Chinese chocolate market analysis

He Jiang

Key Topics:

Mainland China:1. General facts2. Economic facts3. Chocolate facts4. Chocolate market size5. Chocolate market share6. Major chocolate types7. Chocolate advertisement8. Major chocolate packages9. Major chocolate flavor10. Retail trends11. Companies based in China12. Advantages and disadvantages13. Opportunities and threats14. Recommendations

Hong Kong:1. General facts2. Economic facts3. Chocolate facts4. Chocolate preferences5. Chocolate market share6. Chocolate market value7. Chocolate market volume8. Advantages and disadvantages9. Recommendations

1. General facts about China 2012Population:1,336,718,015 (July 2011 est.)

Age structure:0-14 years: 17.6% (male 126,634,384/female 108,463,142) 15-64 years: 73.6% (male 505,326,577/female 477,953,883) 65 years and over: 8.9% (male 56,823,028/female 61,517,001) (2011 est.)

Median age:total: 35.5 years male: 34.9 years female: 36.2 years (2011 est.)

Religions: Daoist (Taoist), Buddhist, Christian 3%-4%, Muslim 1%-2% note: officially atheist (2002 est.)

Languages: Standard Chinese or Mandarin (Putonghua, based on the Beijing dialect), Yue (Cantonese), Wu (Shanghainese), Minbei (Fuzhou), Minnan (Hokkien-Taiwanese), Xiang, Gan, Hakka dialects, minority languages (see Ethnic groups entry) note: Mongolian is official in Nei Mongol, Uighur is official in Xinjiang Uygur, and Tibetan is official in Xizang (Tibet)

Source: Irish chamber of commerce in China.

General facts about China (cont.)

Currency: Yuan, also referred to as the Renminbi (RMB)Monetary unit: 1 Renminbi (yuan) (Y) = 10 jiao = 100 fen;

National Day: Chinese celebrate October 1 as National Day in honor of the founding of the People’s Republic of China.

Other national holidays: Spring Festival (the celebration of Chinese New Year, late-January to mid-February depending on Lunar calendar), International Labor Day (May 1)

Administrative divisions: China is made up of 23 provinces, five autonomous regions, four municipalities directly under the Central Government, and the special administrative regions of Hong Kong and Macau

Legal System: Based on a civil law system, which was derived from the Soviet legalSystem. China’s CCP party organs exercise authority over judiciary.

Source: Irish chamber of commerce in China.

2. Economic Facts about China:

GDP (purchasing power parity): US$9.872 trillion (2010 est.)

GDP global rank: #3 (behind the European Union and the U.S.)

GDP, real growth rate: 10.3% (2010 est.)

GDP, per capita: US$7,400, ranks #127 (2010)

GDP - composition by sector: agriculture: 10.2% industry: 46.9% services: 43% (2010 est.)

Labor force: 819.5 million (2010 est.), #1 global ranking

Source: Irish chamber of commerce in China.

Economics facts in China (cont.):

China’s GDP growth for 2011 is forecasted to be 9.1 to 10.0%, according to Goldman Sach’s Global Economics, Commodities and Strategy (ECS) Research group.

Between 2010-2020, China’s average annual real GDP growth rate is expected to be 9.5%.

Since 1978, China’s economy has doubled in size every eight years.

China’s has over US$1 trillion in foreign exchange reserves (exceeding Japan’s), and continue to grow around $200 billion each year.

China owns over 25% of U.S. Treasury Bonds and is the largest creditor in the world.

China’s emerging market stocks are predicted to quintuple in the next two decades–reaching a market value of around $80 trillion by 2030.

China attracted $105.7 billion in foreign direct investment in 2010—the first time FDI in China crossed the $100 billion mark.98% of China’s banking assets are state-owned, as are most of China’s financial institutions.

Source: Irish chamber of commerce in China.

The competing chocolate enterprises in China have been differentiated into three camps:

1. The first camp is the foreign-funded brands represented by Dove, Cadbury Schweppes, Hersheys, Ferrero Rocher, etc., which occupy the overwhelming portion of top grade chocolate market.

2. The second camp is the joint venture brands represented by Le-Conte and Caesarwave, which dominate the middle grade chocolate market.

3. The third camp is the domestic brands of China represented by Shanghai Shenfeng and Golden Monkey Group, which take over the major portions of low grade chocolate market.

3. Some chocolate facts in china :

Some chocolate facts in China(cont.):

1. Mars Inc.’s Dove chocolate is the biggest brand in China with a 43% share of the market in 2010, according to Mintel. Closely held Ferrero SpA, maker of Nutella chocolate spread, had an 8 % share, followed by local Chinese brand Le Conte at 6%.

2. Although the top players accounted for half of the Chinese chocolate market in the year 2010, the other half is extremely fragmented, with many smaller companies competing for market share.

3. Datamonitor estimated that the Chinese chocolate market was the ninth largest globally, worth about $1.6bn in 2010 – approximately 143.4m kilograms of chocolate in volume terms.

4. There was a compound annual growth rate (CAGR) of 12% from 2005-2010, and it estimates that the sales value will continue to increase at a CAGR of 10% from 2010-2015.

5. Chocolates are still very much regarded as a foreign product to Chinese consumers, despite the fact that chocolates have existed in China for many years.

6. The top 20 heavyweight chocolate enterprises in the world have all entered into China, and the variety of imported chocolate brands of chocolates made by joint ventures reaches more than 70.

7. The younger generations are looking forward to enjoying the finer things in life and are more aware of the luxury associated with real chocolate.

8. There are also many new occasions and prospects for chocolate consumption that have not yet been fully explored, and any innovation will create new opportunities in the market.

4. Chinese chocolate market size:

1. Retail value sales of chocolate confectionery rise 10% in 2010 to RMB 9370 million, while volume sales increase by 8%.

2. Unit price record a slight increase in 2010, duo to theupward trend in raw material costs.

3. Constant value sales of chocolate confectionery are expected to rise by a CAGR of 8% over the forecast period.

5. Chinese chocolate market share:

Dove (Mars):1、 Development of new products 2、 The market expansion to Japan and Southeast Asia3、 To maintain reasonable price to sell the productsLe conte:1、 Continue to be gifts pack chocolate as a marketing strategy2、 Development of new products 3、 Continue to lead the mid-range chocolate market Ferrero:1、 Continue to shape the ball as chocolate individually wrapped in gold foil.2、 Continue to be attractive appearance to attract consumers

1.Handmade designer chocolates from Europe become latest status symbols for China's nouveau riche.

2.The price is very high. A box of 12 pieces of chocolate can cost more than 250 Yuan (40 dollars).

3.Designer chocolates, preferably handmade, with sometimes unpronounceable names in Belgian, French or Italian are popular among young city folks.

4.Except for a few brands (Godiva, Lindt’s etc), most European-branded chocolates are sold only through small franchise stores to lend a sense of exclusivity.

5.Some designer chocolates sold in China are made locally using imported ingredients. They appear to be getting more popular among the young, with affordable prices and better taste compared with chocolates made by some domestic producers.

High-end chocolate market in China:

6. Types of chocolate in china: • Chocolate lollipops • Baking powder• Squares• Bars• Beans• Chocolate and biscuits sticks• Wafer• Drinking chocolate - Chocolate milk tea• DIY chocolate: - Customers can choose the chocolate flavor and shapes they want to make their own chocolate. - Extremely popular in holidays. - Chocolate flowers and chocolate love letters in Valentine. - DIY Christmas trees. - Chess and Mahjong(Traditional Chinese chess for four players) in father’s day - Combine with traditional Chinese culture. - Beijing opera mask. 

The chocolate milk tea.

7. Chocolate Advertising:

•Implantable advertising

•Plane advertisement

•TV advertisement

•Event - Huge green tea chocolate cake in Shenyang. (6m side length and 2m height chocolate cake in front of the shopping mall which can be shared by 3000-5000 people)

•Corporation - M&M’s and Bossini (Famous Chinese clothing company). - Print M&M’s logo on the T-shirts - Magazines. - Attach samples to fashion magazines

•Online advertising - Advertisement on big Websites (Google,Yahoo,Baidu) - Weibo.com (Sina Microblog) - Renren.com (“Chinese Facebook” which is very popular in China)

Chocolate advertising (cont.):

Chocolate with healthy ingredients:

Dark chocolate with less calories - Hershey’s Special dark chocolate - 65% cocoa - 10 calories per chocolate ball - Dove dark chocolate - 66% cocoa - low in price

Matcha (Green tea) chocolate: -Meiji Meltykiss chocolate -Add green tea powder into chocolate

8. Major Types of Package: - Plastic - Paper - Metal - Carrying size - Family size - Valentine packages(Chocolate Flowers & Heart) - Moon cake (Chinese traditional eaten during the Mid Autumn Festival)

9. Major Flavors:

•Dark chocolate•Milk chocolate•White chocolate•Solid chocolate•Solid chocolate with inclusion•Enrobed or molded products with bakery centers•Enrobed or molded product with candy, fruit, or nut center

10. Retail trends in China:

1. International brands dominated the Chinese chocolate confectionery in 2010, due to their large investments in marketing campaigns and new product developments.

2. Local companies tend to sell their products through retail outlets in lower-tier cities or rural areas. The growth in sugar confectionery was largely supported by increasing disposable income amongst Chinese consumers from low-tier cities and rural areas.

3. Convenience stores and Internet retailing are expected to gain market share due to their greater expansion compared to other retail channels.

4. Supermarkets/hypermarkets saw their share increase slightly, while sales through small grocery retailers and independent small grocers diminished.

11. Companies based in China:

Mars:Mars food(China) Co., Ltd. is a sole proprietorship of Mars in China headquartered in Beijing.

At present, Mars has three factories in Beijing, Huairou and Jiaxing and has representatives over 200 cities across the country.

Cadbury:Cadbury has two factories and a sales company in mainland China. The two factories are

Cadbury Food Co. Limited China and Cadbury Confectionery (Guangzhou) Co., Limited China. Cadbury also has two trading companies in Hong Kong.

Ferrero:Ferrero is a symbol of high-end chocolate in China. However, Ferrero only has a sales

company in Shanghai. Ferrero has won a landmark court decision in China against a domestic rival for imitating its signature gold-wrapped Rocher chocolate. However, such judgments in the past have proved hard to enforce and the popular Tresor Dore, which bears a striking resemblance to Rocher, may continue to sit next to it on supermarket shelves. In order to guarantee the quality of chocolate and to prevent piracy and copycats, Ferrero started to use verification code and every Ferrero is from Italy.

Advantages:

A: From the year 2003, Chinese confectionery market has maintained a growth rate of 8%-12%, which is 6% rate higher than the annual increase rate of the global confectionery market.

B: With the increasing of the Chinese consumption level, Chinese chocolate market is expected to grow at a speed of 25% in next 10 years. China is now the second confectionery market followed the US.

Disadvantage:

A: The confectionery market in China has been negatively affected by the financial crisis in the year 2008. This is expected to continue in 2012 and 2013.

B: China’s chocolate war isn’t simply a battle for the hearts, minds, and tastes of China’s consumers, it is also a struggle for the global chocolate giants to discern their own route to commercial success in China; for their greatest challenges do not lie externally in China’s enigmatic marketplace, but internally within each organization.

C: High value added taxes and import tariffs (about 40% in total)

12.Advantages and disadvantages

Opportunities:

A: The rapid increasing growth rate of Chinese confectionery market attracts more and more international chocolate companies. Besides European and American chocolate manufacturers, Korea, Japan and other Asian countries accelerated their competition in China.B: China's current per capita chocolate consumption is very low at about 100 grams per person, compared with the 1.4kg in Japan and Korea. China was the next great frontier, a market of almost limitless potential.

Threats:

A: Chocolate is not the major part of the Chinese confectionary market, the sales volume cannot be increased in a short time.B: There are many kinds of chocolate categories in China, most of the consumers cannot tell the different between real chocolate and CBS (cocoa butter substitute). The chocolate market is still in the price sensitive period.C: Because of the high operation costs in the chocolate market, most of the confectionary companies cannot balance their input and output in a short period of time.D: Most of the Chinese consumers don’t have the sufficient understanding of chocolate. They thought chocolate is something high-sugar, high-calorie sweets which makes overweight and diabetes. Due to the insufficient understanding, some of the consumers want to eat chocolate but they don’t dare to eat.

13. Opportrunities and threats

14.Recommendations:

Localize flavors: To meet the preferences of Chinese consumers, international players will need to localize flavors a little more. Local companies are increasingly competitive in the chocolate confectionery sector and they understand the importance of incorporating local preferences into standard chocolate.

Combine with Chinese culture: The best chocolate selling seasons are during the Chinese new year and the mid autumn festival.

Choose varies methods: There is no single path to business success in China. The country is too big, too complex, and evolving too quickly for simple “one size fits all” business formulas.

Prevent copycats and piracy: Some of the Chinese domestic chocolate manufactures imitates the high-end chocolates which have striking resemblance to them . To prevent imitating and copycats, it is necessary to use security technologies and legal means.

Hong Kong

1. General facts about Hong Kong 2012 (SOURCE: 2012 CIA WORLD FACTBOOK AND OTHER SOURCES)

Population7,122,508 (July 2011 est.)

Age structure0-14 years: 11.6% (male 431,728/female 394,898) 15-64 years: 74.8% (male 2,573,929/female 2,757,095) 65 years and over: 13.5% (male 452,278/female 512,580) (2011 est.)

Median agetotal: 43.4 years male: 42.8 years female: 43.8 years (2011 est.)LanguagesCantonese (official) 90.8%, English (official) 2.8%, Putonghua (Mandarin) 0.9%, other Chinese dialects 4.4%, other 1.1% (2006 census)

Ethnic groupsChinese 95%, Filipino 1.6%, Indonesian 1.3%, other 2.1% (2006 census)

Religionseclectic mixture of local religions 90%, Christian 10%

Hong Kong is located in Southern China. It is divided into four main areas - Kowloon, Hong Kong Island, the New Territories, and Outlying Islands. Kowloon and the New Territories are on a peninsula of the Chinese mainland, on the northern side of Victoria Harbor. Hong Kong Island is on the southern side of the harbor facing Kowloon, and the Outlying Islands are comprised of 234 surrounding islands.

2. Economic facts about Hong Kong (Cont.):

GDP (purchasing power parity):$353.7 billion (2011 est.) GDP - per capita (PPP): $49300 (2011 est.)GDP - real growth rate:6% (2011 est.) GDP - composition by sector: agriculture: 0% industry: 7.4% services: 92.6% (2011 est.)Labor force: 3.701 million (2011 est.)Unemployment rate: 3.3% (2011 est.)

Labor force - by occupation:manufacturing: 4.7% construction: 2.2% wholesale and retail trade, restaurants, and hotels: 41.7% financing, insurance, and real estate: 12% transport and communications: 6.3% community and social services: 17% note: above data exclude public sector (2010 est.)

Exports:$451.6 billion (2011 est.) Imports:$493.2 billion (2011 est.)Inflation rate (consumer prices):5% (2011 est.)

(SOURCE: 2012 CIA WORLD FACTBOOK AND OTHER SOURCES)

2. Hong Kong chocolate facts:

1. The confectionery market in Hong Kong is dominated primarily by US and European corporations. Companies such as Mars, Ferrero, Cadbury control the market.

2. Domestic manufacturers that were active in Hong Kong a few years ago have either closed or moved manufacturing facilities to China in order to take advantage of lower operating costs.

3. The health trend in Hong Kong caused the consumers to favor healthy ingredients. It has also led to the expansion to the sugar-free market.

3. Chocolate preferences in Hong Kong

1. According to several large confectionery manufacturers, confectionery consumption is strongest among 15-29 year olds.

2. In general, Hong Kong consumers prefer less sweet products with several individually wrapped mini-products in one package.

--- According to the Agricultural Trade Office in Hong Kong, consumers prefer products that are: - Not too sweet - Small in size - Individually-wrapped and sold in a family pack - Low in sugar

4. The chocolate market share in Hong Kong :

The chocolate market in Hong Kong can be divided into three segments:

(1) Specialty stores (high end) At the high end, local specialty stores manufacture chocolate for retail sale in their own stores or in various specialty

retailers throughout the market. These local companies compete with a select group of international companies (such as Godiva ) with similar distribution.

(2) Retail Chocolate for Mass Consumption (middle range) Large multinational confectionery companies generally compete at the middle range supplying well-known chocolate

bar brands and other chocolate confectionery to major retail and convenience store chains for mass consumption.

(3) Industrial-use Chocolate (bulk) Industrial use chocolate is imported in bulk and used by food manufacturers to create chocolate-based products in

related industries (bakeries, chocolate sauce for ice cream shops, etc.).

Hong Kong confectionary market share 2010

Source: Datamonitor

5.Hong Kong confectionery market value:The Hong Kong confectionery market grew by 4.2% in 2010 to reach a value of $893.6 million. The compound annual growth rate of the market in the period 2006-2010 was 4.1%.

6.Hong Kong confectionery market volume:

The Hong Kong confectionery market grew by 2.6% in 2010 to reach a volume of 72 million kilograms. The compound annual growth rate of the market in the period 2006-2010 was 2.8%.

7. Advantages and disadvantages in Hong Kong:

Advantages:

1. No value added taxes and tariffs. The Hong Kong government does not levy import tariffs on confectionery products. There are no value added or general service taxes. Additionally, confectionery products do not require customs valuation or import licenses.

2. Hong Kong is an important gateway to mainland China. Hong Kong not only serve for the local population but also a large portion of 1.3 billion people in China. About 62% of Hong Kong ‘s confectionery imports are re-export to others countries, primarily mainland China.

3. Chocolate sales proved the most lucrative for the Hong Kong confectionery market in 2010, generating total revenues of $434.2 million, equivalent to 48.6% of the confectionery market’s overall value

Disadvantages:

1. Domestic and international companies share competitive space.2. High distribution costs. Crowded streets in Hong Kong complicate the delivery to retail stores.3. Relatively low CAGR compared to mainland China.

8.Recommendations:

• Obtain a distributor: Manufacturers are encouraged to obtain a Hong Kong distributor who is more familiar with the distribution channels for confectionery products. This can be facilitated through participation in trade shows.

• Consider altering existing products for consumer preferences: The consumer preferences in Hong Kong differ from those in the US. It appears consumers prefer products that are small, individually wrapped, less sweet than US chocolate.

• Create innovative packaging: Product packing can be an important key to success in the Hong Kong market. Consumers respond favorably to products with innovative packaging.