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Chocolate sector hits high growth in packaged food but lacks Indian brand
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Monday, 27 June, 2011, 08 : 00 AM [IST]
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A Technopak report
Chocolate market in India is pegged at Rs 2,000 crore and is growing at the rate of 18 - 20 per cent per annum. The global chocolate market is estimated around $80 billion. The industry caters to a variety of consumers and is extremely fragmented in terms of range of products. More than 65 per cent of the consumption takes place in the urban market.
Chocolate market is a highly concentrated market, with Cadbury having 70 per cent and Nestle around 20 per cent. The two giants have been instrumental in building up the chocolate market in India with huge investments in product development, advertising and brand building. Chocolate has featured highest growth in the packaged food industry and it is expected to show similar trend, with a CAGR of around 20 per cent in future. Some of the key growth drivers are
Tradition of gifting sweets in India
Shifting in consumer preference from traditional mithai to chocolates
Expansion potential because of lesser penetration
Rising income levels
Increasing consumer awareness
Attractive pricing – suitability for every pocket
The dynamism in chocolate industry has given way to many new emerging trends. Homemade chocolates have become popular and the concept of exclusive chocolate stores has gained ground. Chocolates have moved from just another product on shelf to exclusive stores. As a result of increasing health- consciousness, the demand for sugar-free and diet chocolates is on rise.
Majority of the sales (around 70 per cent) come from the urban market. With increasing awareness, rising disposable income and rapid development in rural markets there is huge untapped potential. There is a long way to go for chocolate industry in India.
Popular variants & flavours
Chocolates are sold in the following forms:
Bars or Moulded Chocolates
Counts
Panned Chocolates (Gems)
Eclairs
Assorted Chocolates
Bars or moulded chocolates like Dairy Milk, Amul, Nestle Premium, and Truffle account for 35 - 40 per cent of the total market (in terms of volume). The Count chocolates such as Five Star, Kitkat, Perk etc. is the next largest segment, accounting for 30 per cent of the total market. Panned chocolates enjoy 10 per cent of the total market share.
Few important points that consumers keep in mind while purchasing chocolates are its flavour, quality and packaging. There has been lot of development in this area and manufacturers are now producing different falvours and varieties e.g. fruits, dried nuts, liquor, and mint. Prioritising these aspects has helped market players in product differentiation. Of late, many manufacturers have segmented the market into different categories based on product differentiation on the basis of flavour. Consumers in this target segment are not price-sensitive rather performance-sensitive. Serving right products to these consumers helps manufacturers to command premium for their products.
Key challenges & issues
Inflationary pressures on raw material prices
Lack of government initiative – High excise and import duties
High entry barriers due to duopolistic market
Price-sensitive consumer
The raw material cost of producing chocolates has gone up by 20 per cent. India imports most of its cocoa requirements. The prices of cocoa have risen globally due to unavailability of the commodity. High excise and import duty adds to the cost.
Role of modern retail formats
Earlier consumption of chocolate was concentrated in developed side of the world. The developing countries faced problems of poor retail infrastructure as well as affordability however with rising income levels and rapid development of modern retail trade-air-conditioned supermarkets / hypermarkets and convenience stores, the consumption of chocolates has escalated drastically in developing countries. India is no exception to this.
In India, though independent retailers are still the largest distribution channel but of late modern retail is also supporting the growth by growing at a faster pace.
Absence of Indian brands
Lack of expertise – Chocolate is not a traditional Indian food / snack. It has been adopted from the West
High entry barriers – Distribution is complex
Capital-intensive – Cool storage and transportation is very expensive
Unavailability of raw material – Major raw material for chocolates i.e. Cocoa is imported
Lack of government support
Chocolates primarily constitute the impulse-buying category and most of the chocolate brands are placed near the payment counter.
In India, chocolates are consumed as excitement / enjoyment and not as snack. Therefore, more than 75 per cent of chocolate purchases are impulse. To influence this behaviour, retailer/ shopkeeper tries to keep chocolates within reachable (counter) distance. Chocolates are usually kept at or below eye level to facilitate maximum visibility.
Premium chocolate brands
Chocolates that fall into the premium category are very few - Lindt, Ferrero, Hershey's, Patchi, Leonidas, Godiva, Mars etc., in India. These are mostly imported and distributed in the country and thus demand a higher price. However after sensing great potential in the urban market many players are making attempts to foray deeper. Ferrero has set up two local manufacturing facilities through its wholly-owned subsidiary Imsofer Manufacturing and Lindt has introduced smaller packs for the Indian market.
Entry into the premium chocolate requires a large capital investment for branding and production facilities. Also facing the major international players with long and established history and success is difficult. Though the entry is difficult but there is a good profit potential and attraction in the industry which the new entrants can exploit by enhancing the palate and evolving the taste buds of the Indian consumer.
Emergence of India
The current market share for imported brands is the smallest of the whole share of the pie. At present, premium brands target audiences, who are familiar with the brand names or are just a selected group of consumers. The price range for these chocolates is another factor for its selected target group. However with increasing spending power of Indian consumers, people have more money at their disposal brands are optimistic about growth in the near future. Indians have huge fetish for sweets and during festivals sales of imported chocolates are seeing a spurt, mainly because of their ability to be fine gifting options. Moreover, the ever-revolutionising large retail formats have given the needed impetus to the industry
There are not many hindrances in importing chocolates provided importers have an understanding of the complex confectionery distribution channels, the price sensitivity of the confectionery market and know the target market.
Scope for private labels
Recent trend has proved the acceptance of homemade chocolates in the market. Chocolate is not a planned purchase, it is rather an indulgence and an impulse purchase. So if the private labeller is able to position the product well in terms of packaging and price, the consumer behaviour can be influenced. With the growth in modern retailing, there is tremendous sco
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