confectionery - welcome to the sourcebrakes-source.co.uk/assetfiles/confectionery_76549.pdf ·...

of 88/88
Confectionery Market Reports 2015 33rd Edition July 2015 ISBN 978-1-78304-315-6

Post on 24-Mar-2018

228 views

Category:

Documents

3 download

Embed Size (px)

TRANSCRIPT

  • Confectionery

    Market Reports 2015

    33rd Edition July 2015

    ISBN 978-1-78304-315-6

  • Confectionery

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    Contents

    Introduction & Definition 1 .................................................................................................................................................................. REPORT COVERAGE 1 ................................................................................................................................................................ MARKET SECTORS 1 ...................................................................................................................................................................

    Chocolate Confectionery 1 ...................................................................................................................................................... Sugar Confectionery 1 .............................................................................................................................................................

    Executive Summary 3 ..........................................................................................................................................................................

    Whats KEY in the Market? 4 ............................................................................................................................................................... KEY DRIVERS 4 ............................................................................................................................................................................. MARKET TRENDS 5 ......................................................................................................................................................................

    Consumption Trends 5 ............................................................................................................................................................ Price Inflation 6 ........................................................................................................................................................................ New Product Developments 7 .................................................................................................................................................

    ECONOMIC TRENDS 9 ................................................................................................................................................................. MARKET POSITION 11 ................................................................................................................................................................. HOW ROBUST IS THE MARKET? 12 ...........................................................................................................................................

    Market Size, Segmentation & Forecasts 13 ....................................................................................................................................... MARKET SIZE & SEGMENTATION 13 .........................................................................................................................................

    The Total Market 13 ................................................................................................................................................................. Market Sectors 14 ....................................................................................................................................................................

    FORECASTS 22 ............................................................................................................................................................................. Future Trends 22 ..................................................................................................................................................................... Future Economic Trends 23 .................................................................................................................................................... Forecast Total Market 24 .........................................................................................................................................................

    MARKET GROWTH 26 .................................................................................................................................................................. International Perspective 27 ...............................................................................................................................................................

    OVERVIEW 27 ................................................................................................................................................................................ Global Marketplace 27 ............................................................................................................................................................. Global Production 28 ...............................................................................................................................................................

    OVERSEAS TRADE 30 .................................................................................................................................................................. General Overview 30 ............................................................................................................................................................... Exports 31 ................................................................................................................................................................................ Imports 32 ................................................................................................................................................................................

    Competitor Analysis 34 ....................................................................................................................................................................... MARKET LEADERS 34 .................................................................................................................................................................

    Dunhills (Pontefract) PLC 35 ................................................................................................................................................... Lindt & Sprungli (UK) Ltd 36 .................................................................................................................................................... Mars Chocolate UK Ltd 37 ....................................................................................................................................................... Mondelez UK Ltd 39 ................................................................................................................................................................ Nestl UK Ltd 40 ...................................................................................................................................................................... Swizzels Matlow Ltd 41 ........................................................................................................................................................... Tangerine Confectionery Ltd 43 .............................................................................................................................................. Thorntons PLC 44 .................................................................................................................................................................... The Wrigley Company Ltd 45 ..................................................................................................................................................

    OTHER COMPANIES 47 ................................................................................................................................................................ Kinnerton (Confectionery) Co Ltd 47 ....................................................................................................................................... Lofthouse of Fleetwood Ltd 47 ................................................................................................................................................ Magna Specialist Confectioners Ltd 48 ................................................................................................................................... OP Chocolate Ltd 48 ...............................................................................................................................................................

    NUMBER OF COMPANIES 48 ...................................................................................................................................................... By Turnover 48 ........................................................................................................................................................................ By Employment 49 ................................................................................................................................................................... Regional Variation in the Marketplace 51 ................................................................................................................................

    MARKETING ACTIVITY 52 ............................................................................................................................................................ KEY TRADE ASSOCIATIONS 53 .................................................................................................................................................. EXHIBITIONS/TRADE SHOWS 53 ................................................................................................................................................

    Buying Behaviour 55 ........................................................................................................................................................................... CONSUMER PENETRATION 55 ...................................................................................................................................................

    Consumption by Type 55 .........................................................................................................................................................

  • Confectionery

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    By Sex 56 ................................................................................................................................................................................ By Age 56 ................................................................................................................................................................................ By Social Grade 58 .................................................................................................................................................................. By Frequency 58 ......................................................................................................................................................................

    ATTITUDES TOWARDS CONFECTIONERY 61 ........................................................................................................................... By Sex 63 ................................................................................................................................................................................ By Age 64 ................................................................................................................................................................................ By Social Grade 66 .................................................................................................................................................................. By Presence of Children in the Household 68 .........................................................................................................................

    Strengths, Weaknesses, Opportunities & Threats 71 ....................................................................................................................... STRENGTHS 71 ............................................................................................................................................................................. WEAKNESSES 71 ......................................................................................................................................................................... OPPORTUNITIES 72 ...................................................................................................................................................................... THREATS 72 ..................................................................................................................................................................................

    PESTEL 73 ............................................................................................................................................................................................ POLITICAL 73 ................................................................................................................................................................................ ECONOMIC 73 ............................................................................................................................................................................... SOCIAL 74 ..................................................................................................................................................................................... TECHNOLOGICAL 75 .................................................................................................................................................................... ENVIRONMENTAL 76 .................................................................................................................................................................... LEGISLATIVE 77 ...........................................................................................................................................................................

    Further Sources 78 .............................................................................................................................................................................. Associations 78 ............................................................................................................................................................................. Publications 78 .............................................................................................................................................................................. General Sources 80 ...................................................................................................................................................................... Government Publications 80 ....................................................................................................................................................... Other Sources 81 ..........................................................................................................................................................................

    Understanding Consumer Survey Data 82 ........................................................................................................................................ Number, Profile, Penetration 82 .................................................................................................................................................. Social Grade 82 ............................................................................................................................................................................. Standard Region 83 ......................................................................................................................................................................

    Key Note Research 84 .........................................................................................................................................................................

  • Confectionery 1

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    Introduction & Definition

    REPORT COVERAGE

    This Key Note Market Report examines the UK confectionery market. It covers allconfectionery products sold at retail in the UK within the context of the markets twoprimary sectors: chocolate confectionery and sugar confectionery. Given the breadth ofthis market, each of these sectors is further divided into more specific subsectors so asto provide a more detailed analysis of the market. Nevertheless, there is an element ofoverlap between other confectionery-based markets, such as biscuits and ice cream;however these are not included within the scope of this report.

    MARKET SECTORS

    Chocolate Confectionery

    The chocolate confectionery sector includes all chocolate-based confectionery. Thiscan be further divided into the following four subsectors, based on packaging, size andformat:

    Countlines single-serve bars and bags that are sold in both single units andmultipacks. Examples include Nestls Kit Kat, Mars Snickers and Cadburys Buttons inthe 32-gram (g) format.Boxed chocolates and sharing bags products that contain multiple pieces ofchocolate in a range of packaging formats, including inlaid boxes, containers (whereinchocolates are individually wrapped) and bite-sized sharing bags. Examples includeCadburys Roses, Thorntons Premium Collection and Nestls Peppermint AeroBubbles in share-size bags.Blocks and moulded bars also known as slabs, these products are divided intosquares for individual consumption or sharing. Examples include Cadburys Dairy Milk,Nestls Crunch Milk block and Green & Blacks branded chocolate.Other chocolate confectionery seasonal products and novelties are included withinthis subsector. Examples include Ferreros Kinder Surprise, the Lindt Gold Bunny andthe Cadbury Flake Egg.

    Sugar Confectionery

    Sugar confectionery incorporates confectionery that is not made using cocoa. Thiscategory can be divided as follows:

  • Confectionery 2

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    Fruit sweets includes chews, gums and jellies. Examples include Rowntrees FruitPastilles and the Haribo range.Chewing and bubble gum chewing gum is designed to freshen breath and releasesflavour over a prolonged period of time. Bubble gum can also freshen breath but unlikechewing gum, it can also be stretched and blown into bubbles as it is made of feweringredients. There is a wide variety of flavours and products in this subsector, includingPeppersmith and Wrigleys Hubba Bubba.Mints soft and hard mints feature in this category. Examples include TicTac mintsfrom Ferrero and Foxs XXX Mints.Other sugar confectionery sugar candy, traditional sweets and toffees are some ofthe products included in this subsector. Examples include Werthers Originals, SwizzelsMatlows Drumsticks and Love Hearts.

  • Confectionery 3

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    Executive Summary

    This Key Note Market Report examines the UK confectionery market. Between 2010and 2014, the market expanded at a year-on-year rate, with the total value of retailsales increasing by 2.1% in the latter year of this 5-year review period.

    Growth was exhibited in both the chocolate confectionery and sugar confectionerysectors, although the former grew at a faster rate. Within the chocolate confectionerycategory, the countlines subsector continues to account for the majority of sales value,but its share of the sector fell in 2014 as a result of strong growth among competingproducts, such like sharing bags. Similarly, the fruit sweets sector is the largest in thesugar confectionery category, but despite exhibiting value growth in 2014 its sectorshare fell due to the competitiveness of other subsectors, like chewing and bubble gum,and other sugar confectionery.

    It is important to note, however, that value growth across all sectors and subsectorscontinues to be primarily driven by inflated retail prices, rather than rising volume sales.Despite the onset of economic recovery, trade conditions remain challenging within thecontext of volatile global cocoa and sugar prices. Within the UK marketplacespecifically, the competitive and saturated nature of the marketplace is fuellinginvestment in marketing, promotional activity and new product developments (NPDs),thereby limiting potential profitability. Nevertheless, NPDs continue to unlock growthpotential, with the demand for innovative, fun, excitingly flavoured and seasonallythemed confectionery remaining high.

    In addition to established market trends, a range of current issues continue to affectbuyer behaviour. The medias ongoing focus on the negative health implications ofexcessive sugar consumption is the most notable example to emerge in recent months.Sugar has replaced saturated fat as the primary health concern and this is beginning tonegatively affect demand for sugar confectionery and most types of chocolate. Inaddition to this threat to volume sales, there is an ongoing political debate regardingfurther junk food advertising restrictions, while the sustainability of the wider industryhas been called into question as a result of a potential global cocoa shortage.

    Despite these threats though, the UK confectionery market enjoys considerablerobustness as a result of the widespread popularity of sweets and chocolate. Whilevolume sales are likely to remain subdued and may even fall, the growing demand forpremium products combined with continued price inflation will ensure value growth.Between 2015 and 2019, therefore, Key Note forecasts total market growth of 8.6%.

  • Confectionery 4

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    Whats KEY in the Market?

    KEY DRIVERS

    Price is an influential driver for UK consumers at the point of sale (PoS). Accordingto the Department for Environment, Food and Rural Affairs (Defra) publication entitledFood Statistics Pocketbook 2014, as many as 41% of consumers cited price as theirprimary influence when food shopping, with a total of 88% listing it within their top fiveconsiderations. While confectionery is widely considered to be an affordableindulgence, the extreme saturation of products ensures that price can be a key factoraffecting which product a consumer chooses. Brand loyalty does exist in themarketplace, but this is likely to be eroded by rising prices, with many consumerswilling to experiment by trying new products. Of course, inflated retail prices have beenunavoidable since the financial crash, but it is important that rises are at least broadlyconsistent with competing brands and adhere to consumers perceptions of value-for-money. It is unsurprising, therefore, that there has been an influx of in-store promotions(ISPs) and price-marked packs (PMPs) in this market in recent years.Flavour affects the UK confectionery market in two important respects. At a basiclevel, flavour is the primary means of developing product loyalty, with consumersconsistently returning to confectionery they have enjoyed and avoiding that which theyhave not. In addition, flavour is also a key brand loyalty driver, heavily influencingmanufacturers new product development (NPD) policies. Successful new flavourcombinations help to attract adventurous consumers to a new brand, while alsoretaining the loyalty of a regular customer wanting to branch out within an expandingproduct range.Convenience has become an influential driver over the last few years, with Britonsliving increasingly fast-paced lifestyles. Sales of single-serve confectionery productshave benefited from this process, as they can easily be consumed on-the-go. Yet, it isimportant to note that snack foods and ice creams can also be consumed in this way,exacerbating competition between these markets. The convenience of online shoppingshould not be ignored either; although such sales only account for a tiny proportion ofthe total, the Internet is becoming an increasingly convenient means of purchasingmultipacks for household consumption.Health is increasingly affecting consumer decisions at the PoS in the UKmarketplace. Defras Food Statistics Pocketbook 2014 indicates that 9% and 11% ofconsumers cited health as their primary or secondary considerations, respectively,when food shopping, with a total of 48% listing it within their top five influences. Incomparison, the 2012 edition of the same publication reveals that 8% and 10% citedhealth as their primary and secondary influence at retail, respectively, with a total of47% listing it within their top five factors at the PoS. While many Britons still perceiveconfectionery to be a harmless indulgence when consumed in moderation, healthconcerns are driving subdued volume sales in certain sectors, while converselyimproving the demand for products like dark chocolate, which is considered to be

  • Confectionery 5

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    healthier than other forms of chocolate.

    MARKET TRENDS

    Consumption Trends

    Total UK confectionery consumption averaged an estimated 126 grams (g) per personper week in 2014. Table 2.1 shows that this was the joint-lowest total of this 5-yearreview period and represented a decrease of 1.6% from 2013 and 3.8% from 2010. Amajor factor behind this trend is the decreasing size of single-serve confectionery;many manufacturers have decreased the volume of their products so as to bettercomply with public health commitments. In addition, health concerns at consumer levelare beginning to restrict potential volume sales growth, while other factors, such asrising retail prices and the hot summer weathers driving effect on ice cream sales, havealso contributed to subdued volume sales performance.

    Nevertheless, it is important to note that 126g per person per week remains asignificant quantity, while not all product categories have exhibited falling demand.Consumption of solid chocolate bars equalled an estimated 35g per person per week,which was the same as in the previous year and an increase of 9.4% from 2010. This isperhaps indicative of the enduring popularity of brands like Dairy Milk, combined withthe rising demand for dark chocolate. Similarly, although consumption of boiled sweetsfell slightly between 2013 and 2014, the estimated 35g per person per week that wereconsumed in the latter year represented an overall increase of 6.1% from 2010. Incontrast, while volume sales of filled chocolate bars, mints, chewing gum, and fudges,toffees and caramels remained consistent between 2013 and 2014, they havedecreased over the course of this 5-year period. Filled chocolate bars remain the mostwidely consumed confectionery product in the UK, averaging 50g per person per week,but consumption nevertheless declined by 12.3% between 2010 and 2014. The size ofleading products like Snickers and Mars bars has been significantly reduced overrecent years, while NPDs in other sectors and markets have also exacerbatedcompetition in this regard.

    Table 2.1: UK Consumption of Confectionery by Type(average grams per person per week), 2010-2014

    2010 2011 2012 2013 e2014

    Chocolate bars filled 57 58 50 50 50

  • Confectionery 6

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    Chocolate bars solid 32 31 33 35 35

    Boiled sweets 33 35 36 36 35

    Fudges, toffees and caramels 4 3 4 3 3

    Mints 4 3 2 2 2

    Chewing gum 2 2 2 1 1

    Total 131 134 126 128 126

    % change year-on-year - 2.3 -6.0 1.6 -1.6

    e Key Note estimates

    Note: totals may not sum due to rounding at source.

    Source: Family Food Datasets, Department for Environment, Food and Rural Affairs Crown copyright/Key Note

    Figure 2.1: UK Consumption of Confectionery by Type(average grams per person per week), 2010-2014

    Note: totals may not sum due to rounding at source; 2014 data are Key Note estimates.

    Price Inflation

    Average confectionery retail prices have increased dramatically in recent years, as aresult of challenging domestic and global trade conditions following the financial crashin 2008/2009. Table 2.2 shows that the consumer price index (CPI) for sugar, jam,syrups, chocolate and confectionery reached 154 in 2014. This represented an

  • Confectionery 7

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    increase of 2.7 and 23.9 percentage points from 2013 and 2010, respectively, withprices rising by a dramatic 53.9 percentage points since the 2005 base year. Yet,although this clearly exemplifies the impact of the financial crisis, price rises haveexhibited logarithmic growth since 2010, reflecting the returning stability in thismarketplace.

    It is a testament to the widespread popularity of confectionery and the robustness ofdemand that volume sales have not declined more markedly in the wake of suchdramatic price inflation. Many manufacturers have, however, increasingly used ISPsand PMPs as a means of retaining the perception of value for money, despite theimpact of these strategies on profitability.

    Table 2.2: Average Annual Consumer Price Index for Sugar, Jam, Syrups,Chocolate and Confectionery (index 2005=100), 2010-2014

    2010 2011 2012 2013 2014

    Price Index 130.1 139.9 146.9 151.3 154.0

    % change year-on-year - 8.8 7.0 4.4 2.7

    Source: Consumer Price Indices, May 2015, National Statistics website Crown copyright material is reproduced with thepermission of the Controller of HMSO (and the Queens Printer for Scotland)

    Figure 2.2: Average Annual Consumer Price Index for Sugar, Jam, Syrups,Chocolate and Confectionery (index 2005=100), 2010-2014

    New Product Developments

    The UK confectionery market is extremely competitive. Not only are both marketsectors heavily saturated with products, but the market also faces fierce competition

  • Confectionery 8

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    from other markets specialising in affordable indulgences snack foods, biscuits andice cream among others. Within this challenging climate, NPDs are the primary meansof generating consumer interest, exploiting emerging trends and maintaining marketshare and brand loyalty. According to an article by The Grocer (dated 3rd October2014), as many as 912 new confectionery products launched in the UK in the 12months prior to the articles publication. Recent NPDs in this market can be broadlygrouped into the following three categories: size variants, seasonal modifications andgenuine innovation.

    Expanding the range of size formats in which a product is available is a common low-cost means of diversifying penetration into other subsectors and increasing the range ofpotential consumption occasions. Perhaps the most widespread example is expansioninto the sharing bags category; in February 2014, for instance, Chewits launched 180gsharing bags of Chewmix in an attempt to tap into the formats increasing popularitywithin the take-home category. Other manufacturers have shrunk the size of theirsingle-serve products. As mentioned, one reason for this is to adhere to increasinglystringent public health commitments, with the decreasing size of the Mars bar a primeexample. Another potential reason is to make products seem less indulgent and moreaffordable. On 12th August 2014, for instance, The Grocer reported that Candyland-branded chew bars Wham, Fruit Salad and Black Jack were shrinking from 25g to16g, with the price falling from 20 pence (p) to 10p.

    Seasonal modifications are another means of relatively low-cost and low-riskdiversification. Seasonal confectionery products have been a notable area of recentgrowth; increasingly, health-conscious consumers are more willing to indulge duringholidays, while the fun and exclusive nature of such products creates a point of interest(POI). The launch of Halloween-themed Starbursts in 2014 is one such example, whilea range of festive products were also launched. Even in the more mature Eastercategory, significant growth potential remains for innovation. On 28th July 2014, TheGrocer reported that annual Easter egg sales grew by 44m in 2014, partially reflectingthe growing demand for premium variants.

    Genuine innovations are the least common form of NPD in this market. In addition tobeing hugely expensive, such products are by no means guaranteed to succeed. It istherefore common for leading manufacturers to launch new products as a sub-brandwithin a leading master brand, so as to exploit existing brand awareness and loyalty.Following on from the success of Dairy Milks Marvellous Creations sub-brand,Mondelez announced the launch of Dairy Milk Puddles Dairy Milk chocolate with asoft filling in April 2015. More recently, Mars announced the launch of Galaxy Duet two bars of chocolate containing different fillings while Haribo has also recentlylaunched Haribo Minions in an attempt to exploit the success of the Despicable Mefilms.

  • Confectionery 9

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    ECONOMIC TRENDS

    Economic trends, as outlined in Table 2.3, are an important indicator of performancewithin the UK confectionery market. The UKs resident population totalled 64.5 millionpeople in 2014, following demographic growth of 0.7% from the previous year and 2.8%from 2010. The UK economy has also expanded in this 5-year timeframe, with grossdomestic product (GDP) increasing at a year-on-year rate of between 2.3% and 4.6% atcurrent prices. Improved productivity is a major factor behind this growth and has beendriven by falling unemployment; in 2014, there were 1.03 million people claimingJobseekers Allowance (JSA), representing a decrease of 27.5% from the previous yearand 31.3% from 2010. With regard to consumer spending power, average householddisposable income per capita reached 17,890 in 2014, which was 1.5% more than in2013 and 6.6% more than in 2010. Finally, the rate of inflation fell by 0.6 percentagepoints in 2014 to equal 2.6%, although this was still higher than the Bank of Englands(BoEs) 2% target.

    The overall economic outlook is increasingly healthy, and this has positive implicationsfor the UK confectionery market. At a basic level, for instance, demographic growth isincreasing the size of the consumer base, thereby driving potential volume sales.Sustained GDP growth, on the other hand, reflects the relative stability of the financialclimate, perhaps facilitating greater investment in marketing and NPDs among UKconfectionery manufacturers. At consumer level, rising household disposable income isgradually reducing the important of price at the PoS, with higher-income householdsincreasingly prioritising the purchase of premium-quality confectionery from brands likeGreen & Blacks, Lindt and Hotel Chocolat. Yet, it is important to emphasise the gradualnature of this process. Continued high inflation means that many Britons continue tostruggle financially, as reflected in the growing popularity of cheaper private-labelconfectionery products.

    Table 2.3: UK Economic Trends (000, m, %, million and ), 2010-2014

    2010 2011 2012 2013 2014

    Resident PopulationEstimates (000), Mid-Years

    Female 31,954 32,188 32,390 32,556 32,747

    Male 30,805 31,097 31,315 31,532 31,764

  • Confectionery 10

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    Total population 62,759 63,285 63,705 64,087 64,511

    % change year-on-year - 0.8 0.7 0.6 0.7

    Gross DomesticProduct (m)

    Current prices 1,558,365 1,617,677 1,655,384 1,713,122 1,791,490

    % change year-on-year - 3.8 2.3 3.5 4.6

    Annual chain-linkedGDP

    1,591,494 1,617,677 1,628,338 1,655,447 1,702,153

    % change year-on-year - 1.6 0.7 1.7 2.8

    Rate of Inflation (%)

    Inflation 4.6 5.2 3.2 3.0 2.4

    Percentage pointchange year-on-year

    - 0.6 -2.0 -0.2 -0.6

    Actual Number ofUnemployed Personsin the UK (million)

    Actual number ofclaimants

    1.50 1.53 1.59 1.42 1.03

    % change year-on-year - 2.0 3.9 -10.7 -27.5

    HouseholdDisposable IncomePer Capita ()

    Household disposableincome

    16,776 16,875 17,378 17,623 17,890

    % change year-on-year - 0.6 3.0 1.4 1.5

    does not sum due to rounding at source

  • Confectionery 11

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    GDP gross domestic product

    Note: inflation is at retail price index (RPI); inflation data shown are annual averagechanges; claimant count measures the number of people claiming JobseekersAllowance.

    Source: Population Estimates for UK, England and Wales, Scotland and Northern Ireland, Mid-2001 to Mid-2010 Revised,December 2013/National Population Projections, 2012-based projections/United Kingdom Economic Accounts, 18th May2015/Consumer Price Inflation, April 2015/Labour Market Statistics, May 2015, National Statistics website Crown copyrightmaterial is reproduced with the permission of the Controller of HMSO (and the Queens Printer for Scotland)

    MARKET POSITION

    The UK confectionery market is positioned within the broader category for sugar,confectionery and ice cream, wherein it is the largest component in terms of value.Table 2.4 indicates that consumer expenditure across this category totalled 10.48bn in2014, representing an increase of 1% from the previous year and 20.9% from 2010. Inturn the sugar, confectionery and ice cream category is positioned within the wider UKfood industry a pillar of the UK economy. Consumers spent a total of 83.41bn onfood in 2014, and although this was 1.5% less than in 2013, it was still 14.1% morethan in 2010. Nevertheless, value growth in the former category has significantlyexceeded total industry growth in this 5-year timeframe, and this is reflected in the factthat expenditure on sugar, confectionery and ice cream accounted for 12.6% of totalfood expenditure in 2014, compared with 11.8% in 2010.

    Table 2.4: Total UK Consumer Expenditure on Sugar, Confectioneryand Ice Cream and All Food (m and %), 2010-2014

    2010 2011 2012 2013 2014

    Expenditure on sugar, confectioneryand ice cream

    8,664 9,123 9,816 10,370 10,476

    % change year-on-year - 5.3 7.6 5.6 1.0

    Expenditure on all food 73,121 75,897 80,052 84,725 83,414

    % change year-on-year - 3.8 5.5 5.8 -1.5

  • Confectionery 12

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    Expenditure on sugar, confectioneryand ice cream as a % of expenditureon all food

    11.8 12.0 12.3 12.2 12.6

    Note: figures are at current prices and are not seasonally adjusted.

    Source: Consumer Trends, Q4 2014, National Statistics website Crown copyright material is reproduced with the permission ofthe Controller of HMSO (and the Queens Printer for Scotland)

    Figure 2.3: Total UK Consumer Expenditure on Sugar, Confectioneryand Ice Cream and All Food (m), 2010-2014

    Note: figures are at current prices and are not seasonally adjusted.

    HOW ROBUST IS THE MARKET?

    The UK confectionery market is fairly robust. Products in this market enjoy widespreadpopularity, and the extensive range of formats, brands and price-points has contributedto extensive consumer penetration. Confectionery has been considered an affordableindulgence for decades and the maturity of the market has helped to drive consistentperformance in the long term. Nevertheless, the market is not immune to threats,limiting robustness somewhat. The extreme competitiveness of the marketplace hasmade trade conditions challenging and restricted profitability throughout the supplychain, while increasingly prevalent health concerns among the consumer base arenegatively affecting demand. Most significant, perhaps, is the UKs reliance on cocoaand sugar imports; input prices are prone to volatility as exemplified by the currentglobal shortage of cocoa. As such, the market cannot be described as completelyrobust, although the widespread popularity of confectionery and the maturity of themarketplace ensure fairly consistent performance in spite of these ongoing threats.

  • Confectionery 13

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    Market Size, Segmentation & Forecasts

    MARKET SIZE & SEGMENTATION

    The Total Market

    The total UK confectionery market was worth approximately 5.85bn in 2014,representing growth of 16.3% from 2010. The market has expanded at a year-on-yearrate over this 5-year review period; following impressive annual growth of 7.5% in 2011,market value then increased by 1.8% and 4.1% in 2012 and 2013, respectively, beforerising by 2.1% in 2014.

    Confectionery is widely popular in the UK, with the affordable nature of most productsensuring consistent demand despite ongoing financial instability. In addition to thematurity of the industry, the robust nature of the market is reinforced by the variety ofavailable products, formats, brands and price points, maximising potential penetration.Yet, the established nature of the market has also resulted in significant saturation. Theextreme competitiveness of the marketplace has eroded brand loyalty, encouragingmanufacturers to invest heavily in marketing, in-store promotions and new productdevelopments (NPDs). But although this has restricted profitability, new avenues forgrowth continue to emerge, creating ongoing growth potential. In 2014, for instance, theongoing popularity of sharing bags (and take-home confectionery in general), thedemand for seasonal products, the growing range of fun and innovatively flavouredproducts and the retuning demand for premium confectionery all contributed to valuegrowth.

    Inflated retail prices, however, remain a significant contributor to value growth in thismarket. With the exception of 2012, the rate of annual growth broadly correlates withfalling inflation, reinforcing the extent to which performance is based on pricing trendsand strategies rather than increased demand. In fact, value growth in 2014 disguisedthe subdued nature of annual volume sales, with health concerns, the shrinking size ofconfectionery countlines and the hot summer weathers driving effect on competing icecream sales all contributing to this trend.

    Table 3.1: The Total UK Market for Confectionery by Sectorby Value at Current Prices (m at rsp), 2010-2014

    2010 2011 2012 2013 2014

  • Confectionery 14

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    Chocolate confectionery 3,732 4,001 4,065 4,248 4,344

    Sugar confectionery 1,297 1,407 1,440 1,482 1,507

    Total 5,029 5,408 5,505 5,730 5,851

    % change year-on-year - 7.5 1.8 4.1 2.1

    rsp retail selling prices

    Source: Key Note

    Figure 3.1: The Total UK Market for Confectionery by Sectorby Value at Current Prices (m at rsp), 2010-2014

    rsp retail selling prices

    Market Sectors

    Chocolate Confectionery

    The UK chocolate confectionery sector was worth an estimated 4.34bn in 2014,representing value growth of 16.4% from 2010. Following year-on-year growth of 7.2%in 2011, the sector then expanded by 1.6% and 4.5% in 2011 and 2012, respectively,before exhibiting growth of 2.3% in 2014. The chocolate confectionery sector accountsfor the majority of total confectionery market value in the UK, and sustained growthsince 2010 has helped to consolidate this status. In 2014, chocolate confectionery salesaccounted for 74.2% of total market value, which was the same as in 2010 and anincrease of 0.4 percentage points from 2012.

  • Confectionery 15

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    Table 3.2: The UK Chocolate Confectionery Sector by Valueat Current Prices (m at rsp and %), 2010-2014

    2010 2011 2012 2013 2014

    Value (m at rsp) 3,732 4,001 4,065 4,248 4,344

    % change year-on-year - 7.2 1.6 4.5 2.3

    Sector share of the total market (%) 74.2 74.0 73.8 74.1 74.2

    rsp retail selling prices

    Source: Key Note

    Figure 3.2: The UK Chocolate Confectionery Sector by Valueat Current Prices (m at rsp), 2010-2014

    rsp retail selling prices

    Table 3.3 indicates that countlines account for the largest proportion of chocolateconfectionery sales in the UK. An estimated 1.82bn was spent on countlines in 2014,equating to 41.8% of sector value in that year. The second largest subsector in thiscontext was boxed chocolates and sharing bags, wherein annual sales of 1.3bnaccounted for 30% of the sector. In comparison, the blocks and moulded barssubsector was worth 845m in 2014 19.5% of the annual sector total and otherchocolate confectionery sales were worth 378m 8.7% of total sector value.

    Table 3.3: The UK Chocolate Confectionery Sector by Subsector by Value atCurrent Prices (m at rsp and %), 2014

  • Confectionery 16

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    Value (m at rsp) % of Total

    Countlines 1,817 41.8

    Boxed chocolates and sharing bags 1,304 30.0

    Blocks and moulded bars 845 19.5

    Other chocolate confectionery 378 8.7

    Total 4,344 100.0

    rsp retail selling prices

    Source: Key Note

    Figure 3.3: The UK Chocolate Confectionery Sector by Subsector by Value Share(%), 2014

    Countlines

    The countlines subsector was worth an estimated 1.82bn in 2014. While thisrepresented growth of 1.8% from 2013, its value share of the chocolate confectionerysector nevertheless declined from 42% to 41.8% in this timeframe.

    Despite the widespread availability and relative popularity of individually wrappedcountlines in multipack formats, single-serve impulse sales continue to account for themajority of this subsectors value. The decline in sector share in 2014 can be primarilyattributed to subdued volume sales in the impulse category, with this area being

  • Confectionery 17

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    hardest hit by the increasingly health-conscious nature of the consumer base. Theextreme saturation of the countlines sector has also resulted in significant promotionalactivity, further restricting potential value growth in 2014. Yet, it is important toemphasise that despite these setbacks, the countlines subsector still contains many ofthe confectionery markets most popular products, including Mars bars, Snickers andKit Kat, providing a robust level of demand.

    Boxed Chocolates and Sharing Bags

    The boxed chocolates and sharing bags subsector was worth approximately 1.3bn in2014, following a 2.7% increase in value sales from the previous year. The subsectorsshare of the chocolate confectionery sector has consequently increased from 29.9% to30% in this timeframe.

    The increase in sector share is attributable to two main factors. The first is thecontinued high demand for sharing bag size formats. Not only are these popular forsharing during social occasions within the household, especially among youngerdemographics, but they are providing individual consumers with a more substantialsource of indulgence. According to an article by The Grocer, published 28th July 2014,almost one in four people who purchase sharing bags end up eating them alone in onesitting. The second factor is the demand for premium products, which is graduallyincreasing in line with the economic recovery. Boxed chocolates are well posited toexploit this demand with premium options from emerging brands like Hotel Chocolatproving popular.

    Blocks and Moulded Bars

    The blocks and moulded bars subsector was worth an estimated 845m in 2014. Thisrepresented value growth of 1.6% from 2013, although the subsectors share of thewider chocolate confectionery category decreased from 19.6% to 19.5% in thistimeframe.

    The challenging nature of trade within such a competitive subsector is reflected inNestls decision to discontinue its Wonka brand of moulded bars in 2014. Themanufacturer took the decision following subdued performance in the wake of theemerging popularity of Dairy Milks Marvellous Creations brand, which is successfullyexploiting the demand for fun and unusual flavour combinations. Nevertheless, theenduring popularity of products like Cadburys Dairy Milk and Mars Galaxy contributesto fairly consistent demand in this subsector. Value growth in 2014 was also bolsteredby the gradually increasing popularity of dark chocolate, which is perceived to behealthier than milk chocolate. Premium brands like Green & Blacks have beenparticularly successful in unlocking this demand, with consumers also admiring the

  • Confectionery 18

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    companys ethical credentials.

    Other Chocolate Confectionery

    The value of the other chocolate confectionery subsector equalled approximately378m in 2014, representing a value increase of 4.4% from 2013. As a result of thisimpressive growth, subsector share increased from 8.5% to 8.7% in this period.

    The 0.2 percentage-point increase in sector share in 2014 is primarily attributable to thegrowing influence of seasonal sales. The four key holiday seasons Easter,Halloween, Christmas and Valentines Day are becoming a more prominent excuseto indulge among an increasingly health-conscious consumer base. Manufacturershave exploited this with seasonal modifications, like Cadburys Screme Eggs, aHalloween variant of the traditional Cadbury Creme Egg, with a ghoulishly green softfondant centre. In addition, and despite the maturity of the Easter category, the strongdemand for premium Easter products bolstered value growth; the popularity of LindtsGolden Bunny exemplifies this demand.

    Sugar Confectionery

    The UK sugar confectionery sector was worth approximately 1.51bn in 2014,representing value growth of 16.2% from 2010. Following impressive annual growth of8.5% in 2011, the sector then exhibited more modest expansion in the subsequent 3years, with value rising annually at a rate of between 1.7% and 2.9%. Throughout this5-year timeframe, sales of sugar confectionery accounted for approximately a quarter oftotal market value; in 2014, sector share of the total market equalled 25.8%, which wasequal to 2010, but less than at any point between 2011 and 2013.

    Table 3.4: The UK Sugar Confectionery Sector by Valueat Current Prices (m at rsp and %), 2010-2014

    2010 2011 2012 2013 2014

    Value (m at rsp) 1,297 1,407 1,440 1,482 1,507

    % change year-on-year - 8.5 2.3 2.9 1.7

    Sector share of the total market (%) 25.8 26.0 26.2 25.9 25.8

  • Confectionery 19

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    rsp retail selling prices

    Source: Key Note

    Figure 3.4: The UK Sugar Confectionery Sector by Valueat Current Prices (m at rsp), 2010-2014

    rsp retail selling prices

    Table 3.5 indicates that the fruit sweets subsector is the largest within the wider sugarconfectionery category. In 2014, sales of the former were worth an estimated 628m,thereby accounting for 41.7% of the latter. The chewing and bubble gum subsector wasthe second largest in this context, with sales of approximately 399m, equating to asector share of 26.5%. In comparison, the mints subsector was worth 179m in 2014 11.9% of total sugar confectionery sales and the other sugar confectionery categorywas valued at 301m 20% of the total.

    Table 3.5: The UK Sugar Confectionery Sector by Subsector by Value at CurrentPrices (m at rsp and %), 2014

    Value (m at rsp) % of Total

    Fruit sweets 628 41.7

    Chewing and bubble gum 399 26.5

    Mints 179 11.9

    Other sugar confectionery 301 20.0

  • Confectionery 20

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    Total 1,507 100.0

    rsp retail selling prices

    Source: Key Note

    Figure 3.5: The UK Sugar Confectionery Sector by Subsector by Value Share (%),2014

    Fruit Sweets

    The fruit sweets subsector was valued at 628m in 2014. This represented a modestincrease of 1.1% from 2013 and, as such, the subsectors share of the sugarconfectionery sector fell from 41.9% to 41.7% in this timeframe.

    While fruit sweets continue to enjoy widespread penetration, the sector was the mostsubstantially affected by growing concerns over excessive sugar consumption in 2014.Children are a key demographic for leading brands like Haribo, but many concernedparents have attempted to limit their childrens consumption of such products overrecent months, with such products high sugar content perceived to be a keycontributing factor behind childhood obesity, diabetes and tooth decay. Despite thissetback, it is important to note that the subsector still exhibited value growth in 2014and continues to account for the largest proportion of the wider sugar confectionerysector. The prevalence of popular sharing-bag formats have contributed to this growth,as have fun products like Rowntrees Randoms, which are exploiting the adventurousnature of the consumer base.

  • Confectionery 21

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    Chewing and Bubble Gum

    The chewing and bubble gum sector was valued at an estimated 399m in 2014,representing growth of 2.3% from the previous year. Subsector share of the wider sugarconfectionery category increased from 26.3% to 26.5% in this period.

    By a significant margin, Wrigley Extra is the most popular chewing gum brand in the UKmarketplace. The manufacturer consolidated this status in 2014 with an extensiveadvertising campaign and the launch of a new citrus flavour under its Ice sub-brand.Value growth in this subsector was also attributable to perceptions surrounding theadded benefits of chewing gum; in addition to freshening breath, Extra is increasinglyperceived to help keep teeth clean, for example, while Airwaves is widely believed toclear the sinuses. These factors were key to unlocking value growth in 2010, althoughthe fun nature of bubble gum also remains popular among younger demographics.

    Mints

    The mints subsector was worth approximately 179m in 2014, which was 1.7% morethan in the previous year. In both years, sales of mints accounted for 11.9% of overallsugar confectionery sales by value.

    Fresh breath remains an important priority for many Britons and, as such, the mintssubsector enjoys fairly robust demand. Manufacturers have also been trying toemphasise that certain mints can help to reduce the build up of plaque, withPeppersmith listing its products in both the confectionery and dental aisles of selectretailers to reinforce this claim. The key challenges for the subsector include unlockinggreater demand among younger demographics and encouraging more Britons toconsume mints on a regular basis.

    Other Sugar Confectionery

    The other sugar confectionery sector was worth approximately 301m in 2014,representing growth of 2% from the previous year. Subsector share of the sugarconfectionery sector consequently increased from 19.9% to 20% in this timeframe.

    The increasing influence of other sugar confectionery sales on the wider sector isattributable to two primary factors. First, products like Swizzles Matlows Drumsticksand Candylands Dip Dap continue to exhibit a resurgence in popularity, owing to thefun and retro appeal of these products. Secondly, seasonal sugar confectionery salesare becoming more pronounced, with manufacturers using seasonal modifications tofurther tap into this sense of fun, while also providing a sense of exclusivity as a resultof these products limited availability.

  • Confectionery 22

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    FORECASTS

    Future Trends

    Falling Consumption Per Capita

    The average volume of confectionery being consumed per person per week in the UKis expected to fall in the near future. Penetrative health concerns and fierce competitionfrom markets such as snack foods, biscuits and cakes and ice cream are likely to bekey factors driving this trend. However, the effect of falling consumption per capita onvolume sales will be at least partially offset by an expanding UK population. On 8thAugust 2013, BBC News reported that more babies were born in the UK in the yearending June 2012 that in any year since 1972. Considering that children represent akey target demographic in the confectionery market, there is likely to be a noticeablespike as a result of this trend. Overall, therefore, consumption per capita is expected tofall, although volume sales could remain subdued as a result of an expandingpopulation.

    Increasing Influence of Online Marketing and Sales

    The Internet is expected to provide an increasingly important marketing and saleschannel for UK confectionery manufacturers over the next few years. While all theleading brands have developed a presence on social media, many are still working outhow best to engage potential customers as a means of driving sales rather than merelyaccumulating followers. Visual aids are seen as a potential means of achieving this andInstagram is anticipated to become an increasingly important platform in this regard, inaddition to Twitter and Facebook. It is perhaps no coincidence that increasingengagement on social media has increased in correlation with e-commerce sales in thismarket. Purchasing confectionery online is convenient, can represent good value formoney and arguably stops consumers from indulging in in-store impulse sales. WhileInternet sales still account for a tiny proportion of the total, this is clearly becoming anincreasingly important trend for the future.

    Demand for Premium Confectionery

    The demand for premium confectionery is expected to increase in line with the ongoingeconomic recovery and returning consumer spending power. Price is likely to graduallybecome less influential at the point of sale (PoS), whereas quality is likely to become agreater consideration. In addition to products made using high-quality naturalingredients, the latter also includes ethically produced confectionery. The chocolate

  • Confectionery 23

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    confectionery sector is therefore well positioned to exploit this rising demand, withbands like Green and Blacks and Hotel Chocolat already highly recognisable. Whilethe premium category is less established in the sugar confectionery sector, quality isstill expected to become an important consideration with consumers willing to pay extrafor sweets that are perceived to be more natural and high-end traditional products,such as fudge and caramel.

    Future Economic Trends

    Economic forecasts are an important indicator of potential performance in the UKconfectionery market. Table 3.6 shows that the UK resident population is expected toreach 66.7 million people by 2019, representing demographic growth of 2.7% from2015 and 6.3% from 2010. The UK economy is also projected to expand between 2015and 2019, with gross domestic product (GDP) forecast to increase at a consistent year-on-year rate of between 2.3% and 2.5%. Economic performance looks set to drivefalling unemployment; by 2019, it is anticipated that approximately 730,000 people willbe claiming Jobseekers Allowance (JSA), representing a decrease of 11% from 2015and 51.3% from 2010. However, economic forecasts are not entirely positive. Despitebeing expected to fall as low as 1.2% in 2015, the rate of inflation is then projected torise back up above 3% between 2017 and 2019, widening the gap to the Bank ofEnglands (BoEs) 2% target.

    High inflation therefore looks set to dilute the otherwise positive economic outlook. Theconsistency of GDP forecasts suggests that economic security is returning. Whencombined with falling unemployment, it appears as though the financial climate willbecome more stable for businesses and consumers alike over the coming years. In theconfectionery market this is likely to fuel investment in marketing and NPDs, while alsobolstering consumer spending power. However, the rising rate of inflation means thatthe latter will be primarily confined to higher- and middle-income households. As suchthe demand for premium confectionery is likely to increase among higher social groups,while lower-income households will continue to prioritise price at the PoS, potentiallyfuelling sales of own-label confectionery.

    Table 3.6: Economic Forecasts (000, % and million), 2015-2019

    2015 2016 2017 2018 2019

    UK resident population (000) 64,938 65,386 65,825 66,266 66,697

    GDP growth (%) 2.5 2.5 2.3 2.5 2.4

  • Confectionery 24

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    Inflation (%) 1.2 2.5 3.1 3.2 3.0

    Unemployment (million) 0.82 0.72 0.72 0.75 0.73

    GDP gross domestic product

    at retail price index (RPI)

    actual number of claimants; claimant count measures the number of peopleclaiming Jobseekers Allowance

    Source: National Population Projections, 2012-based projections, National Statistics website/Forecasts for the UK Economy: acomparison of independent forecasts, May 2015, HM Treasury Crown copyright material is reproduced with the permission of theController of HMSO (and the Queens Printer for Scotland)

    Forecast Total Market

    Key Note forecasts that the total UK confectionery market will be worth approximately6.46bn by 2019, representing growth of 8.6% from 2015 and 28.5% from 2010.Following modest year-on-year growth of 1.7% and 1.9% in 2015 and 2016,respectively, the market is then expected to expand by between 2% and 2.3% over thesubsequent 3 years. The primary reason for this stronger rate of growth will be thehigher rate of inflation rather than increased demand though.

    The UK chocolate confectionery sector is projected to be worth approximately 4.81bnby 2019, representing a value increase of 8.8% from 2015 and 28.8% from 2010. Bythe end of this 10-year timeframe, it is expected that chocolate confectionery sales willaccount for 74.3% of the total confectionery market. As such, the sectors market sharewill be higher than at any point between 2010 and 2018, reflecting chocolateconfectionerys increasing influence in the wider marketplace in terms of value. Thesector is well positioned to exploit the growing demand for premium products especially in the sectors for boxed chocolates and sharing bags and other chocolateconfectionery and this is expected to drive value sales. Growing consumption of darkchocolate, which is perceived to be healthier than most other forms of confectionery, isexpected to be an additional sales driver as UK consumers become more healthconscious.

    The UK sugar confectionery sector is forecast to be worth an estimated 1.66bn by2019, representing growth of 8% from 2015 and 27.8% from 2010. By the end of thisoverall 10-year review period, it is anticipated that sugar confectionery sales willaccount for 25.7% of total market value. As such, market share would be lower than atany point between 2010 and 2014. While milk chocolate often contains as much oreven more sugar than sugar confectionery, many consumers perceive the opposite tobe true, and this negative perception could harm demand. Maintaining the popularity of

  • Confectionery 25

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    sugar confectionery among children will be key to the sectors performance over thenext 5 years, and recent NPDs, such as the introduction of Haribo Minions, look wellplaced to achieve this. Rising chewing gum sales are likely to be another source ofgrowth, although this will be at least partially offset by the low demand for mints amongyounger demographics.

    Table 3.7: The Forecast Total UK Market for Confectioneryby Sector by Value at Current Prices (m at rsp), 2015-2019

    2015 2016 2017 2018 2019

    Chocolate confectionery 4,415 4,500 4,607 4,635 4,805

    Sugar confectionery 1,535 1,561 1,593 1,689 1,658

    Total 5,950 6,061 6,200 6,324 6,463

    % change year-on-year 1.7 1.9 2.3 2.0 2.2

    rsp retail selling prices

    Source: Key Note

  • Confectionery 26

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    MARKET GROWTH

    Between 2010 and 2019, the total UK confectionery market is forecast to increase invalue from 5.03bn to 6.46bn. This represents overall 10-year growth of 28.5%.

    Figure 3.6: The Forecast Total UK Market for Confectioneryby Sector by Value at Current Prices (m at rsp), 2010-2019

    rsp retail selling prices

  • Confectionery 27

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    International Perspective

    OVERVIEW

    Global Marketplace

    The global confectionery market is a major multi-billion dollar industry that is dominatedby enormous multinational conglomerates, such as Mars Inc, Mondelez International,Ferrero Group and Nestl. The fact that these companies as well as many otherglobal leaders are either based in the US or Europe reflects the maturity of theseregions within the global marketplace. Throughout Europe and North America,confectionery is seen as an affordable everyday indulgence, and the variety of productsavailable reflects this high penetration. Japan and Australasia also represent matureconfectionery markets, underlining the link between non-essential treats and economicdevelopment.

    Nevertheless, these markets are saturated with products and growth potential issomewhat limited. In contrast, the demand for confectionery is surging in emergingmarkets, such as the Peoples Republic of China (PRC), India, Brazil and Indonesia.While confectionery has been widely available in these countries for decades,demographic expansion, rising consumer spending power and the gradual globalisationof eating habits has driven growth potential in these markets.

    Europe

    European consumption of both chocolate and sugar confectionery increased in 2013,following decreases in the previous year. Table 4.1 shows that a total of 3.2 millionmetric tonnes of chocolate confectionery were consumed across Europe in 2013,representing an increase of 3.6% from the previous year and 3.4% from 2011.Consumption of sugar confectionery, on the other hand, totalled 1.6 million tonnes in2013, but although was an increase of 0.3% from the previous year, it neverthelessrepresented an overall decrease of 2.1% from 2011. Health concerns are beginning toaffect demand in mature markets such as the UK, but wider demographic growthacross Europe, combined with returning consumer spending power and growthpotential in less saturated Eastern European markets, ensured that consumption inboth categories exhibited growth in 2013.

    Table 4.1: European Consumption of Chocolate and Sugar Confectionery byVolume (000 tonnes), 2011-2013

  • Confectionery 28

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    2011 2012 2013

    Chocolate confectionery 3,071.1 3,064.7 3,174.7

    % change year-on-year - -0.2 3.6

    Sugar confectionery 1,672.8 1,632.1 1,637.5

    % change year-on-year - -2.4 0.3

    Note: figures include Norway and Switzerland.

    Source: CAOBISCO Annual Report 2014

    Global Production

    Cocoa

    Global cocoa production fluctuates in volume as a result of varying harvest conditions.Table 4.2 shows that total global production totalled 4.4 million tonnes in 2013/2014,representing a dramatic 10.4% increase from the previous year. However, productionforecasts for 2014/2015 suggest that global volumes will fall by 2.8% as a result ofdecreased output across Africa. The majority of the worlds cocoa supply originatesfrom this continent; in fact, Cte dIvoire and Ghana account for over half of the globaltotal between them. Total African production equalled 3.2 million tonnes in 2013/2014compared with 708,000 tonnes from the Americas and 454,000 tonnes from Asia andOceania. The European chocolate confectionery category is therefore dependent oncocoa imports, with the fluctuating total global supply contributing to price volatility formanufacturers.

  • Confectionery 29

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    Table 4.2: Global Production of Cocoa Beans by Region by Volume(000 tonnes), 2012/13-2014/15

    2012/2013 2013/2014 f2014/2015

    Africa

    Cte dIvoire 1,449 1,746 1,720

    Ghana 835 897 810

    Nigeria 238 248 235

    Cameroon 225 211 205

    Others 89 92 91

    Total Africa 2,836 3,194 3,061

    Americas

    Ecuador 192 220 230

    Brazil 185 228 215

    Others 246 259 263

    Total Americas 622 708 708

    Asia and Oceania

    Indonesia 410 375 380

    Papua New Guinea 41 40 42

    Others 36 38 42

    Total Asia and Oceania 487 454 464

    Global total 3,945 4,355 4,232

    % change year-on-year - 10.4 -2.8

  • Confectionery 30

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    f forecasts

    Note: totals may not sum due to rounding.

    Source: ICCO Quarterly Bulletin of Cocoa Statistics, Vol. XLI, No. 1, Cocoa year 2014/2015

    Sugar

    Global sugar prices are highly volatile as a result of fluctuating global supply. Accordingto an article by FoodNavigator.com, published on 3rd March 2015, annual global sugarprices have fallen by 23% year-on-year as a result of a strengthening US dollar. Giventhat global production is likely to increase as a result of increased supply from India,prices are likely to stay low for some time to come. While this is challenging for farmers,it is likely to boost short-term profitability for UK confectionery manufacturers.

    OVERSEAS TRADE

    General Overview

    The UK is a net importer of confectionery and operates within a vast negative balanceof trade as a result. Table 4.3 indicates that the value of UK confectionery importsexceeded that of exports by as much as 1.01bn in 2014, underlining the scale of thedeficit in this market. The combined export value of chocolate and sugar confectionerytotalled 748.1m in 2014, representing an increase of 1.9% from the previous year and45.2% from 2010. In comparison, the combined import value equalled 1.75bn in 2014,following growth of 8.7% from the previous year and 34.9% from 2010. In fact, the valueof both imports and exports has increased at a year-on-year rate in this timeframe, butso too has the size of the deficit, reflecting the UKs increasing reliance on imports,despite the growing export market.

    The chocolate confectionery sector is the largest in terms of both import and exportvalue. In 2014, the UK exported 556.8m worth of chocolate overseas, accounting for74.4% of total annual export value in this market. Although this was 0.2% less than inthe previous year, it was still 50.7% more than in 2010. Chocolate imports, on the otherhand, were worth 1.33bn in 2014, accounting for 75.6% of total import value andrepresenting an increase of 10.2% and 35.5% from 2013 and 2010, respectively.Overall, the negative balance of trade in the chocolate confectionery category hasgrown from 609.3m in 2010 to 769.5m in 2014.

    UK exports in the sugar confectionery sector were worth 191.3m in 2014, accountingfor 25.6% of total annual export value, representing growth of 8.5% from the previousyear and 31.2% from 2010. In comparison, sugar confectionery exports were valued at

  • Confectionery 31

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    427.2m in 2014, which was an increase of 4.2% and 33% from 2013 and 2010,respectively, and equated to 24.4% of total annual import value. Despite growth to bothimports and exports, the deficit in this sector has grown on a year-on-year basis,reaching 235.9m in 2014.

    Table 4.3: UK Manufacturers Exports, Imports and Balanceof Trade for Chocolate and Sugar Confectionery (m), 2010-2014

    2010 2011 2012 2013 2014

    Chocolate Confectionery

    Exports 369.4 429.9 511.4 558.1 556.8

    Less imports 978.7 1,035.4 1,085.9 1,203.4 1,326.3

    Trade balance -609.3 -605.5 -574.5 -645.3 -769.5

    Sugar Confectionery

    Exports 145.8 162.4 171.3 176.3 191.3

    Less imports 321.3 349.0 366.3 409.9 427.2

    Trade balance -175.5 -186.6 -195.0 -233.6 -235.9

    Total

    Exports 515.2 592.3 682.7 734.3 748.1

    Less imports 1,300.0 1,384.4 1,452.2 1,613.4 1,753.5

    Trade balance -784.8 -792.1 -769.5 -879.1 -1,005.4

    does not sum due to rounding

    Source: UKtradeinfo, HM Revenue & Customs Crown copyright

    Exports

    The majority of UK confectionery exports are destined for other countries within the EU,highlighting the importance of the free trade agreement in this market. Total intra-EU

  • Confectionery 32

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    exports were worth 532m in 2014, accounting for 71.1% of total export value in thatyear. This trend was reflected in both market sectors as well, with intra-EU chocolateand sugar confectionery exports worth 395.7m and 136.3m, respectively, in 2014,and thereby accounting for 71.1% and 71.2% of category export value in that year.

    Trade statistics reveal that in 2014 the UK primarily exported chocolate confectionery tothe following countries: the Republic of Ireland (164.8m), the Netherlands (56.4m),France (38.9m), Germany (35.3m) and Australia (23.9m). Key export destinations forsugar confectionery, on the other hand, included the Republic of Ireland (61.7m),Germany (15.5m), Belgium (12.1m), Canada (11.2m) and the US (9.8m).

    Table 4.4: UK Manufacturers Intra-EU and Extra-EU Exportsof Chocolate and Sugar Confectionery (m), 2014

    Intra-EU Exports Extra-EU Exports

    Chocolate confectionery 395.7 161.1

    Sugar confectionery 136.3 55.0

    Total 532.0 216.2

    does not sum due to rounding

    Source: UKtradeinfo, HM Revenue & Customs Crown copyright

    Imports

    The vast majority of the UKs confectionery imports originate from within the EU, withtotal intra-EU confectionery imports worth 1.65bn in 2014, or 94.1% of total annualimport value. In the chocolate confectionery sector, imports from within the EUaccounted for as much as 97% of total chocolate imports in 2014, while intra-EU sugarconfectionery imports accounted for 85.1% in that year.

    In 2014, the UK primarily imported chocolate confectionery from Germany (337.7m),Poland (187.8m), Belgium (177.8m), France (154.2m) and the Republic of Ireland(154m). In comparison, the main import partners for sugar confectionery in that yearwere Germany (80.3m), the Netherlands (64.8m), Belgium (53.9m), Czech Republic(38.7m) and Spain (35.1m).

  • Confectionery 33

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    Table 4.5: UK Manufacturers Intra-EU and Extra-EU Importsof Chocolate and Sugar Confectionery (m), 2014

    Intra-EU Imports Extra-EU Imports

    Chocolate confectionery 1,286.1 40.2

    Sugar confectionery 363.4 63.8

    Total 1,649.5 104.0

    Source: UKtradeinfo, HM Revenue & Customs Crown copyright

  • Confectionery 34

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    Competitor Analysis

    MARKET LEADERS

    The global nature of the confectionery market is underlined by the fact that the threelargest companies in the UK marketplace operate as subsidiaries of larger multinationalcorporations. Table 5.1 indicates that Mondelez UK Ltd is the largest company in thiscontext, generating an annual turnover of 1.83bn in the year ending 31st December2013. This was followed by Nestl UK Ltd and Mars Chocolate UK Ltd, whichgenerated turnovers of 1.75bn and 833.5m, respectively, in their most recentfinancial years. Although these three companies are substantially larger than anyothers, it is worth noting that The Wrigley Company Ltd is also ultimately owned byMars Inc, while Dunhills (Pontefract) PLC is owned by Haribo International GmbH andThorntons PLC has recently been acquired by Ferrero SpA. Tangerine ConfectioneryLtd, which turned over 169.7m in 2013, is therefore the largest remainingconfectionery manufacturer still under UK ownership, reinforcing the influence ofglobalisation in this industry and underlining the challenging nature of trade conditionsfor small- and medium-sized enterprises (SMEs) in the UK.

    Table 5.1: Selected Leading UK Confectionery Manufacturers (000),Latest Financial Year

    Turnover (m) Year End

    Company

    Mondelez UK Ltd 1,832,722 31/12/2013

    Nestl UK Ltd 1,749,375 31/12/2013

    Mars Chocolate UK Ltd 833,489 28/12/2013

    The Wrigley Company Ltd 245,188 28/12/2013

    Thorntons PLC 222,437 28/06/2014

    Tangerine Confectionery Ltd 169,743 31/12/2013

    Dunhills (Pontefract) PLC 158,194 31/12/2014

    Lindt & Sprungli (UK) Ltd 105,576 31/12/2013

    Swizzels Matlow Ltd 62,150 31/12/2013

    Source: Key Note

  • Confectionery 35

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    Dunhills (Pontefract) PLC

    Company Performance

    Dunhills (Pontefract) PLC is a leading UK manufacturer of sugar confectionery,producing gums, jellies, chews, marshmallows and liquorice under the Haribo andMaoam brands. The company is now solely owned by German firm, HARIBOInternational GmbH, which initially introduced the Haribo brand to the UK marketplacein 1972. Pontefract is one of the parent companys 15 manufacturing locations acrossEurope, with the organisation employing approximately 7,000 people worldwide.

    The company continues to heavily invest in new product developments (NPDs) andadvertising as a means of maintaining brand loyalty and consolidating market share.This strategy has proved largely successful in recent years, driving healthy companyperformance. According to the company website, a recent brand awareness studyrevealed that 96% of key consumers knew the Haribo brand. Considering that thebrands slogan is Kids and grown-ups love it so, the happy world of Haribo, highadvertising penetration is perhaps indicative of the companys success in maintainingbrand popularity among children, while increasing sales among older demographics.The companys NPD strategy is also driving performance. In 2014, it exploited thesuccess of the Despicable Me films with the launch of Haribo Minions, with this NPDgoing on to win The Grocers prestigious award for Top Product Launch 2014.

    Financial Performance

    The impressive nature of Dunhills (Pontefract) PLCs recent financial results exemplifythe companys recent successful implementation of corporate strategy, as well as theongoing appeal of its brands. In the year ending 31st December 2014, turnover totalled158.2m, representing growth of 16.6% from the previous year and 40% from the yearending 31st December 2010. Unlike turnover growth, pre-tax profit did not increase at ayear-on-year rate in this timeframe, as it fell by 32.1% in 2011. Nevertheless, pre-taxprofit of 24.8m in 2014 still represented an increase of 31.5% from the previous yearand 12.9% from 2010.

    Table 5.2: Financial Results for Dunhills (Pontefract) PLC (000), Years Ending31st December 2010-2014

    2010 2011 2012 2013 2014

  • Confectionery 36

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    Turnover (000) 113,157 122,270 135,694 146,312 158,194

    % change year-on-year - 8.1 11.0 7.8 16.6

    Pre-tax profit (000) 21,963 14,916 16,040 18,854 24,786

    % change year-on-year - -32.1 7.5 17.5 31.5

    Source: Key Note

    Lindt & Sprungli (UK) Ltd

    Company Performance

    Lindt & Sprungli (UK) Ltd is the UK subsidiary of Chocoladefabriken Lindt & SprngliAG a leading manufacturer of chocolate confectionery based in Switzerland. TheLindt brand was established in 1845 and is now available in approximately 120countries worldwide. The UK subsidiary is headquartered in Feltham, Greater London,and operates through the following Lindt sub-brands: Lindor, Excellence, Creation,HELLO, Master Chocolatier Collection, Swiss Luxury Collection, Gold Bunny and LindtBear.

    Company performance within the UK has been strong in recent years, with sales beingdriven by the returning demand for premium chocolate confectionery in the UK. LindtsLindor and Gold Bunny sub-brands have performed particularly strongly; the latter enjoywidespread recognition, while the popularity of the former has been exploited with newflavour variants, such as Coconut Truffles and Caramel Milk Truffles. The company hasalso had success in unlocking the demand for high-quality cooking chocolate. ItsExcellence sub-brand is well positioned in this regard, and the company has reinforcedthis message by providing a range of recipes on its website.

    Financial Performance

    Recent financial performance at Lindt & Sprugli (UK) Ltd has been impressive. In theyear ending 31st December 2013, the company generated a turnover of 105.6m,representing growth of 16.1% from the previous financial year and 54.6% from 2009.Despite declining by more than a third in 2012, pre-tax profit also exhibited growth overthis 5-year period; in 2013 it totalled 8.7m, which was 322.2% more than in theprevious year and a dramatic reversal from the pre-tax loss of 1.2m exhibited in 2009.The strength of recent financial results reflects the companys success in exploiting thegrowing demand for premium chocolate confectionery in the UK.

  • Confectionery 37

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    Table 5.3: Financial Results for Lindt & Sprungli (UK) Ltd (000), Years Ending31st December 2009-2013

    2009 2010 2011 2012 2013

    Turnover (000) 68,311 80,019 82,582 90,912 105,576

    % change year-on-year - 17.1 3.2 10.1 16.1

    Pre-tax profit (000) -1,170 2,436 3,232 2,064 8,714

    % change year-on-year - 32.7 -36.1 322.2

    incalculable

    Source: Key Note

    Mars Chocolate UK Ltd

    Company Performance

    Mars Chocolate UK Ltd is a leading UK manufacturer of branded chocolate and asubsidiary of Mars Inc. The latter is a global manufacturer and distributor of brandedfood products that was founded in the US in 1911. The company, which has a presencein more than 74 countries worldwide and generates annual net sales in excess of$33bn, primarily operates through the following six business segments: Petcare,Chocolate, Wrigley, Food, Drinks and Symbioscience. Mars Chocolate UK Ltd, which isbased in Slough, is responsible for the companys chocolate division in the UK. Itsbrand portfolio primarily consists of the following: M&Ms, Snickers, Mars, Bounty,Celebrations, Twix, Galaxy, Maltesers, Revels and MilkyWay.

    Around the world, Mars operates through the five principles of Quality, Responsibility,Mutuality, Efficiency and Freedom. Within the UK, recent company performance hasfocused on adhering to its corporate social responsibility (CSR) commitments whileconsolidating brand appeal and market share. The companys involvement in the PublicHealth Responsibility Deal (PHRD) has seen it reduce the size of many of its productsas a means of helping to fight against obesity, while Mars has also recently announcedthat its Mars brand of chocolate will now be made using Fairtrade cocoa. MarsChocolate UK Ltd also continues to invest heavily in main media advertising across itsbrand portfolio, while its Mars brand is notable for its high-profile sponsorship of the

  • Confectionery 38

    Key Note Limited. Key Note is the trading name of Key Note Limited. Registered in England and Wales - No.6751403 VAT No.942 935 989

    England football team. The saturated nature of the confectionery marketplace has seenthe company diversify its NPDs into ice cream and milkshakes, although the recentannouncement of Galaxy Duet a new filled chocolate product launching in August2015 reiterates its commitment to innovation with regards to retaining confectionerybrand appeal.

    Financial Performance

    In the year ending 28th December 2013, Mars Chocolate UK Ltd recorded a turnover of833.5m, representing an increase of 1.8% from the previous financial year and 14.2%from the 53-week period ending 2nd January 2010. Throughout this 5-year reviewperiod, year-on-year growth ranged between 1.8% and 6.1%. In contrast, pre-tax profitfell in every year other than 2012. In the year ending 28th December 2013, it equalled100.6m, which was 7.4% less than in the previous financial year and 26.9% less thanin the 53-week period ending 2nd January 2010. Most likely, this is an indication of theexpensive nature of retaining a leading market share in the UK marketplace, with thecompany investing heavily in advertising, promotions and NPDs in recent years.

    Table 5.4: Financial Results for Mars Chocolate UK Ltd (000), 53 Weeks Ending2nd January 2010 and Years Ending 1st January 2011, 31st December 2011, 29thDecember 2012 and 28th December 2013

    2009 2010 2011 2012 2013

    Turnover (000) 729,623 743,651 788,697 818,461 833,489

    % change year-on-year - 1.9 6.1 3.8 1.8

    Pre-tax profit (000) 137,630 107,829 99,844 108,637 100,605

    % change year-on-year - -21.7 -7.4 8.8 -7.4

    53 weeks ending 2nd January 2010

    year ending 1st January 2011

    Source: Key Note

  • Confectionery 39

    Key Note Limited. Key Note is the trading name of Key Note