The Chocolate of Tomorrow Essay Example for Free

The java of tomorrow EssayR evenues from the deep brown patience hide to prove rewarding, with 2011 figures from IBISWorld predicting annualized issue of around 2% all over the beside five historic period, after dampened expectations during the dark days of 2007-09. only if behind the encouraging headlines, many companies argon battling to stay on top of a rapidly shifting commercializeplace. Taste is divergent, as fast- increase economies and appoint consumers demand more than than(prenominal) from their products. For industry stalwarts, the requirement to offer local anaesthetic, highly tailored and increasely diverse products represents a serious threat to market sh argon. Spotting the markets that ar likely to grow quickly give marque the difference between the winners and losers of tomorrows hot hot drinking chocolate landscape. According to official giving medication figures, current angry spots include India (annual growth rate 15%), china (9%), R ussia (6%) and Mexico (3. 8%). They all exhibit a number of key factors that help them stand forth from the pack, including a recent population, rapid capital inflows and shop consolidation. In this report, well murder a tour of the factors fictile the chocolate market of tomorrow from geography and demographics, to consumer of necessity and preferences, and intimately-nigh other market drivers.And well attempt to offer a glimpse into the future by defining what ability be the chocolate bar of 2030. John A Morris European drift of Consumer Markets KPMG LLP 2012 KPMG supranational reconciling (KPMG transnational), a Swiss entity. Member firms of the KPMG earnings of separate firms are affiliate with KPMG multinational. KPMG world-wide provides no knob serve. All rights reserved. The chocolate of tomorrow State of the market Contents 4 The international picture.What theyre alimentation and why a world tour of consumer taste in the chocolate market The three typ es of consumer shaping the way people buy chocolate across the world Four factors that are more and more de? ning the chocolate market A glimpse of the future and what it might mean for the industry 6 Shoppers preferences 8 Trends to call up Where undermentioned for chocolate? The industry has weathitherd a global recession and is tacit studyking growth. But with some markets saturated, where does its future lie? The global chocolate industry is many things, just now as a bellwether for the wider economy its use is limited.Revenues swallow remained resilient despite a recessive global picture, falling liquid incomes, mercurial good prices and increasing competition. Chocolate is often described as recession-proof. Some economists call it the limn effect when go about an economic crisis, consumers are more go outing to buy less costly prodigality goods, such as cosmetics and chocolate, even as they cut back on other luxuries. Revenues over the sometime(prenominal) few years would seem to back this hypothesis, although year-on-year growth remains relatively sluggish and the spectre of volatile introduce prices continues to cast a shadow over future projections.Although the global market is ease dominated by Western Europe and North the States, acclivitous markets clearly represent the future. The BRIC countries (Brazil, Russia, India and chinaware) accounted for 55% of global send packingdy store retail growth in 2011. Other appear economies with youthful populations and an acquisitive center set are likely to develop a taste for chocolate and, as their disposable incomes grow, they depart represent historic target markets.With the traditional markets of Western Europe and North America seemingly saturated, manufacturers are creation obligate to pull even more innovative tricks out of the bag to attract consumers, from enigmatic ? avor combinations to bolder wellness claims, administer control and in the flesh(predicate)ized debar. Like a large sharing tablet, the market is breaking up. Taste is diverging as the BRICs and empowered Western consumers demand more from their products. Where will the market take us next? 10 The bar of 2030 12 Contacts globular chocolate retail market value 120 coulomb US$ billion 80 Source Euromonitor 60 40 20 0 2007 2008 2009 2010 2011 2012 3 2012 KPMG planetary Cooperative (KPMG transnational), a Swiss entity.Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved. The chocolate of tomorrow The global picture Western Europe is still the largest chocolate market in the world, but slow growth suggests saturation. Health is becoming a major driver in new product launches in 2011, 10% of products were marketed as vegetarian, 7% as costless from additives and 7% as organic. The US eats more chocolate by volume than any country, says the International Cocoa Organization.Co nsumers are demanding value and wild ?avors, such as bacon and wasabi. Health matters but is not merely a major driver. The large Hispanic market is key. The British government is pressurizing manufacturers to tackle obesity, although only 12% of consumers see fat content in chocolate as an important factor. Portion control is imperative, with small bars and big sharing packs introduced to curb overeating.In Mexico, 52% of the population are under 20 a huge market for candy and chocolate. Around 80-90% of chocolate products are aimed at children. This offers opportunity for tie-ins with well-known(a) childrens carrys, but locomote obesity levels may prompt regulation.The world of chocolate Geography is still key to understanding the speci? cs of consumer taste. What are customers across the world demanding? 4 easter is big channel in Brazil, with 100 million east wind eggs eaten every year and this is likely to increase. But childhood obesity presents a curb on growth. W ith more than 35% of children over incubus, child-focused product launches nominate been driven slew by 62%. 2012 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved. Russia is one of the most promising emerging economies for chocolatiers. The market is worth more than US$8bn and is judge to grow 45% by 2016. As consumers break up the value chain, discoverer manufacturers begin to stake their claim. Widespread lactose intolerance has made for a slow start in mainland China, but chocolate sales have move up 40% since 2009. Lindt claims in its annual report that the market is growing 30% a year. pension products are touristy, with over one-half of all sales bought as gifts. At US$11.4bn, Japan is the largest Asian market. Domestic artisan companies are ? ourishing but foreigners can ? nd it hard to ga in a foothold. Nestles Kit-Kat brand is the exception, openhearted to consumers with 200 whimsical ?avors and special editions. India has always had a sweet tooth, and chocolate is fast becoming its darling treat, ahead of sugar candy, with an annual market growth rate of 15%. Cadburys now owns 70% of the market, introducing innovative products that can survive in the extreme heat. The Middle East/North Africa market is expected to reach US$5. 8bn by 2016, up 61% on today.Almost every part of Africa is growing South Africa is the biggest market, but sugar confectionery is still 22% more popular there than chocolate, says Leatherhead victuals Research. Source Euromonitor world(prenominal) market share by region, 2011 Western Europe 32% North America 20% Asia 17% Latin America 13% Eastern Europe 12% Middle East and Africa 4% Australasia 2% 5 2012 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affilia ted with KPMG International. KPMG International provides no client services. All rights reserved. The chocolate of tomorrow Shoppers preferences.What consumers pauperization The psychology behind chocolate suggests consumers see it as a naughty but nice beat treat. But a closer gestate reveals three distinct types of buyer, each with different behaviors and demands THE CONVENIENCE purchaser Chocolate may be seen as an impulse purchase, but its becoming increasingly day-after-day among consumers. Convenience is a major driver for chocolate lovers, who want to grab a bar from a local store or throw a multi-pack into the trolley during a weekly shop. As whatchamacallit conveys more important to time-poor shoppers, sales of tablet bars are growing (up 37% in the UK give-up the ghost year) as consumers grab and go.Premium chocolate-makers such as Godiva are rethinking their strategies to get a bite of this lucrative market, introducing smaller bar formats. A desire for convenie nce is too increasing the popularity of sharing bags, special(prenominal)ly in Western markets, as consumers buy to share or ? nish eating later. Manufacturers have reacted with packaging innovations, such as the memory wrapper from Mars that allows bars to be twisted, closed and saved. Mars says the innovation empowers the consumer. It also drives brand loyalty. THE VALUE BUYER In many markets, value is a hot topic.In the US, 79% of consumers look for good value when choosing chocolate, although 70% also want a name brand, according to Mintel Oxygen heart even value shoppers are making demands of manufacturers. Value is particularly important in economies where the middle class is still being de? ned and may exist far below Western levels. According to research from ? nancial services provider Rabobank, a 45g chocolate bar accounted for less than 1% of the weekly shopping budget in the US and UK in 2010, but in India the same bar made up 18% of the weekly food allowance which means a snack comes at the disbursement of a full meal.One-size-? ts-all global pricing solutions are dif? cult when the income levels and aspirations of the fast-growing middle class differ so widely. Although disposable income is rising in emerging markets, we could assume that a large proportion of consumers will continue to look for the cheapest option. Value-conscious shoppers favor a new generation of outlets. Discount stores are ? ourishing, which is forcing supermarkets to think more like discounters to attract ? ckle customers, including increasing their private label ranges.Small grocery stores may lack the economies of home plate to compete on price, temporary hookup specialist formats are being crowded out. In emerging markets, one-stop retail locations are becoming popular due to low prices and greater choice. Where theyre buying 15. 7% 1. 5% 45. 3% 10% 27. 5% Non-store Specialist stores Small grocery stores Supermarkets and discount stores Others 6 2012 KPMG Inter national Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. All rights reserved. Global chocolate retailers market share 2011. Source Euromontior THE LUXURY BUYER The luxury chocolate market continues to plow the mainstream and not just in real economies. The psychology is that even expensive chocolate is an affordable luxury, says Marcia Mogelonsky, Global Food Analyst at researcher Mintel. Chocolate is becoming increasingly premiumized, and brands such as Godiva and Lindt have become almost mass market as consumers develop a taste for everyday glamour.Godiva, which has increase its sales from US$400m to almost US$700m in 10 years and is now owned by Turkeys Yildiz Holdings, plans to become a staple for the health-conscious, sweettoothed consumer. Our revenues have increase in all our markets, in particular in China and Japan, which are the most important markets right now, Godiva CEO Jim Goldman has said. Marketing our product is a balancing act. And its different in every country. We do retain our prestige but we have to be relevant. In Russia, the chocolate market is expected to grow 45% over the next ?ve years, to reach US$11. 6bn, says Euromonitor. Belgian artisan chocolatier Jean-Philippe Darcis has his eye on the country, predicting The market will evolve and people will have more buying power. Lindt is enjoying double-digit sales growth in the Middle East. In China, rich dark chocolate is thriving, with Ferrero Rocher and artisan chocolate maker Senz launching exclusive premium dark brands in the last two years. Unsurprisingly, larger manufacturers are keen to get a bite of this burgeoning sector but, without the personal story required to sell such products, they can struggle.The solution purchase artisan brands and market them as separate entities large producers economies of scale mean this phenomenon ma kes life hard for surviving artisan brands. Mars has Ethel M, Nestle bought Maison Cailler and Hershey owns Dagoba and Scharffen Berger. It may sound counterintuitive, but whats happening in the global ? nancial crisis is a quest by consumers for value, for more affordable products, but also for products that overtake their expectations, says Laurent Freixe, head of Nestles European business. However, large manufacturers with designs on artisan businesses must be careful.Consumers like artisan companies because they are high quality and unique, warns Mary Nanfelt, Food Analyst at IBISWorld. That uniqueness and independence must remain. Luxury sales on the up Whats happening in the ? nancial crisis is a quest by consumers for products that are more affordable but that also overtake their expectations 2001 2005 2008 2011 0 0. 5 1 1. 5 2 2. 5 Godiva Lindt 3 US$bn sales 7 2012 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of inde pendent firms are affiliated with KPMG International. KPMG International provides no client services.All rights reserved. The chocolate of tomorrow Trends to consider Driving growth From sustainability to eventing, four factors that are increasingly important in understanding the global chocolate market and the opportunities they could create both now and in the future SUSTAINABILITY Food origin is an increasingly important driver for consumer purchasing decisions in more developed markets, particularly at high-end retailers. Mary Nanfelt, Analyst at IBISWorld, says Americans in particular are becoming more socially conscious in their choices, buying chocolate from sustainable and organic sources. Globally, use of Fairtrade umber has risen dramatically over the last few years, and smart phone users can even download respectable shopping apps. All the major manufacturers have embraced Fairtrade to some degree. Krafts Cadbury brand has tripled the amount of Fairtrade drinking choco late it uses, and Cadburys Dairy Milk, the UKs best-selling bar, is certi? ed Fairtrade. Hershey announced this year that it would begin to source the cocoa for its Bliss brand through Fairtrade farms, while Mars and Nestle already have best-selling Fairtrade lines. launching As consumers become ever more demanding, innovation is crucial to market share.And personalization is likely to be the next consumer-driven revolution in the industry. Nestle is leading the pack in this area. Maison Cailler allows customers in Switzerland, the worlds largest per capita chocolate market, to create personalized taster packs based on their preferences. Its Spanish brand Diselo con Chocolate recently launched an e-commerce platform where customers can create their own assortments. Gum and candy businesses such as Wrigleys have already introduced personalized packaging (particularly aimed at gifters) and chocolate could soon maintain suit.The next tenacious timber is for consumers to design ch ocolate bars that cater to their unique palate but which manufacturer will take on the production challenge involved? HEALTH Although many consumers view chocolate as an periodical treat and dont obsess over its effect on health, fat is becoming a major issue for manufacturers. So-called fat taxes are threatened in a number of major economies, including the US and the UK, while European countries such as Denmark and Hungary have already introduced surplus taxes on membrane-forming food.In Japan, the government has gone one step further and is taxing companies and local authorities with a h proportion of overweight igh employees or residents. An increased emphasis on healthy lifestyles is an imperative for governments facing rising healthcare costs, particularly in developed economies that are battling childhood obesity. This has impacted childfocused product launches, which drop down 62% last year in the US and Brazil, both countries that are struggling to keep their weight down (more than 35% of Brazilian children under six are overweight or obese).Globally, 21% of parents report switching products to give their children healthier snacks, potentially reducing brand recognition among the next generation. To combat this, the industry should debate the potential health bene? ts and enable chocolate to be among the next generation of functional foods, energy the antioxidant effects of dark chocolate or investigating the energyboosting properties of bars with oats, nuts or super fruits. Latvian brand Laci is using super berry sea buckthorn in its products.Smaller bars (Mars has crest its bars at 250 calories in the UK and Australia, and will follow suit in the US in 2013) can encourage awareness of portion sizes. Fairtrade takes off 35,000 30,000 Global production in tonnes 25,000 20,000 15,000 10,000 Source Fairtrade Foundation 5,000 08 20 03 20 04 20 20 05 06 20 07 20 20 09 10 20 8 2012 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.QA Bert Alfonso CFO, Hershey Personalization is likely to be the next revolution in chocolate the logical step is for consumers to design bars that cater to their unique palate EVENTING In many countries, chocolate is an intrinsic component of religious events, special occasions and festivals. The seasonal chocolate market is worth US$4. 9bn in the US, an increase of 6. 4% since 2010, says Mintel. Easter is the biggest chocolate event globally and, although the shelves can appear full of competing products, the market is in fact far from saturated.Easter products launched worldwide rose 45% during 2011. Canada has proved particularly rich for manufacturers, with seasonal activity increasing 89% in 2011. In gift-hungry Western Europe, growth in seasonal product launches is particularly notable in the UK and France, where seasonal activity increased 53% and 41% respectively. In more mature markets like the US and Australia, there is evidence to suggest consumers are choosing to buy a smaller number of high-margin, luxury items rather than focusing on value products.In Australia, where Easter chocolate consumption is expected to grow 3% in 2012 to over US$178m, specialty retailers stocking luxury Easter eggs from the likes of Lindt have been reporting robust growth. China has seen a seasonal boom. The expanding middle class is spending more on premium chocolate, which makes the perfect gift. More than half the chocolate bought in China is purchased as a gift, with Christmas and the Lunar upstart Year peak buying times. According to Shaun Rein, author of The End of cut-price China Economic and Cultural Trends that will Disrupt the World, costly confectionery ? lls a gap in traditional present-buying.Chocolate hits a good market position. There just arent that many other prestige gift items in the $5 0-$200 range. Q How has Hershey maintained growth in a time of ? nancial disbelief? A We have focused on productivity gains, which have been reinvested in the products consumers are looking for, and increased marketing activity. Gross margins have increased over the last few years as a result of several actions, including raising prices in the US market to offset rising commodity costs. We conceptualise were in the middle of a secular bull market for commodities, driven by the growth of emerging economies.What steps have you been taking to mitigate rising raw material costs? forth from pricing, we use hedging programs in everything but dairy. Certain costs are predictable but when it comes to commodities, we follow the fundamental as well as technical market indicators for materials such as cocoa and sugar. Longer-term, theres an opportunity to improve cocoa yield in regions such as West Africa. The methods being used at the moment arent that sophisticated, which is why we are involved in farming teach to enhance cocoa-growing productivity.Overall, cocoa farming is still pro? table at current market prices and some markets are actually increasing production. How much of your future revenue would you like to see coming from abroad? We have targeted US$1bn revenue from our overseas operations by 2015 weve actually been pacing ahead of that. Mexico, Brazil, India and China are the most important markets for us, and we now manufacture in all of them. We have been manufacturing in China for several years, rather than just exporting there, because US chocolate simply isnt formulated for the local taste pro?le. How do you see the luxury market developing in future? I believe that smaller artisan companies will ? nd it harder to stay in the market in the prospicient term. Luxury is growing again as a segment and competition is intensifying. It could eventually account for 20% of the market over time. What type of chocolate will we be eating in 2030? A stripe of the products currently available in the US market still have longevity. There will be more personalized products as the market seeks to deliver on unique taste pro? les. Also, consumers are looking for more permissive, better-for-you alternatives.The digital aspect of personalization is still at an early stage and we will see further investment from manufacturers. The mass market wont go away, but it will evolve. 9 2012 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved. The chocolate of tomorrow The bar of 2030 Looking to the future What mixture of chocolate will we be eating in 2030?The rapid change of the past few years gives us some vital clues to the industrys direction Innovative packaging To stand out on the shelves and reduce costs, packaging could undergo a revolution. Manufacturers will dev ise new ways to stop up chocolate doesnt melt in the extreme heat of many emerging markets, as well as introducing new bar sizes. Health bene? ts Chocolate could ride the trend for nutraceuticals. Nestle has already announced plans to invest US$510m in pioneering a new industry between food and pharma. medicative herbs could be used as an ingredient, or even aspirin.Additional betterfor-you ingredients such as super-fruits, nuts and oats may become more common. Additive-free chocolate will become the norm in developed economies. Dark chocolate could increase in popularity as consumers become more aware of its health bene? ts. Attracting youth Marketing to the youthful populations of emerging markets (especially India and Latin America) will be vital. Use of popular culture, including bands and TV shows, in marketing campaigns may increase, as will viral marketing and social media interaction, as young people broaden their channels. piece of music children prefer sweeter chocolate, concerned parents will look for chocolate with added health value. 0 03 2 Luxury vs commodity A growing middle class will continue to propel the luxury market, and will increasingly drive it into mainstream retailers. But this will pose a challenge although middle class consumers in emerging markets may develop expensive tastes, their disposable income will still be relatively limited. Manufacturers may want to choose between margins and volume, positioning themselves carefully as either a luxury or commodity player.The outsourcing solution. The most successful chocolate companies could be purely marketing and RD operations after outsourcing their production to industrial suppliers. The public wont even have heard of the worlds largest chocolate producers, who will work behind the scenes to supply well-known brands. 10 2012 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG Internatio nal. KPMG International provides no client services. All rights reserved. The personal touch Bespoke bars may be commonplace.One artisan chocolate maker says he envisages smaller shops offering people the chance to create their own bar. As consumer palates grow more sophisticated, whimsical ? avors will become the norm, with chocolate-lovers choosing their own combinations. Consumers may also be able to design their own packaging. New distribution channels Chocolate will be available from a wider variety of outlets, from coffee shops to health food stores, to cater for convenience buyers. Supermarkets and discount stores will continue to dominate sales, particularly among value customers.Premium chocolate could become available in mainstream stores as luxury buyers proliferate. Brands might seek to move up the value chain by creating their own ? agship stores, something Hershey and Mars (through its MMs brand) have already do successfully. ar b 0 Fresh ? avors In developed markets , ? avors may become increasingly unusual as palates grow more sophisticated and brands seek a marketing boost. Combinations of sweet and savoury (such as bacon and chocolate) will increase, and salt, olive oil, herbs and ? owers will all be used as ? avorings.Middle class regularize Manufacturers are likely to offer more chocolate from ethical sources to meet aspirational buyers needs. Middle class consumers will also be keen on premium chocolate for gifting purposes, and seasonal launches, which increased 6% during 2011, will continue to grow. A new recipe Milk chocolate will have a l ower cocoa content due to rising prices, and manufacturers will be forced to use cocoa more sparingly. Demand for cocoa could spiral out of control one Latin American manufacturer predicts that China and India increasing average per capita consumption by just 1kg could make most manufacturers current models unsustainable.In that scenario, arti? cal cocoa could become a viable alternative. Price vs s ize Think small Rising obesity levels and government regulation will lead to manufacturers limiting portion sizes. Sharing bags of smaller bars will become more popular as people seek to limit the amount eaten in one sitting. fair(a) per capita consumption (currently 8kg in Europe) may drop, although overall consumption is likely to rise as the global middle class mushrooms. In emerging markets, chocolate takes a hefty bite from the household budget.As input price volatility continues, manufacturers may have to keep value in mind or run a risk losing consumers. Price per gram is rising fast in developed markets, but research shows consumers feel cheated if bars get smaller but price is static. Mainstream manufacturers could be forced to choose between containing cost, at the expense of size, and moving further up the value chain. 11 2012 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with K PMG International.KPMG International provides no client services. All rights reserved. active KPMG KPMG is a global network of professional ? rms providing Audit, Tax and Advisory services. We have 145,000 outstanding professionals working unneurotic to deliver value in 152 countries worldwide. KPMG is organized by industry sectors across our genus Phallus ? rms. The Consumer Markets practice, which encompasses the Food, Drink and Consumer Goods and sell sectors, comprises an international network of professionals with deep industry experience.This industry-focused network enables KPMG element ?rm professionals to provide consistent services and feeling leadership to our clients globally, while maintaining a strong knowledge of local issues and markets. Its clear the chocolate market is shifting rapidly, and presents a range of challenges and opportunities.To discuss any of the issues raised in this report, please get in touch. Contacts Willy Kruh Global Chair, Consumer Market s and Food, Drink and Consumer Goods +1 416 777 8710 emailprotected ca Nick Debnam ASPAC Regional Head of Consumer Markets and Food, Drink and Consumer Goods KPMG in Hong Kong +852 2978 8283 nick. emailprotectedcom Stephane Gard Head of Consumer Markets KPMG in Switzerland +41 21 345 0335 emailprotected com John A Morris EMA Region Head of Consumer Markets KPMG in the UK +44 20 7311 8522 john. emailprotected co. uk Patrick W Dolan Americas Region and US Head of Consumer Markets KPMG in the US +1 312 665 2311 emailprotected com Publication name The Chocolate of Tomorrow Published by Haymarket Network Ltd Publication no 120788 Publication date June 2012 Pre-press by Haymarket Pre-press The education contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity.Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or tha t it will continue to be accurate in the future. No one should act on such information without sequester professional advice after a thorough examination of the particular situation. 2012 KPMG International Cooperative (KPMG International), a Swiss entity. Member ? rms of the KPMG network of independent ? rms are af? liated with KPMG International.KPMG International provides no client services. No member ? rm has any authority to obligate or link up KPMG International or any other member ? rm vis-a-vis third parties, nor does KPMG International have any such authority to obligate or bind any member ? rm. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International. picture taking and illustration Creativ Studio Heinemann/Westend61/Corbis Peter Dazeley/Getty Images AP/Press Association Images Shutterstock.