Chocolate Industry

clock • 3 min read

Easter weekend has snuck up on us and stores' shelves are aligned with enticing Easter eggs, although amongst the more traditional sugary-fare we are seeing a wider variety of offerings. This can be attributed to the rise of the conscious consumer, seeking solutions to the negative impact of consumerism which includes poor health and obesity. 

This continued shift in dietary habits has seen a number of consumers turn away from dairy and gluten, encouraging retailers and brands to improve the level of choice in organic, vegan and free-from Easter eggs. However, with these changing trends how concerned should investors be about the health of the global chocolate market? 

In actuality, the chocolate industry is continuing to grow thanks to increased demand for superior products as consumers' taste profiles change and evolve. An example being the rise of ‘premium' Easter eggs which incorporate unexpected textures and flavours using high-quality ingredients. Outside of the Easter period, sales of premium chocolate continue to expand with the share of this particular segment of the market set to inflate in size by a compound annual rate of 2.6%, compared to just 1.3% for traditional, everyday chocolate.

Take for instance Barry Callebaut, one of the world's largest cocoa producers and grinders, capitalising on changing consumer preferences to develop ‘ruby' chocolate which hit shelves last year. This dedication to a more premium product has paid off and the group has just announced a net profit growth to 199.1m CHF, exceeding analysts' expectations of 197m CHF. 

More traditional confectionary names are struggling to thrive in the wake of evolving tastes. The US giant, Hersey's, has been significantly impacted by the health and wellness trend and is suffering from declining growth rates. Furthermore, margins are being squeezed as the group is having to spend more to increase sales. Tighter margins are systematic of the wider confectionary sector as companies reinvest in innovation and above all advertising and marketing to combat the demonization of sugar-filled confectionary products. 

One confectionary company that tells a different story however is Mondalez International, which continues to report strong growth. In contrast to other food manufactures such as Kraft Heinz, whose main exposure is to the US market, Mondelez is much more geographically diversified and has a healthy presence within emerging markets where demand for high-sugar foods remains robust. Food consumption is increasing at an impressive pace within emerging economies, illustrated by the fact that Asia Pacific is the fastest growing region in the global chocolate market - it was valued at US$ 26.75bn in 2016 and is growing at a CAGR of 8.5%, owing mainly to the rise in disposable incomes of the consumers. 

Ahead of tucking into your delicious chocolate this weekend, ensure your portfolio includes confectioners whose drivers are related to product innovation in response to changing consumption habits. That way, you can be safe in the knowledge that it won't just be your belly graced with a few extra pounds once Easter is over.

Stephane Soussan is manager of the Food for Generations Fund at CPR AM