Marketing Environments - Chocolate Confectionary Market

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Marketing Environments

Chocolate Confectionary Market

AEF 207

Sarah Quinn

030942859

                                

CONTENTS PAGE

1.0        Executive Summary        …………………………………Pg3

2.0        Situational Review…………………………………….Pg5

3.0        Marketing Environment………………………….......Pg6

4.0        Macro-Environment…………………………………..Pg6

4.1        Competitors……………………………………………Pg6

4.2        Customers…………………………………………......Pg8

4.3        Suppliers……………………………………………….Pg9

4.3.1        Supply Chain        ………………………………………….Pg11

4.4        Intermediaries………………………………………...Pg11

4.5        Shareholders………………………………………......Pg12

5.0        Trend Analysis………………………………………..Pg12

6.0        New Product Development………………………….Pg12

        

7.0        Macro-Environment……………………………….....Pg14

7.1        Swot Analysis        ………………………………………...Pg14

7.2        Porters Analysis……………………………………....Pg14

7.3        Pestle Analysis………………………………………..Pg19

8.0       Conclusion…………………………………………....Pg23

9.0        Recommendation…………………………………….Pg23

10.0        Research Portfolio......................................................Pg24                

1.0

EXECUTIVE SUMMARY

  • The largest confectionary sector in 2003 was chocolate confectionary, and it will remain the largest in value terms throughout the forecast period (2003-2004 although volume sales of sugar confectionary will overtake it by 2005

  • The largest single chocolate confectionary market remains the US, both in terms of value and volume sales.  However, growth in this market has slowed considerably owing to maturity in the market.

  • Leading regional manufactures in 2002 include Hershey Foods in North America, Pfizer in Latin America, Lotte in Asia-Pacific, Nestle in Western and Eastern Europe and Cadbury Schweppes in Australasia and Africa and the Middle East

  • The leading distribution channel remains supermarkets/hypermarkets, although convenience stores are growing in importance as manufacturers focus on the impulse channel.  This is an attempt to avoid the downward price pressure applied to the consolidating supermarkets/hypermarkets sector.

  • Seasonal chocolate, tablets and boxed assortments, especially twisted wrapped miniatures aimed at the adult snacking market will see the most dynamic growth over the 2003-2008 period.

  • Disposable income is an important factor in the rise of chocolate in developing markets.  If they are facing economic uncertainty or if chocolate prices increase, then they will use cheaper sugar substitutes’ as demand for chocolate in developing markets is elastic.  Therefore a price increase in chocolate will lower total revenue and a decrease in price will raise total revenue for the chocolate market. They are price sensitive.

  • Developed regions however high a higher level of disposable income and are less likely to substitute chocolate if the price increases, therefore demand is in-elastic and in some cases demand for chocolate actually rises in times of economic un-certainty as a source of comfort eating.  Therefore a price increase in chocolate produces a less than proportionate decline in quantity demanded, and increases revenue for the chocolate market.  They are less-price sensitive.

  • China is the region with the most potential due to its size, and it’s membership into the world trade organisation in 2002, has opened up the market to many new products and manufacturers.

  • In the Western World, Australia and New Zealand have prospects for strong growth, over the 2003-2008 periods, with 29% growth by value and 16% growth by volume being anticipated.

  • The EU agreement to embrace 10 new countries into the fold from 2004 will have a positive economic impact on the chocolate market as they will have more disposable income to purchase chocolate.

  • Multi-national retailers are becoming more powerful in the supply chain, and have the power to dictate how much they are willing to pay for chocolate

  • The consumer base for confectionary products has witnessed a distinct shift over the survey period, with the proportion of under 15 year olds the traditional consumers of chocolate, declining in all regions, and people are living longer.  The impact of this is that the market needs to become more adult orientated, concentrating on key trends in snacking and gifting

  • In summary the key trends for the chocolate confectionary market are premiumisation and growth of luxury products.  Smaller packages, e.g. twist wrapped miniatures and snack-sized tablets.  Line extensions, ie new flavours for existing products.  Demand for fair trade and organic chocolate is also set to continue.

  • The main regions for growth in global chocolate come from the developing world, namely Africa and the Middle East, Asia-Pacific, Latin America and Eastern Europe.  

Chart 1 Total Confectionery: Volume Sales by Region – % Growth 1998/2003 


Source: Euromonitor

2.0
SITUATIONAL REVIEW 1998-2003

Recent raw material price increase put pressure on manufacturer’s costs leading them to want to raise retail prices, while at the same time the competitive environment of retail is putting downward pressure on prices.  Manufacturers have responded by demanding greater vertical integration and improved economies of scale.

The operating environment too, has changed.  Changes in legislation and the opening of trade barriers can have a significant impact on manufacturer strategy.  Among the factors affecting the chocolate confectionary market going forward will be the enlargement of the EU and the possibility of regulations regarding the use of trans fats in food products being imposed.

Central to the majority of chocolate company’s strategies is the decision to pursue growth.  The main issue in achieving organic growth is understanding and then responding to consumer trends.  In developed markets this typically focuses on value-added products, with the latest health and wellness trends being central to this.  In developing markets growth can be achieved by identifying local tastes and customs, and adapting products accordingly.

The main players in the confectionary industry are as follows:

Chart 2.1 Confectionery: Global Company Shares 2002 


3.0

MARKETING ENVIRONMENT

In order to meet the customer’s needs and wants, the organisation has to take into account what is happening in the environment.  According to Brassington and Pettit (2003) the marketing environment will present many opportunities and threats that can fundamentally affect all elements of the marketing mix.  

These consist of:

  • The micro-environment

  • The macro-environment
  • The internal environment

4.0

THE MICRO-ENVIRONMENT

The Micro-environment influences the organisation directly.   It examines the complexity of the external world in which an organisation has to operate in.  External factors include competitors, customers, suppliers, intermediaries and shareholders.  These external forces will also influence the internal environment of the company, their Research and Development, finance, purchasing and production decisions.  

See Appendix 1 for diagram on the marketing environment

4.1

COMPETITORS

Although a competitive market may discourage market entry and stifle innovation, it may equally stimulate a range of strategies for promoting growth.

Major competitors are their market share are shown in the graph below:

Large multi-national companies all competing against each other for market share, and allowing little room for any new chocolate manufacturer trying to enter into the market dominate the chocolate confectionary.  However the market has slowed down over the past decade as they face increasing competition from other food and consumer markets, which include:

  • Alternative snack products such as snack bars, packaged cakes, biscuits, and even real fruit as consumers are seeking out healthier snack alternatives.  

  • From other confectionary markets such as sugar and gum confectionary.  The world chocolate market has under performed over the 1998-2003 period in comparison to confectionary as a whole, as you can see from the chart below that both gum and sugar confectionary outperformed chocolate confectionary in terms of growth.

Chart 4.1.2 Total Confectionery: Value Sales % Growth by Sector 1998/2003 


Source: Euromonitor

  • The industry faces competition in the impulse channel from products such as mobile phone top up cards, competing for younger consumers pocket money
  • They industry faces competition from other large established manufacturers who are trying to enter into the chocolate market e.g. Wrigley’s

A Look at Competitors Plans For the Future

  • Hershey has decided to focus on chocolate as this offers the best margins in the US market  
  • Kraft Foods and Nestle have divested sugar brands, also with a view to focusing more on chocolate.  Nestle is aiming to make KitKat the largest selling and most profitable chocolate brand in the near-term future
  • Acquisition has become a common strategy for larger public companies. However, for many smaller companies strategic alliances are a more affordable way to enter foreign markets and build growth.  Hershey is actively seeking such alliances as a way of expanding overseas
  • Repositioning and segmentation of products by gender and age has also been a key strategy for manufacturers such as Mars and Nestle in order to build sales.  Moreover, regional manufacturers in countries such as China and Russia have worked hard to update the image of economy sugar confectionary by developing premium chocolate as well as toffee and mint brands
  • Mars have conducted a scientific experiment to assess the health benefits of chocolate, and have emphasised these benefits in line with healthy eating trends.
  •  All major supermarkets in developed and some developing markets now stock organic and fair trade chocolate, as they are seen as healthier and more socially responsible chocolate products.
  • Chocolate manufacturers have tried to premiumise their chocolate to differentiate themselves, away from their confectionary competitors in the sugar market, where products such as boiled sweets and lollipops are seen as ‘cheap’.  They have tried to focus their marketing strategies and advertising campaigns around chocolate as a ‘luxurious’ treat.
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It’s important to know what your competitors are doing in the market, so you can stay ahead of the competition.

4.2

CURRENT AND POTENTIAL CUSTOMERS

Customers need to be located, their needs identified and then fulfilled.  Customer’s preferences, tastes, culture and eating habits vary from region to region and, chocolate manufacturers need to understand these regional variations in order to adapt their product to suit their target market.  

The chocolate market is broken down into two important groups:

Developed World: Western World - North America and Western Europe

Developing World: Eastern Europe, Asia Pacific, ...

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