European and American chocolate makers from Nestlé to Hershey hope that demand from China and India can keep growth from melting away
Humans may have first cultivated a taste for chocolate 3,000 years ago, but India and China have just gotten around to it. Compared to the sweet-toothed Swiss and Cadbury-crunching Brits, both of whom devour about 24 pounds (11 kg) of chocolate per capita annually, Indians consume a paltry 5.8 ounces and the Chinese a mere 3.5 oz (165g and 99g, respectively).
Western chocolate makers hungry for growth markets are banking on that to change. In the past five years the value of chocolate confectionery sales in China has nearly doubled, to $813.1 million, while sales in India have increased 64%, to $393.8 million, according to market researcher Euromonitor International. That's a pittance compared to the nearly $35 billion European chocolate market. But while European chocolate sales are growing a mere 1% to 2% annually, sales in the two Asian nations show no sign of slowing.
European chocolatiers are already making their mark in China. The most aggressive is Vevey (Switzerland)-based food giant Nestlé (NESN.DE), which has more than doubled its Chinese sales since 2001, to an estimated $91.5 million—still a relatively paltry amount. It's close behind Mars, the longtime market leader, whose sales rose 40% during the same period, to $96.7 million.
Green Tea Kisses
Nestlé's Kit Kat bar and other wafer-type chocolates are a big hit with the Chinese, helping the Swiss company swipe market share from Mars. One problem for Mars: It hasn't lowered the sugar content of its best-selling Chinese brand, Dove, to suit local tastes, says Sylvia Mu, a Shanghai-based analyst for Euromonitor.
Italy's Ferrero is another up-and-comer. It has boosted China sales nearly 79% since 2001, to $55.6 million, drawing younger consumers with its Kinder chocolate line while targeting big spenders with the upscale Ferrero Rocher brand. Indeed, its products are so popular that they have spawned Chinese knockoffs, including a Ferrero Rocher lookalike made by a Chinese company that Ferrero has sued for alleged counterfeiting. Despite those problems, the privately owned Ferrero has steadily gained market share against No. 3 Cadbury Schweppes (CSG), whose China sales have risen a modest 26% since 2001, to $58.6 million.
Until now, U.S.-based Hershey (HSY) has been a relatively small player in China. But the company has laid ambitious expansion plans, hooking up with a local partner last year to step up its distribution, and even introducing green tea-flavored Hershey Kisses to appeal to Asian tastes.
Chinese sales have been helped by an upsurge in marriages in recent years, since sweets are traditionally offered as wedding gifts. On the Chinese calendar, 2006 was considered an especially auspicious year to marry, and many couples went to the altar in 2007 in hopes of bearing a child before the 2008 Olympic Games, analyst Mu says.
Underscoring China's growing importance, Switzerland's Barry Callebaut (BARN.F), a big chocolate producer that supplies many leading confectioners (BusinessWeek, 8/14/07), opened a factory on Jan. 9 near Shanghai to alleviate pressure at a Singapore facility that had been operating at capacity. The company also inaugurated a nearby Chocolate Academy, just one month after opening a similar facility in Mumbai, to train local confectioners and pastry chefs in using chocolate.
Unlike China's chocolate market, India's is dominated by two just companies—Cadbury, which entered the country 60 years ago and has nearly 60% market share, and Nestlé, which has about 32%. The two have prospered by luring consumers with attractively packaged chocolate assortments to replace the traditional dried fruits and sugar confectioneries offered as gifts on Indian holidays, and by offering lower-priced chocolates, including bite-sized candies costing less than 3 cents. Cadbury's advertising encourages snacking by saying: "A little bit of treat, a little bit of indulgence is all right," according to Sanjay Purohit, executive director of marketing for Cadbury India.
The confectionary companies have been less successful, though, at developing new products adapted to the Indian sweet tooth. In 2005, Nestlé launched a coconut-flavored Munch bar, and Cadbury introduced a dessert called Kalakand Crème, based on a popular local sweet made of chopped nuts and cheese. Both sold poorly and were discontinued.
Newcomers on the Indian chocolate scene may soon shake up the status quo. Ferrero plans to start production in 2009 at a new factory near Mumbai, and Hershey last year partnered with domestic confectioner Godrej Industries to distribute Hershey products (BusinessWeek, 4/3/07).
With growth just starting to kick in, it looks like Asia is going to remain a sweet spot for chocolate makers for years to come.
For a survey of some of the more unusual chocolate flavors on offer in Asia, see our slide show.