Magazine article Marketing

Sector Insight: Block Chocolate - Breaking the Impasse

Magazine article Marketing

Sector Insight: Block Chocolate - Breaking the Impasse

Article excerpt

The chocolate market is struggling to grow against a backdrop of discounting and health concerns.


Chocolate has always been viewed by Britons as an affordable luxury and has proven to be one product that can buck recessions.

But more recently, the obesity crisis has begun to hit overall consumption.

The brighter spots are the relatively new organic and fair trade variants, but these segments could prove too niche to be capable of reviving a moribund sector whose margins continue to be hit by heavy supermarket discounting.

In a mature, largely commoditised market subject to heavy discounting by supermarkets and at odds with a preoccupation with healthy eating, block chocolate faces a battle for growth.

Until last year, sales had been almost stagnant for five years, despite a short-term boost in 2002 following the launch of Nestle's premium chocolate Double Cream. The retail value of sales grew from pounds 580m in 1998 to just pounds 581m four years later, according to Euromonitor.

'We eat 2.5 kg of chocolate per person every year, and it would be hard - not to mention politically incorrect - to drive the market above that,' says Datamonitor consumer analyst John Band.

But the scale of the challenge hasn't stopped confectionery manufacturers looking for ways to boost value in their market. These include line extensions, premium launches, rebranding and refocusing promotional spend on the most successful brands.

In the UK block-chocolate market, Cadbury is the most successful player.

It extended its lead over main rivals Nestle and Mars last year through a major relaunch of Cadbury's Dairy Milk, fuelling growth in the sector from pounds 581m in 2002 to pounds 662m - a rise of 14%.

The relaunch brought products such as Fruit & Nut, Whole Nut, Wispa and Caramel Bar under the Dairy Milk umbrella. Variants, including Dairy Milk with mint chips and with crispy pieces, were added to the range, which has created a distinctive 'purple patch' on supermarket shelves.

Sales of the line grew 13% last year, according to a Cadbury spokesman, and Euromonitor puts the company's market share at 53.1%, up from 50% last year. Of individual brands, Dairy Milk now has a commanding lead in share of the market, with 30.9%, well above its nearest rival, Masterfoods' Galaxy, which owns a 9.8% share.

Growing pains

While Cadbury's success demonstrates there is scope to grow the block-chocolate market through new product development and innovation in branding, rivals have struggled to emulate it.

Mars relaunched Galaxy as a range, including products such as Minstrels and Ripple, with a pounds 16m campaign last year. Sales of Galaxy rose more than 10%, with Galaxy Milk Block sales soaring by 12% in the four months following its launch in September 2003.

But an analyst from ACNielsen questions whether Galaxy's success is sustainable, given that it was achieved largely on the back of heavy promotional activity.

Nestle's strategy, meanwhile, has been to try to consolidate its position in the premium sector, with the recent launch of Double Cream: Double Chocolate and Double Berry.

Double Cream, which contains Ecuadorian cocoa beans, was Nestle's first brand launch in five years, and aims to bridge the gap between Dairy Milk and Lindt by offering a hint of luxury at a price that is only marginally premium.

'Family blocks are not a strong area for Nestle (whose main brand is Milky Bar), which is why it is so keen to develop a 'signature' chocolate that will translate into different recipes and formats,' says the ACNielsen analyst.

But sales of Double Cream, described by Nestle Rowntree managing director Chris White as 'a product that re-establishes Nestle's chocolate credentials', have so far been disappointing. Analysts are sceptical about the ability of manufacturers to change the tastes or price expectations of British consumers for whom Dairy Milk represents the taste, price and quality standard. …

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