SOUTH Africans have a craving for chocolate that tough consumer conditions are in no danger of suppressing.
“Chocolate is one of those products that is recession proof,” says Cathal Queally, brand manager of Chocolate Direct, a high-end supplier. “The market is still growing at around 10%/year.”
This growth is on a par with predictions made by Frost & Sullivan in an early-2013 study that growth would be sustained for five years. If that happens, annual chocolate sales will rise from R5bn in 2013 to R8bn in 2018.
The industry is dominated by heavyweights. Euromonitor says Mondelez (formerly Kraft) had a 41% market share in 2013, underpinned by its Cadbury brand. Nestlé follows with 21% and Tiger Brands’ Beacon with 12%.
But the hold of big firms is slipping. “Niche players are eroding big players’ market shares,” says Kees Beyers, Belgian-born owner of Beyers Chocolates, one of SA’s biggest independent chocolatiers.
At work is a trend to luxury products. “It is led by imported brands, especially Lindt and Ferrero, and local niche players like us,” says Beyers.
Local niche players are in a far more competitive position now, after import duty on raw materials was dropped three years ago. It levelled the playing field, since imported finished products have long enjoyed duty-free status, he says. This is especially important at a time when big players are centralising production in single mega-volume factories. “A lot of chocolate manufacturing has left SA.”
Beyers says Mondelez only produces Cadbury slabs, PS and Lunch Bar in SA. Its imports include the Cadbury Milk Tray range, now made in Poland.
But even with economies of scale, big players are losing ground globally to niche players who are beating them at the innovation game, notes KPMG in a study published this year.
SA is no different, says George Aldrich, ingredients sales manager at Chocolate Direct. “To stay ahead today you have to be innovative. Trends in the chocolate industry change continually.”
Reflecting the need to innovate to stay ahead, Beyers Chocolates develops 350 new products a year, all with exotic brand names to match.
Despite strong sales growth, SA is still a low-consumption country. Annual per capita consumption of about 1kg is a fraction of the 12kg eaten by the world’s biggest chocolate consumers, the Swiss.
For now, chocolate is cheap. Beyers says: “It is complex to produce but sells at less per kilogram than butter.”
But this may not last. There are concerns about output from Côte d’Ivoire and Ghana which account for 60% of world cocoa supply.
Mondelez-backed organisation Cocoa Life summed up the situation in a recent release: “Cocoa farming productivity in West Africa has been stagnant for many years. It suffers from ageing trees, an ageing farmer population and a youth population that is less interested in cocoa farming.”
It is not good news for chocolate lovers. “Supply of cocoa beans will not keep up with growth in demand,” says Beyers. “Chocolate is going to become a luxury.”