new product launches in the boxes and packets.

With Cocoa beans being the main ingredient used in chocolate, the commodity price of cocoa beans has a major bearing on the performance of the category. The price of chocolate slabs remained fairly constant in 2010 but was expected to rise in 2011 due to political unrest in Ivory Coast; the world’s largest cocoa producer. The price of cocoa hit a new high in February 2011 driven by a ban imposed on cocoa exports.

The rise in ingredient costs has already seen chocolate giants reducing slab sizes, both internationally and locally, in a bid to remain profitable. In the British market, 2011 will see further reductions of popular favorites with Toblerone expected to shed off one triangle and Dairy Milk bars expected to lose a few chunks. The reduction in size is not only price driven but health driven with smaller portion sizes expected to help tackle the obesity epidemic.

Growth in the speciality chocolate market was experienced across all three categories, with boxes, packets and novelty chocolates experiencing 38.5%, 16.2% and 36.3% growth respectively. The category is expected to remain stable in the medium term.

Several factors contributed to the good performance of the speciality segment:

  • Increased manufacturer focus on boxes and novelty chocolate due to growing demand for authentic South African chocolate in the foodservices market.
  • Notable growth was seen in the import market, with increased volumes seen across all three speciality chocolate categories. Some smaller local manufactures cited the increased threats of cheap imports.
  • New product launches in the boxes and packets categories by smaller manufactures were contributing factors to higher volume growth seen in 2010.

The pricing issue will perhaps be the biggest challenge faced by most speciality chocolate manufacturers going forward as they strive to balance the price/ quality perception of their products.

Sugar-based Confectionery

Sugar confectionery is made up of a wide array of sweet confectionery, commonly known as sweets.  This analysis includes boiled, éclairs, gums and jellies, liquorice, lollipops, marshmallows, other sugar confectionery, panned, as well as toffees and chews.

The main ingredient used in the manufacture of sugar based confectionery is sucrose. Through varying the types of ingredients used, boiling temperature and shaping methods, confectioners are able to make a wide range of sugar treats.

In South Africa, boiled sweets are the most lucrative market within sugar confectionery with over one quarter of both volume and value totals. Niche offerings within this category include liquorice, other sugar confectionery as well as éclairs. There is a relatively higher concentration of small regional players in this category than in chocolate, bars and gum, possibly because of lower entry barriers.

Independent wholesale is the dominant distribution channel used to distribute sugar confectionery in South Africa with over a third of the volumes sold through this channel. General retail and wholesale are also very popular distribution channels with over 50% of the industry’s volumes channelled this way. Similar to other confectionery products, regional distribution is concentrated in densely populated areas.

Boiled sweets decline

Boiled sweets continue to play a major role in the sugar confectionery category with 26.7% contribution to total volumes in 2010.

Growth in the boiled sweets market averaged -0.6% per annum over the past four years. In 2010, the category shrunk by 2.9% and is yet to recover to the peak achieved in 2004. 2010 saw a drop in per capita consumption of 3.3% with South Africans consuming 9.5% less of boiled sweets than they did in 2000.

The growth trend in the boiled sweet category is typical of products in the maturity stage of the product life cycle and focus should be directed at keeping consumer interest through activities such as flavour and packaging innovations.

There is a growing trend towards sugar-free sweets and it is expected that this will rejuvenate the category, going forward.

Conservative outlook for toffees, caramels chews

Caramels remain a niche offering within the toffees, caramel and chews category with 7.3% contribution to the category’s volume, down 1.0% from its 2009 share.

The category maintained its position as the second most popular product in sugar confectionery. It contributed 16.3% to total volumes and 14.9% to market value.

Toffees, caramels and chews showed healthy growth of 5.1% in 2010 but the category is expected to grow at much slower rates in the medium term.  The increase in ingredient prices was noted as one of the factors that will curb higher levels of growth in the medium term as  the cost of imported toffee ingredients continues to climb.

Local manufacturers face stiff competition from cheaper Indian and Brazilian imports which are preferred by some outlets who focus on the bottom line.

Limited growth for gums and jellies

Gums and jellies are expected to return to 2006 levels by 2012. The category remained stable from 2009 with 1.5% growth recorded and is excepted to show higher growth levels in 2011. Per capita consumption was at 315.9g, up 1.1% from 2009 levels.

General retail continues to be the main distribution channel for gums and jellies with 42.3% of the industry’s output distributed via this channel.  Volume channeled to wholesale chains shrunk by 10.1%, while independent wholesale maintained its volume with a marginal  growth rate of 0.9%. Regional distribution remains concentrated to high population density areas with Gauteng, KwaZulu-Natal and Western Cape contributing  close to two thirds of the total volume.

The good performance of this category is attributed to the health benefits of jellies communicated to consumers by most manufacturers.

Chewing and Bubble Gum

Chewing gum contributed 11.2% to gum volumes and 23.0% to the category’s value in 2010. Although the product experienced volume decline of 4.2%; the greatest decline since 2000; it was more valuable in rand terms because of the price increase seen during the base year.

Future volumes for chewing gum are expected to remain stable with a marginal increase of 1.4% expected in 2011. Expected growth in this category is attributed to new flavour introductions and packaging re-invention seen in the last quarter of 2010 which are expected to attract new customers to the category.

The metropolitan areas of Gauteng, KwaZulu-Natal and Western Cape continue to dominate distribution for chewing gum with a combined 71.9% share of the category’s output. General retail continues to be the most popular channel for chewing gum with 48.1% of the volumes consumed through this channel.

The difference between chewing and bubble gum  is in the gum base used to manufacture them. The  gum base for bubble gum is firmer and more elastic to allow the user to blow gum bubbles. Chewing gum on the other hand is made of a more rigid base that does not allow for bubble blowing.

Chewing gum has been proven to help freshen breath, relieve stress, ease boredom, increase concentration as well as aid in weight loss management; among other things. Consumption of chewing and bubble gum has been on the increase in the South African market over the past decade, with both these markets showing signs of maturity in recent years.

Regional distribution for chewing and bubblegum follows a similar profile, with above 70% of the volumes consumed in the high population density areas of Gauteng, KwaZulu-Natal and Western Cape. Channel distribution however differs by category. Chewing gum distribution is concentrated to the general retail channel which contributes an almost 50% share to market volume. Bubble gum channeling on the other hand is dominated by independent wholesale which controls over one third of the market.

Chewing gum – volume down, value up

Chewing gum contributed 11.2% to gum volumes and 23.0% to the category’s value in 2010. Although the product experienced volume decline of 4.2%; the greatest decline since 2000; it was more valuable in rand terms because of the price increase seen during the base year.

Future volumes for chewing gum are expected to remain stable with a marginal increase of 1.4% expected in 2011. Expected growth in this category is attributed to new flavour introductions and packaging re-invention seen in the last quarter of 2010 which are expected to attract new customers to the category.

The metropolitan areas of Gauteng, KwaZulu-Natal and Western Cape continue to dominate distribution for chewing gum with a combined 71.9% share of the category’s output. General retail continues to be the most popular channel for chewing gum with 48.1% of the volumes consumed through this channel.

Bubble gum volumes decline

2010 saw a 3.2% decline in the volume of bubble gum consumed in South Africa. The decline seen in the bubble gum market was attributed to the longer school holidays as a result of the FIFA Soccer World Cup, which resulted in reduced sales from school going children; the prime target market for bubble gums.  Other factors leading to this decline include declines in consumer spending which resulted in less pocket money for school children as well as consumers focus on essential food stuff.

While local production of bubblegum declined in 2010, import volumes increased significantly. Some local manufacturers of bubble gum mentioned that cheaper imports were posing a threat to them as retailers and wholesalers alike are price driven and tend to prefer to stock cheaper brands.

The future for bubble gums is positive, with 4.3% growth forecast for 2011 with bubblegum expected to recover all lost volumes.

Confectionery Bars

Health bars experienced 4.5% growth during the base year and are expected to grow at higher rates in 2011 and 2012. Health bars have shown consistent year on year growth and this is mainly attributed to the healthy eating trend that has been growing in popularity over the years.

General retail remains the most popular distribution channel for health bars, although it lost some share to other channels in 2010. Gauteng continues to consume the greatest health bar volumes countrywide, with 56.7% of the industry’s output sold in this region.

The growth seen in this category over the years could be attributed to regular innovation and reformulation, as well as new brands and flavours. This generates consumer interest particularly with the innovator group of consumers. Health bars represent a convenient meal replacement solution, which is congruent with the trend to on-the-go consumption. The addition of “natural or wholesome” ingredients is also believed to drive sales.

The bars market is made up of three products: health bars; sports enhancement bars and count lines.

These three are marketed to different targets and differ in material composition but are similar in that all three are presented in an individually wrapped, single serving size.

Health bars are targeted at the health, fitness and weight conscious segments of the market. Sports bars on the other hand are aimed at sport, endurance and fitness enthusiasts, while count lines have a comparatively greater mass market appeal.

Count lines make up 72.3% of the total market for bars with the top three players in the category contributing over 75% to total market volumes. The remainder of the volumes is split between imported brands and smaller regional players.  Health bars make up 15.8% of the bars market, driven mainly by two players. Sports bars on the other hand contribute 12.0% to total volumes with the two top players in the sports enhancement bar market leading in that segment.

Count lines recover lost volumes, drive category growth

Count lines recovered from losses seen over the previous two years with 17.6% growth in 2010, the highest growth rate recorded since 2000. The market for count lines is expected to remain stable in the future with 1.8% growth expected in 2011 and 0.5% growth forecast for 2012.

This category grew despite the high price increases seen during the base year, reflecting the low price sensitivity of count line consumers.

The channel and regional distribution patterns for count lines remained more or less the same to the ones seen in 2009. General retail continues to dominate as the prime channel.

The growth seen in this sector can be attributed to extensive promotional activity, both above and below the line. This served to keep count lines top of mind for consumers. Added to this, price promotions, product extensions and new packaging designs lead to increased consumption across the board.

Health bars show consistent increases

Health bars experienced 4.5% growth during the base year and are expected to grow at higher rates in 2011 and 2012. Health bars have shown consistent year on year growth and this is mainly attributed to the healthy eating trend that has been growing in popularity over the years.

General retail remains the most popular distribution channel for health bars, although it lost some share to other channels in 2010.  Gauteng continues to consume the greatest health bar volumes countrywide, with 56.7% of the industry’s output sold in this region.

The growth seen in this category over the years could be attributed to regular innovation and reformulation, as well as new brands and flavours. This generates consumer interest particularly with the innovator group of consumers. Health bars represent a convenient meal replacement solution, which is congruent with the trend to on-the-go consumption. The addition of “natural or wholesome” ingredients is also believed to drive sales. 

Good growth for sports bars

Sports bars experienced 17.5% growth in 2010, returning to pre-2009 two digit growth levels.  They have experienced the greatest average growth per annum since 2000 when compared to both count lines and health bars.   However, given their niche appeal and relatively limited volumes, this has not had a significant impact on the bars category as a whole.  

Sports bars are expected to show lower growth rates in the future with 4.0% expected in 2011 and 1.3% expected in 2012.

The channel landscape of sports enhancement bars experienced a higher degree of shifts from 2009 levels relative to count lines and health bars.  General retail remained the most popular channel with 43.2% share, reflecting an 8.9% share growth from 2009. The foodservice channel was the only other channel that experienced share growth from 2009. The balance of the channels lost some share with the wholesale channels and garage forecourts leading in the share declines.

Source: BMI

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