The research firm says that new chocolate consumers in China are tending to buy international brands, which has left some domestic confectionery firms struggling to turn a profit and deterring Chinese business from moving into the growing country's growing chocolate segment.
“Generally speaking, imported food companies in China are taking advantage of the Chinese mistrust towards national brands due to the previous food safety incidents in China," Daxue Consulting’s research associate Thibaud Andre told ConfectioneryNews. “European brands in particular are associated with better quality," he added.
A poll by Pew Research Center last September found 71% of China's consumers saw domestic food safety as a big problem. It follows a 2008 milk and infant formula scandal in products adulterated with melamine led to infant deaths.
COFCO-owned China Foods recently sold its loss-making confectionery business, including Le Conte, to Top Properties due to intense competition with international brands.
Continuous growth for the chocolate market
Industrial chocolate bars were largely dominating the market in China before 2000, Andre said.
However, “since the arrival of European businesses, hand-crafted chocolate makers have paved the way for a new form of consumption with fine fresh chocolate,” he said. “China is now a market with great innovation for flavor, packaging, and consumption model.”
Andre said the Chinese chocolate market generated $3.2bn sales in 2014, and it’s expected to expand up to $4.4bn sales by 2020, “meaning an increase of more than 60%,” he said.
Mintel analyst Hao Qiu estimates China’s chocolate market volume size will grow from 221,900 tonnes in 2014 to 298,700 tonnes in 2019, representing a compound annual growth rate (CAGR) of 6.1%.
However, some foreign brands, such as Hershey, have experienced slower than expected growth in the Chinese chocolate market.
Mintel research manager Laurel Gu said the market growth was mainly drawn back by the rising chocolate retail market price.
“The average price chocolates get sold in China is observed to be much higher than the other countries, which poses the main obstacle to increase consumption in a wider population, especially among the low earners,” Gu said.
But she expects foreign brands will eventually triumph.
“The consumer research shows that when people buy chocolate, taste is the single most important driver. This is likely due to that the leading players in the chocolate market are all international brands...In general, people tend to trust international brands in their quality and safety assurances," she said.
Foreign brands: An obstacle that’s too significant to fix
Around 70% of China’s chocolate market is dominated by European companies, which Andre said has further discouraged Chinese companies from entering the market. He said companies fear they cannot create a brand image to meet consumer expectations.
Some of China's top confectionery companies have also been swallowed by multinational firms in recent years. Nestlé acquired a controlling stake in Hsu Fu Chi for $1.7bn in 2011, while Hershey snapped up Shanghai Golden Monkey for $584m in 2013.
The industry's top firms are also consolidating their grip on China by adding production capacity domestically or in the surrounding region. Ferrero plans to construct a factory in China's Zhejiang Province, while Hershey announced plans for a factory in Malaysia in 2013 to serve China and the surrounding region.
Mars led China's chocolate market in 2014 witn 39% value share of the Chinese chocolate market, but lost some ground in 2014 to Ferrero and Hershey, both of which grew their share to 12%, according to Euromonitor International.
[Additonal reporting by Oliver Nieburg]