The German Chocolate Market Part 1: Market overview Authors: Michiel Arnoldus & Kerry Kyd, Sense It’s big, but very competitive THE CHOCOLATE MARKET It’s big, but very competitive • Consumption: 649,000 tons/ 7.8kg per person • Sales value in 2013 of between EUR 6.5 and 9.23 billion • 233 German chocolate producers & hundreds of imported brands • Average retail price per 100 gram: EUR 0.95 (source: canadean 2014 euromonitor 2013) • Profit margin of chocolate producers is only 6.8% • Highest number of new product launches in chocolate in the world Left: a small selection of 70% cocoa bars in German retail Right: Organic Fair trade high cocoa chocolate for 1,49/ 100 grams in supermarkets THE CHOCOLATE MARKET The Big Players, their brands & estimated market share Ferrero (Kinder, Rocher, Mon Cheri, Hanuta) 21% Mars (Mars, Twix, M&Ms, Balisto, Snickers, Maltesers etc.) 12.2% Mondelez (Milka, Côte d’Or, Toblerone, Suchard) 11.8% Private labels 10% Nestlé (KitKat, Smarties, Quality street, Aero, After Eight) 9% Lindt (Lindt, Lindor) 8.5% Barry Calebaut (couverture for luxury stores) 4.5-8%) Stolwerck (Alpia) 4.7% 10% of chocolate Ritter (Ritter Sport) 3% producers have 59% Storck (Merci) of market Source: Canadean 2014, Euromonitor 2013 THE CHOCOLATE MARKET Saturated market in status quo: big brands battle for each 0.1% market share • Only 1.5% growth in retail sales, driven by inflation (consumption is not growing, only prices are increasing) • Despite high number of launches no real product innovation in the last 5-10 years à (Not even from Ferrero, which competes on innovation) • Market share per type (bars, pralines etc.) is not changing • Heavy marketing spend, particularly in-store is essential to compete • Brands are desperately looking for new products & mkt channels Value Volume Growth Growth Price/Kg (€ Million ) (1000 Tons) Boxed (Pralines) 1873 1,30% 129,1 0,54% 14,51 Classic bars 1784 1,48% 202,7 0,16% 8,80 Candy Bars 1552 1,70% 233,2 0,12% 6,66 Seasonal specials 990 1,76% 79 0,12% 12,53 Mini bars in bag 348 1,75% 42,1 0,15% 8,27 Other 77 1,83% 9 0% 8,56 Source: Canadean 2014 THE CHOCOLATE MARKET Segmentation by product & packaging format: stable for the past 5 years Current posiQon of Ecuador Market share on value (€) Candy Bars Classic bars 24% Seasonal 27% specials 15% Boxed Mini Bars in (Pralines) bag 28% 5% OpportuniQes for Ecuador Source: Canadean 2014 THE CHOCOLATE MARKET Segmentation by type of chocolate/ flavour • Milk chocolate 34%, white 6% • Largest category: Chocolate with fillings (40%): – Popular: Nuts, caramel, chocolate mousse – New: fruit & exotic flavours – Includes candy bars & pralines – Outside can be milk or pure • 20% of market is pure chocolate (>35% cocoa) • Consumption of high cocoa chocolate (>50%) relatively common • Many eat milk & pure, depending on occasion; for example milk at work & pure after dinner with coffee Source: Barry Callebaut 2012 THE CHOCOLATE MARKET The standard range each brand has: probably 80% of the market in bars White Hazelnut Milk Pure/ dark Very dark 70% plus Weiss Hazelnuss Milch Vollmilch Halb bier/ Zart bier/ Edel Zart bier bier 20% 20% 35% 50% >70% 100 other flavours: to claim space in shelf THE CHOCOLATE MARKET Segmentation by consumer need Indulgence Gifting Sugar rush More conscious buying Token of appreciation for friends, when you visit Impulse buying Quite moments alone people, small with tea or coffee celebrations, seasonal During work & travel After dinner (particularly for children) & sport Sharing with friends/ Packaging, originality & Larger quantity in visitors story is important one go Boxed chocolates, Quality instead of Milk & White & quantity special bars Candy bars Pure: if you are sure More luxury, pure & filled people like it, otherwise & high cocoa Milk Current posiQon of Ecuador Opportunity RETAIL CHANNELS Chocolate sales per channel • Supermarkets & Convenience stores dominate with sales of big brands • Drug stores & Pharmacies (e.g. Rossman) & webstores are winning market share from department stores, variety stores & others Source: Canadean 2014 RETAIL CHANNELS Supermarkets, discounters & convenience • Mass market driven by massive marketing budgets & scale • In-store visibility is key: – Range of at least 10 flavours and variants, preferably 50 – 100 – In store displays & promotions are crucial & common • Lindt is dominating the pure quality chocolate category • € 2,5/ 100 gram is maximum price for bars • Edeka & Rewe offer best opportunities for premium chocolate • Occasionally smaller brands appear in organic & fair trade isles • The competition is already there: Rausch. Fine flavour single origin chocolate at €1,92/ 100 gram or €2,95 for a bag with 125grams of individually wrapped mini-bars. Conclusion: difficult space to compete for Ecuadorian brands RETAIL CHANNELS Organic supermarket, store & reformhaus • Often chains of 50-150 stores, e.g. Denn’s, Engelhardt • Focused on environment & healthy living • Large assortment of high quality (pure) chocolate • Dominated by small(er) producers & brands, e.g. Vivani, Rapunzel original beans • Home to new trends & specialties: raw chocolate, new flavours, vegan, lactose free, country specials etc. • Smaller stores=less space, fewer brands & smaller assortment • Original packaging and large range (10+) essential to stand out in shelf • Up to €5/ 100 grams possible for very special products, but bulk of sales is between €1- €2 Conclusion: Potentially important channel for Ecuador, but already very competitive. It may not be easy to claim shelf space. RETAIL CHANNELS Department stores: home of the luxury brands • Examples: Galeria Kaufhof, Karstadt etc. • Shop-in-Shop concept: Each brand has an own isle, Large assortment needed to fill an isle • Dominated by Medium and large German & Swiss brands with a premium positioning • Focus on gifting & indulgence • Little if any organic & fair trade • Terms of trade comparable to supermarkets, but more focused on luxury store concept Conclusion: Can be an opportunity for brands from Ecuador with a very strong & distinctive product story & packaging style, but a large assortment is needed. Perhaps a combined effort from Ecuador producers to fill an isle. RETAIL CHANNELS Fair trade stores: niche with focus on ethics & gifting • More than 800 stores selling only fair-trade products • Often independent stores with (some) volunteers and non-profit • Can source directly, but mostly buying in groups. Weltladen and Contigo are the most common buyer groups • Focus on gifting • Many different products (from hammocks to crockery, clothing, wallets, lamps to coffee and chocolate) but only 2-3 brands or versions of each product • Only 1-3 brands of chocolate, with a strong fair trade story and suitable for gifting Conclusion: Not an easy opportunity, because you need to replace an existing brand that performs well (e.g. Zotter in Contigo) RETAIL CHANNELS Specialist stores: domain of Barry Callebaut couverture • 2 main types : • Confiserie: a store specialised in chocolate, often independent • Chain stores for boxed pralines: Godiva, Neuhaus & Leonidas • Both make their own chocolate bars & pralines from couverture; Barry Callebaut dominates with wide assortment of cheaper and expensive blends. A few niche players are active (e.g. Valrhona) • Very limited if any space for branded bars: • Godiva etc. only sell pralines • Most confiseries only sell ‘home made’ bars, some shops add a few special & exclusive brands supplied by wholesalers/ distributors/ agents • Gifting is very important in this segment • This is where ‘the chocolate connaiseurs’ go, they may come once a month from far to stock up on their favourite bar Conclusion: Limited opportunity with independent confiseries, network of agents/ distributors is needed to convince them to place your brand in store RETAIL CHANNELS Delicatessen stores & coffee houses: new channel for fine flavour • Delis (Feinkost laden): independent stores specialised in high quality food, often Mediterranean. They typically sell olive oil, bread, sausage, olives, pasta, freshly cooked meals, fresh fruits& vegetables etc. • Coffee houses: serve high quality coffee & tea with cake & pastries in relaxed atmosphere. They often also sell coffee, tea & snacks for home consumption – Thousands of independent stores – Biggest chains are Tchibo (500 stores), Starbucks (164) & Balzac (32) • Increasingly sell (fine flavour) chocolate, typically only 1-3 brands, but many do not sell chocolate yet • Suitable for more expensive chocolate because they attract wealthy consumers who are prepared to pay for a quality product with a story about origin (Tea, coffee, olives, oil etc. are increasingly marketed by origin, variety etc.) Conclusion: Promising channel but needs investment in sales (agent/ distributor RETAIL CHANNELS Central Procurement department & shop owners are the entry point • Chocolate assortment for supermarkets, faire trade & organic chains & coffee house chains is determined at corporate level; individual stores can deviate, but for chocolate this is not common – Most chocolate producers sell directly to these chains, but some use a distributor/ sales agent • Individual Confiseries buy: – Finished products (e.g. packaged bars) from agents/ distributors – Couverture from wholesalers or agents/ distributors • Delicatessen stores & individual coffee houses buy from a wholesaler/ agent/ sales representatives à Small producers need to recruit agent/ distributors who can sell to individual stores & chains IMPORT & EXPORT German producers