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, India, and Brazil
Table 4.2.1 Forecast Global Sales of Chocolate Confectionery by Region: % Value Growth 2003-2008
Increment in us$ million
Source: Euromonitor
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As you can see from table 4 above, in developed regions, such as Western Europe and North America the market is stagnant, experiencing little growth. The market has reached saturation point and manufacturers need to re-position their brands in line with consumer trends to achieve market growth.
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From analysing the table you can see that the forecast potential for the chocolate market lies in Eastern Europe and Asia Pacific – the developing regions. These are the regions that are set to experience the most dynamic growth over the next decade.
Once you identify your consumers and potential consumers, you need to understand your market to be able to successfully operate in it. For example if you correctly identify and adopt your products to suit the market, then you will attract and retain consumers
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Typically the largest consumer group of chocolate in the world is children under 15. However the demographics of the globe have changed and a slow birth rate has meant that there are now fewer consumers under 15 and more adults. Therefore in order to gain market share, in the developing and developed worlds, manufacturers need their products to appeal to the adult market.
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Consumers in hot climates especially in the developing world, tend to consume less chocolate. A test-run in India has found that semi-liquid chocolate sticks have proved popular, and should be introduced into other hot climate regions such as Asia-Pacific, in order to capitalise on growth in the market.
4.3
SUPPLIERS
Losing a key supplier or components or raw material can mean that production flow is interrupted, or that a lower-quality or more expensive substitution has to be made.
Cocoa from the West African region is credited as being among the best in the world for chocolate products and, traditionally the Ivory Coast has been a significant supplier to the industry. However in recent years manufacturers have found their costs rising as a consequence of the steady increases in cocoa prices owing to the civil unrest in the Ivory Coast having an impact on the county’s cocoa harvests. The crisis could potentially destabilise the entire region, responsible for about 67% of world production, leaving Indonesia and Brazil, which combined, supply 20% of the global cocoa market to pick up the pieces. Both however suffer from their own economic and political instabilities, as well as producing an inferior crop as a result of coco-pests.
The rocketing price of coco beans has been having an impact on the costs of chocolate manufacturing, especially as even those who negotiate advance contracts for the purchase of their cocoa beans are now in a position where they have to re-negotiate. Table 4.3.1 & 4.3.2 below reflect that while production of cocoa is decreasing, prices are increasing. For example Hershey and Mars, have already raised their prices by 5-10%, while others, such as Lindt & Sprungli, are anticipating that they will have to put their prices up during the course of 2003 in order to cover their costs. This is an issue that is a particularly sensitive for manufacturers in a market, which is increasingly price pressured, with the rising power of multiple retail grocers making it more difficult for manufacturers to improve their margins through price rises.
An alternative is for producers to look at cheaper beans from places other than the Ivory Coast. However other beans from other regions have “smoky” or “woody” flavours which are considered to be undesirable in finished chocolate.
Table 1 World Cocoa Production 1999/2000-2002/2003
‘000 tonnes
Source: The International Cocoa Council, Euromonitor
Table 2 World Cocoa Prices 1998/1999-2002/2003
Average prices
Source: ICCO, LMC, ED and F Man
Note: Based on ICCO daily price
Fair Trade
Fair trade is an alternative to conventional international trade and works under the umbrella organisation of ‘The Fairtrade Labelling Organisations International’ (FLO), which coordinates the work of various national Fairtrade initiatives across the world. It’s about providing access to markets for farmers of commodity products in developing countries and paying them a fair price.
Small farmers with no access to markets have no other option but to sell their crop to local traders who can, and frequently do exploit them. Fairtrade however, covers the cost of production and a little bit more, paying farmers a price that reflects the true value of crops and labour. It also encourages the development of long-term, mutually beneficial partnerships between suppliers and buyers that go beyond purely economic exchanges.
Fairtrade produce is becoming more popular, and can be purchased in most large retail grocery stores in the UK and across the globe. According to the Fairtrade foundation in the UK: in 1994 the value of products at the supermarket check out was £2.75 million and by 2000 it was approaching £22 million. Fairtrade is a global issue, growing in importance and has to be addressed by both Industrial (manufacturers) and Re-seller markets (retailers) are these ones the economies of scale power, to decide the price they pay for the cocoa beans. An example of this is the Co-op supermarket that stated from 2004 that all it’s own-labelled chocolate would be fair trade.
See Appendix 2 for a case study on recent media coverage highlighting the problem of the African farmers and how the blame is been put of the global giant chocolate manufacturers, calling them to introduce ‘traceability’ so the origins of the beans can be traced and monitored for fair trade practices.
4.3.1
SUPPLY CHAIN
Below is a brief overview as to what is happening in the industrial and re-seller markets (April 2003)
- Retail consolidation gave leading supermarkets/hypermarkets greater leverage in negotiating prices and this has lead to a squeeze on manufacturers’ margins as prices are pushed downwards
- Branded confectionary including chocolate products are also facing increased competition from private labels, especially in Western Europe, where four out of ten retailers have stated their intention to expand their private labels in the near-term future
- Multiple retailers are also making headway in developing markets, notably Eastern Europe and Asia-Pacific. Tesco, for example has been developing its chain in Eastern Europe and now has seventy stores across Poland, Hungary, the Czech Republic and Slovakia, while Wal-Mart and Carrefour have been opening stores in China
- In order to improve upstream integration, Nestle have developed a sophisticated direct store delivery systems. Smaller suppliers, such as Lindt in the US, have focused on developing networks of company-owned boutiques
- Downstream integration has bought about a rationalisation of suppliers and greater demand for integrated sourcing solutions including research and development networks of company-owned boutiques
- Manufacturers such as Nestle and Hershey are beginning to focus more on impulse sales, as it is easier to sustain margins in this channel, as there is less consolidation and so less downward pressure on prices. In Western markets convenience stores, vending and foodservices are all key alternative channels, while in developing markets, independent stores are all still significant
4.4
INTERMEDIARIES
Intermediaries provide valuable services in distributing goods from manufacturers to retailers and wholesalers. In the case of intermediaries in the cocoa-bean industry, they usually buy from the cocoa-farmers, and then sell them to the cocoa-processors, who then sells then grounded beans to the chocolate manufacturers. See Appendix 3 for supply chain diagram of the cocoa-bean supply chain.
The role of the intermediary is to increase the efficiency and reduce the costs of individual transactions, however in the case of the chocolate market manufacturers intend on making higher profit margins are starting to cut out intermediary channels to take over the processing themselves. An example of this is the August 2002 acquisition of the German company Stollwerck AG by cocoa processor Barry Callebaut.
This is symptomatic of supply-chain issues affecting manufacturers in Western Europe and other developed markets. One of the key challenges facing manufacturers in the region has been increasing consolidation of supermarket price wars, depressing profit margins, not only for manufacturers but all the way down the supply chain, with the coco farmer the one most likely to lose out. In late September 2003 UK authorities gave the go-ahead to supermarket chain William Morrison to put in a bid for Safeway. Such a merger would create the UK’s fourth very large retail grocery chain, after Asda (Wal-Mart), Tesco and Sainsbury’s.
As a consequence, confectionary manufacturers have sought to obtain greater supply-chain efficiencies in order to maintain profits. While one aspect of this has been to rationalise suppliers, another has been the development of alternative distribution strategies focusing on convenience and impulse sales.
While yet more strategies involve greater control of the retail channel, for example through store ownership following the Thornton’s semi-artisinal model, Barry Callebaut chose to rationalise by combining raw supply and manufacturing operations. Barry Callebaut repeated this strategy in the North American market in September 2003 by purchasing US-based Brach’s Confections
4.5
STAKE HOLDERS/INTERESET GROUPS
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For nearly every industry, sustainability is a key . Creating a sustainable chocolate industry all of the industry's , from the grower to the manufacturer. The chocolate industry is working with relevant partners, such as fair trade organisations, world trade organisations and local governments to create a stable future. By co-operating in this way, it is possible to improve the sustainability of the industry: better working conditions on farms, better cocoa, fair prices for all contributors, superior and more varied chocolate and more satisfied .
Other interest groups in the chocolate market include the General Agreement on Tariffs and Trade (World Trade Organisation) which was established in 1947 to progressively liberalise world trade by reducing or eliminating protectionist measures, especially quotas and non-tariff barriers. More specific to the chocolate market was the Urugary Round 1986-1993, which enforced the EU to reduce common agricultural policy (CAP) subsidies. The WTO established itself as a global watchdog and to resolve disputes amongst intermediaries, and has the power to impose compensation fines or sanctions.
5.0
TREND ANALYSIS
- Owing to increases in disposable income in developing regions, there is a shift towards increased chocolate consumption. In these regions consumers have been tempted by chocolate as an exotic, luxurious product since it had previously been beyond the reach of many consumers and has a certain status, especially where gift giving is concerned.
- Twist wrapped miniatures, though still a small category will be a significant driver for growth in chocolate. They have proven popular with adults in Western markets, owing to their share ability and in emerging markets such as Eastern Europe, China and India, where the consumer can buy as many as they want/can afford.
- Health trends and concerns over diet and obesity, has led to more have an interest in organically grown and fair trade chocolate. Consumers, particularly middle and upper income adult sectors in the developed world, have become increasingly resistant to the use of chemical additives in food and, would prefer their food to be ‘naturally grown’ reflecting the growth in the market of the UK’s Green & Blacks organic chocolate which in 2002 held a 1.1% share of UK tablet sales, with annual turnover rising from £4.5m to £13m in the past two years.
- Research taken by the chocolate manufacturers; have found that chocolate has been linked to a sub-group of photochemical, which are associated with antioxidant properties. However the milk in milk chocolate destroys the chemicals and therefore they can only be found in dark chocolate, which as well as being healthier, dark chocolate is viewed as more sophisticated.
- In Western Europe (excluding UK and Ireland which prefers milk chocolate) and in Eastern Europe the trend is growing for dark chocolate, which is seen as healthier and more superior. In Asia-Pacific and Africa the trend is for sugary chocolate, where as in China the trend is for white chocolate as traditionally white chocolate in Chinese culture is given as a gift.
- Running concurrently with a growing awareness of health and nutritional issues is growing consumer demand for adult-orientated indulgent or luxury chocolate such as Lindt’s Excellence Noir, especially in the developed markets of North America, Western Europe and Japan. The market has been driven by consumer desire for ‘rewards’ for maintaining good dietary needs through the rest of the day. Moreover, in this current period of heightened stress, stemming from economic downturn, the War on Terror and in Iraq, people are turning to chocolate as a way of seeking comfort for themselves.
- As lifestyles become more hectic in the developed world, the trend to snack is increasing. In order to capitalise on this trend, a number of manufacturers launched king-sized and miniature versions of their most popular countline brands in order to cater to a wider range of appetites.
- The duty free channel represents a lucrative window for chocolate companies. Key players in the confectionary industry such as Mars and Nestle have responded to growing demand for chocolate in duty free shops by developing ranges of products targeted at travellers.
6.0
NEW PRODUCT DEVELOPMENT
In line with trends and the external environment there has been some new product development in the chocolate market:
- In 2002 there were numerous developments, which saw the introduction of functional ingredients to chocolate, in order to supplement its energy-giving and apparently heart healthy properties such as gurana.
- New product development has been aimed at luxury chocolate, as suppliers seek to improve their profits in a market which has been heavily affected by increases in the prices of its principle raw materials: cocoa and sugar.
- As the market in developed countries has reached maturity, and manufacturers are more cautious about launching new products in developing countries incase they fail, they have reverted to ‘safe’ new product development has consisted of line extensions, and limited editions of existing lines. However the policy of safe launches has been partially forced on manufacturers as a result of the growing strength of large retail chains, which are forcing prices downwards, and stifling innovation. Grocery multipliers prefer to rely on established ‘super brands’ which are popular enough to sell multi-packs, and are more likely to provide shelf space for a new product if it is associated with a major brand
- A recent new product development was miniature twist wrappers mentioned in the previous section, such as Mars Celebrations, and Cadbury’s Heroes which proved popular in the developed world, where focus has been on adult snack sharing and in developing regions, where the miniature chocolate sweets due to their size represent a more economical purchase
7.0
MACRO-ENVIORNMENT
This includes all factors that can influence an organisation, but that are outside of their control. The external environment can be audited in more detail using other approaches such as the:
- SWOT analysis
- Michael Porters Five Forces Analysis
- PESTLE Analysis.
7.1
SWOT ANALYSIS
A swot analysis involves the analysis of organisational strengths and weaknesses, as well as environmental opportunities and threats. A swot analysis should provide a realistic understanding of the organisation in relationship to its environment. It should also assist in the creation of strategies that take maximum advantage of strengths and opportunities while minimising weaknesses and threats.
7.2
PORTERS ANALYSIS
Michael Porter was a management consultant and scholar. His competitive model is a popular alternative that gives specific attention to the organisation’s current and potential competitive environment.
Porter’s approach begins with an analysis of an organisations competitive environment. The relevant forces are the threats of new entrants, bargaining power of suppliers, bargaining power of buyers, threats of substitute products or services and rivalry for position among industry firms. Porter believes that these forces govern the state of industry competition, which must be properly addressed if organisational decisions makers are to formulate effective strategies.
Five Forces Analysis
Threat of new entrants: LOW
- Overall the world’s two largest confectionary regions hold global growth back: Western Europe and North America. Both these markets are demonstrating signs of maturity and consequently there will be little scope for value growth. Table 7.2.1 reflects the volume of sales broken down into regions, allowing you to see which markets are maturing and which ones are showing potential. Potential markets are where the main threat of new entrants with come from
- North America and Asia-Pacific have remained particularly difficult markets to enter owing to the dominance of local chocolate manufacturers
- Wrigley has stated their intention to make takeovers in chocolate confectionary and attempted to buy Hershey’s when it was up for sale in 2002, but the deal fell through
- The majority of the chocolate market is owned by large multi-national companies competing on a global scale, allowing little market share for new key players, however there is scope for smaller manufacturers
- It’s difficult to entice loyal customers away from well-known popular brands. Nestle has stated the aim of focusing more on its chocolate portfolio and is aggressively promoting its KitKat brand with a view to make it the highest selling and most profitable chocolate brand worldwide
- There is a threat however, from large retailers themselves whom a number of them have developed their own brand label providing cheap alternatives. Examples of this include the “Finest” (Tesco) and “Taste the Difference” (Sainsbury’s) ranges in the UK. However in terms of market share, it does not pose a serious threat although manufacturers need to be aware of the threat, as sales grew by 9% in 2002, as the retailers attempts to gain even more power over the chocolate market
Table 7.2.1 Global Sales of Chocolate Confectionery by Region: % Value Breakdown 1998-2003
% value
Source: Euromonitor
Bargaining Power of Customers: HIGH
- The chocolate market is driven by consumer trends and manufacturers need to identify and implement these strategies if they wish to remain competitive
- In developed regions consumers have started to look for quality in the confectionary rather than quantity. This has boosted demand for premium and luxury products in chocolate confectionary
- Consumers in developing countries have been persuaded to try chocolate products, but demand smaller more economic products
- If a developing country is in economic crisis, the demand for chocolate would decrease as it is viewed as a luxury item and, can be replaced it with a cheaper sugar substitute/alternative. However developed countries are likely to increase their intake of chocolate as a source of ‘comfort’ in economic uncertainty. The chocolate market in the developed world is in-elastic even though there are cheaper alternatives available, as disposable income is usually higher
- Customers have a greater access to media information and the use of pesticides found in chocolate, which has resulted in an increase in organically grown chocolate. Fair trade issues have also promoted public interest, and has resulted in an increase in demand for fair trade chocolate and manufacturers and retailers must comply with demands
- Other recent media coverage has highlighted the growing levels of obesity around the world. This has lead to more health conscious parents limiting their children’s intake of chocolate and, some schools have actually banned chocolate. As a result of the out cry over health concerns, it has forced manufacturers to downsize their chocolate bars
- Customers are protected to a certain extent by the World Trading Organisation
Bargaining Power of Suppliers: LOW/HIGH
- In order to remain competitive the chocolate manufacturers need supplies and for as little cost as possible. The Ivory Cost crisis did take many manufacturers by surprise and they realised how few cocoa plantations they actually were and, the shortage of cocoa-bean’s meant that companies were forced to raise their prices in order to cover their costs. Some manufacturers however covered their increased costs, by charging less for the cocoa-beans, which doesn’t help the crisis just, makes it worse, as the cocoa bean farmers and processors are not in a strong economic or political situation to resist.
- Bargaining power of large retailers suppliers is huge, if they decide to cut the costs of their chocolate bars in order to compete with other giant supermarkets, then they won’t be the ones that lose out on profit, as stated before the cost have a knock on effect down the supplier chain to the farmer, the least rich and vulnerable link in the chain. In order to get the best price for supplies to remain competitive, the large retail companies ensure that they have high bargaining power, where the suppliers of the raw material haw low to little bargaining power.
The Threat of Substitute Products: MEDIUM
- As already discussed in the report, we have seen that coca-beans cannot be so easily replaced for example the Sulawesi bean from Indonesia costs 10-20% less than West Africa beans but it has acidic nibs. Other Asian beans are considered difficult to process and to have poor taste, although new technology is been designed to rectify this
- There is increased demand for snack alternatives such as cereal bars that have value-added vitamins or minerals and/or are sugar free. The trend for these products is set to continue, and chocolate may be substituted for them, as they are seen as a healthier snack alternative.
- The use of vegetable oil as a substitute product for cocoa-butter would anger France, Spain and the Benelux countries who regard themselves as “chocolate purists” but it may be the solution to the cocoa crisis, however when the economy stabilised, the cocoa-producing countries would suffer in the longer term if substitutes such as trans-fat (vegetable oil) were used instead of cocoa-butter.
7.3
PESTLE ANALYSIS
If a company wishes to operate in countries that are characterised by different political, legal, social and economic frameworks, it must carefully analyse the interactions between these environments in order to maximise efficiency.
Political Analysis
- China’s accession to the World Trade Organisation and ASEAN in 2003 has led to the implementation of new confectionary regulations in July 2002, which makes the market more accessible. This has opened up the Chinese market to 500 new types of confectionary, which was not permitted under the country’s old regulations, so giving more opportunities to overseas manufacturers in a market with huge potential.
- Government legislation in 1998 in the Ivory Coast on indigenous land rights in the cocoa-belt has fuelled continued unrest, because many plantation owners and workers come from neighbouring Burkina Faso. Relations between the two countries have become even more strained as the result of the September 2002 mutiny by sections of the Ivorian armed forces, in which Burkina Faso has been accused of having a hand. This crisis could potentially destabilise the entire region, responsible for about 67% of world production, leaving Indonesia and Brazil, which combined supply 20% of the global cocoa market to pick up the pieces. Both however suffer from their own economic and political instabilities, as well as producing an inferior crop as a result of cocoa pests.
- Huge potential for the Eastern European chocolate confectionary market is presented by the proposed accession of states such as Hungry, Poland, the Czech Republic and Slovakia to the EU. Joining the EU should make these countries more prosperous in the long term, and the lowering of trade barriers will open the market to a greater variety of products and foreign suppliers. Although the level of potential is reflected in the fact that estimated Czech consumption is only around a third of the average Western European country.
- The recent “War on Terror” and also the war in Iraq have led some consumers, especially in Islamic countries to boycott US products. Furthermore, the tension between France and the US in spring 2003 led to a level of avoidance of US goods by French consumers, and vice-versa for a short period, although overall this did not have a significant impact on chocolate sales
Economic Analysis
- Due to increases in disposable incomes and better retail infrastructure in developing regions, there was a perceptible shift towards increased chocolate consumption. However disposable income remains comparatively low in many developing countries, compared to developed countries so a balance needs to be struck between offering quality and at the same time a competitive product.
- In a number of countries such as Eastern Europe in 1999 and Latin America in 2002/2003, chocolate has been priced to high to withstand the effects of economic recession and consumers have reverted to cheaper sugar confectionary products. However, once a market begins to pick up again, sugar confectionery products tend to be shunned owing to their cheap image.
- Eastern European sales will grow, boosted in particular by strong growth in Russia and Ukraine, as these are the countries with the fastest-growing personal disposable income. The community will widen further in 2007 when Bulgaria and Romania are expected to join the EU.
- Rising prosperity and living standards in developing countries have underpinned higher disposable incomes and stronger consumer confidence, falling birth rates and slow economic performance in many developed markets has undermined consumer spending on confectionary products such as chocolate.
- A slow birth rate in developed regions, has meant a population decrease of the under 15’s market and an increase in the over 55’s market. This has an impact on the chocolate market as typically the under 15’s market are the ones most likely to consume the most chocolate and the over 55’s the ones least likely to consume chocolate.
Social Analysis
- Consumers are becoming increasingly concerned by health and obesity issues and in response manufacturers have started to offer sugar free confectionary. This offers the added benefit for them of higher margins. The table 7.3.1 reflects the growing levels on a worldwide scale.
- Developments in sugar substitutes has meant that it is now possible to produce better tasting sugar free chocolate products and as a consequence, companies such as Hershey and Nestle have launched sugar free ranges during 2003.
- The trend towards natural products has also positively impacted sales of organic chocolate, with specialists such as Green & Black doing extremely well. Multinationals have so far shown little interest in this development even though it is also in line with consumer desire for more premium, quality products as a consequence of health and food safety scares.
- Fair trade for farmers helps keep their traditional way of life, in a way that fosters better economic returns for the cocoa farmers, their families and communities.
Table 7.3.1 Obesity Rates by Region 1996/2000
% prevalence in population aged 15+
Source: Euromonitor, OECD, International Obesity Taskforce, WHO
Note: Adult obesity measured as Body Mass Index (BMI)>30kg/m2
Technological Analysis
- Developments in technology enabling manufactures to improve the taste of poorer quality, bitter tasting beans will allow chocolate manufacturers to use lower quality, cheaper beans as a way of containing costs
- Chocolate multi-national suppliers will benefit from the expansion of retail channels in developing markets, and in particular from the increased availability of chillier cabinets in air-conditioned supermarkets and convenience stores in hotter climates, where previously chocolate sales have been lower
- GM technology is on the increase, but as cocoa-beans are produced in developing nations the cost of GM production may not be feasible
- Sugar-free chocolate has traditionally had a poor image, typically being seen as having a dry, chalky texture. However recent technological advancements in the formulation of sugar substitutes have helped to reverse this poor image, and Manufacture’s are coming close to developing bulk and high-intensity sweeteners which better replicate sugar’s tastes and textural characteristics
- Chocolate with toys remains illegal in the US, but is legal elsewhere across the global market
Legal Analysis
- Any new legislation from the EU Food Safety Authority can have a significant impact on the market.
- The EU directive allows a maximum 5% vegetable fats to be included in chocolate, as long as it is clearly labelled. This legislation was deemed necessary to eliminate differences between national laws in member states. Although the US does not currently allow any vegetable fats in their chocolate.
- Greater public coverage of food health scares has resulted in increased consumer awareness of the quality and origins of the food that they eat. An example of this is the 1999 ban on diary products from Belgium, as a toxic chemical found its way into the diary chain, and as a result Japan, Russia, Italy and many others temporarily banned diary products from Belgium. Other scares included the salmonella scare in Germany in 2001.
- As a result of food scares and public out-cry the first meeting of the European Food Safety Agency (EFSA) was held in September 2002. The authority has the remit of ensuring that EU food safety decisions are based on the latest scientific information from around the world.
- The Nutrition Labelling and Education Act (NLEA), which came into force in 1990, regulates three elements of information on food packages, namely nutrient information, nutrient claims and health claims. Differences in usage and labelling regulations make it difficult for companies to produce and distribute their products internationally.
- In the current litigious climate, all manufacturers tend to place allergy warnings on their products as a matter of course, in order to cover themselves in the event of a claim.
- EU competition authorities are specifically interested in companies, which have a worldwide turnover of more than EUR5 billion, and the dominant position they hold in the market. Although according to EU regulations it is not illegal for a company to hold a dominant position in the market if this dominance results from its own competitive strength and effectiveness, although acquiring a dominant position by buying out competitors is illegal under European competition law.
Ecological Environment
- Encouragement of bio-diversity as cocoa growing does not involve plantation-type agriculture, and helps the proliferation of species.
- Pesticides sprayed onto the cocoa-plantations may effect local wildlife and the food supply chain
8.0
CONCLUSIONS
- Chocolate is the largest selling confectionary product, with sales worth nearly US$60 billion in 2003. The sector grew by nearly 11% in value terms in 2003 underpinned by the trend towards premiumisation and indulgence in many developed markets and disposable incomes improve in developing markets
- Globalisation of trade through events such as the EU expansion or WTO accession offer significant opportunities to manufacturers, as well as some interesting challenges
- Strong growth is anticipated in Eastern Europe as countries such as Poland, Hungary the Czech Republic and Slovakia gain accession to the EU
- The Australian market experienced dynamic growth over the 1998-2003 period benefiting from improvements in distribution and regular product innovation
- In value terms, China has proven to be the most dynamic country across the review period, although per capita consumption remains low. Value sales grew by nearly 41% in constant local currency terms over the review period, as a consequence of rising disposable income and a westernisation of tastes in urban areas. Volume sales rose by 33.5% over the same period, making China the second most dynamic market in volume terms after India (36% increase)
- The maturity of the US and UK market is reflected in the declines registered in both countries over the survey period. Innovation was also restricted in both countries as suppliers sought “safe” product launches in the form of line extensions and limited additions
- The industry faces threats from other confectionary markets as well as other snacking industries
9.0
RECOMMENDATIONS
- Manufacturers need to adapt their products to suit local tastes. Consequently, they need to acquire local brands, or produce regional variations of their global brands in order to give themselves the best chance of succeeding in the market
- Chocolate is set to experience the slowest growth in the confectionary market, reflecting the maturity in the market. Sales will be driven by demand for premium and indulgence products, in developed markets and by improved distribution and more affordable product offerings in developing markets
- Twist wrapped miniatures will be a significant growth product in chocolate and has proved popular in developed and developing markets. This trend is likely to continue and manufacturers should concentrate on developing the product in emerging markets such as Eastern Europe, China and India
- Demographics affects confectionary trends, and the decline in under 15 year olds has meant that the chocolate market needs to become more adult orientated across all regions, focusing on luxury, snacking and adult sharing
- Chocolate should try to premiumise itself, in order to differentiate themselves away from their confectionary competitors
- The chocolate market should focus on pushing sales in developing regions, who are benefiting from higher disposable incomes
- Care should be taken when using trans-fats in confectionary, due to health scares surround the added ingredient
10.0
RESEARCH PORTFOLIO
Research Papers
Euro Monitor
This was a very detailed report on the confectionary industry, and provided some interesting insights into the market and its environment with useful facts and statistical data. The paper was however limited and lacked validity, by the fact that the data only covered the time period 2003-2008.
Mintel Reports
This provided information on the chocolate confectionary industry from November 2004, which again provided some useful facts and figures about the industry, but again the paper was limited in validity as it only covered the chocolate market in the UK and as I was looking at the global market, it provided only limited information.
Websites
Oxfam
The website went into detail about the formation of fair trade, what it stood for and what are its aims in the future.
Fair Trade
The website provided statistical information on the charity and how the market has grown
Guardian
The Guardian archives provided an interesting article on the exploitation of cocoa-farmers in Africa
Marketing Teacher
Provided an explanation of marketing concepts and provided useful diagrams that could be used for reference
Lindane
This was an article published about the over use of pesticides in cocoa-farming
Text Books
Principles of Marketing, Brassington, F and Pettitt, S, 3rd edition 2003, Prentice Hall
This book provided me with an overview on the principles of marketing, with interesting relevant case studies about the chocolate market. I found the book extremely useful in understanding marketing models.
The Business Environment, Worthington, I and Britton, C, 4th edition 2003, Prentice Hall
This book was a good reference in understanding the external marketing environment, and the factors that affect it. It was clearly laid out, and had good use of example to aid your understanding of the concepts.
International Marketing Strategy, Doole, I., Lowe, R., (1997) “Contemporary Readings”, International Thompson Business Press
The book was a good reference for understanding the marketing strategies of international companies and how they must operate in international environments in order to remain competitive