Ferno Investment Group
Entering the Swedish Chocolate Market Prospects for Swiss Fair-Trade & Organic Chocolate in Sweden Overall Investment Recommendation NEGATIVE
capita consumption, it is interesting to note that only approximately 0.6 kilograms is attributed to more exclusive forms of chocolate, such as the pralines; an area in which Belgium, France, Italy and Switzerland distinguish themselves. Swedish Chocolate Market
Chocolate Consumption in Sweden Sweden ranks among the nations with the highest consumption of chocolate per capita in the world. While national statistics do not specifically separate “chocolate” from other sugar sweets, the Association of Chocolate, Biscuit and Confectionery Industries of Europe, COABISCO, estimates the average annual consumption per person in Sweden to about 6,2 kilograms. This is above the EU average, but below countries such as Switzerland and Great Britain, as well as its Scandinavian neighbors. However, following the financial crisis of 2008, the Swiss manufacturer Lindt reports that Sweden is among the group’s most rapidly growing markets, with double-digit growth. Among chocolate specialists in Sweden, the impression is that the financial crisis effectively never reached their business, but that sales will continue to rise as younger generations grow up with a much more specialized and diverse chocolate market than that their parents experienced; thus consumer patterns are believed to be enhanced as time passes. Of the total per
The Swedish manufacturer Cloetta, with a market share of 13.3 % in 2010, deems the SEK 6.7 billion chocolate market in Sweden to be highly competitive, saturated, as well as the subject of extensive consolidation. According to a survey by research firm Nielsen, the chocolate market is expected to grow by 4 % annually; however, between the summers of 2009 and 2010, the overall chocolate market only grew by a mere 1,8 %, with Kraft Foods (Marabou), Cloetta, and Malaco Leaf being the major players. Their market shares are approximately 30.3, 13.3, and 11.8 per cent, respectively. Due to cost pressures largely caused by soaring cocoa prices, the consolidation trend and further acquisitions of this group of manufacturers is believed to continue. In recent years, competition from Swedish supermarkets’ own brands has increased significantly; this up to the point that these types of brands today correspond to one tenth (10%) of the overall market. The intensified competition is a serious concern for traditional manufacturers due to the fact that there has been a clear shift in consumer behavior from buying at both service points – particularly gas stations – as well as food stores, into a current situation where purchases are almost exclusively made at any
Ferno Investment Group of the major supermarket chains, notably ICA, HemkĂśp, and Coop. Fair Trade, Organic, & Segmentation as Means to Grow According to the International Cocoa Organization, global sales of Fair-trade chocolate products do not represent more than 0.5% of total global market value; the corresponding share for organic cocoa is even less, about 0.1% globally. In Sweden, however, the recent growth in fair-trade, albeit from low levels, is remarkable, with an increase of around 60 %1 in 2009-10. Data from Statistics Sweden also indicates that increased sales of organic foods in general appear to be a confirmed trend; a development that may well have a significant effect on the market for chocolates and sweets in the years to come. The new consumer choices perhaps explains why the stagnant market described by Swedish Cloetta is not completely incompatible with the Swiss manufacturer Lindt, who expresses excitement over its double-digit sales growth in their annual report for 2010. Although the overall market is fairly stable, shifts in consumer preferences offers vast opportunities to gain market share. Currently, the trend is toward more social and environmental awareness with smaller, high-quality pieces of chocolate becoming increasingly popular. It is, therefore, by offering a differentiated product that also new manufacturers can reach success. However, a challenge â€“ as well as important barrier to entry for newcomers looking to enter the Swedish market â€“ is the strong brand loyalty characterizing the Swedes: a loyalty usually developed already at a young age. E-commerce & Chocolate To meet a new, more sophisticated demand among Swedish chocolate consumers, ecommerce is appearing to fill a major piece 1
Includes chocolate drinks.
of the glitch. There are today a significant number of chocolate stores online to choose from; international, as well as Swedish ones. Most sites provide a professional impression with attractive layout, easy check-out, and rapid delivery. Products offered range across virtually the entire board: from simple milk chocolate in batches, to French made-toorder pralines, to stores focused on fairtrade and organic ingredients. Among the more prominent sites are Chokladshopen, Sackeus, Xchocolat, Chocolate Tasting Club, and Chokladpralin.se. Prospects for Swiss Chocolate in Sweden The Swedish market is a rather big market; however, as has previously been emphasized, it is also a highly competitive one and perhaps, according to Cloetta, even over-established. The Swedish consumer can today chose almost whatever he or she pleases, be it in a physical store or online. To meet demands, major groups such as Kraft Foods scramble to develop product lines, and those customers still not satisfied turn to online, where there is an extensive and expanding array of choices. As a matter of fact, Swiss chocolate (apart from Lindt and Toblerone, which are sold at most supermarkets) is quite rare in Sweden today. While Belgium, France, and Italy are well represented, this is not the case for Switzerland. One explanation, provided by the founder of the Swedish online chocolate Chokladshopen and regular attendee of the ISM International Fair for Sweets, is that Switzerland has traditionally been more focused on its domestic, rather than the international market. Given the light presence of Swiss chocolate, in combination with increased consumption
Ferno Investment Group of high-quality, organic and fair-trade certified products, it appears to be room available for a Swiss player to enter the Swedish market. The notion of Switzerland is important, because with an already saturated overall market whose future growth seems primarily linked to population increases, differentiation and segmentation is crucial for mere survival. But, unfortunately, the Swiss aspect is unlikely to be enough. In fact, although there are some people who are meticulous in their choice of origin of chocolate, taste, cocoa percentage, and – not the least – media trends, dominate choices. When the offer of both everyday-chocolate, as well as high-quality, fair-trade and organic alternatives are already so developed, newcomers must offer something truly different: this appears not to be the case with Swiss chocolate, may it be online or not. With regards to focusing on e-
commerce, this might also not be very successful since a BSI Report from 2008 effectively reveals that chocolate consumption is highly impulsive, with about 80% of purchases actually being decided upon while in the store. According to Cloetta, this makes ubiquitous presence crucial to overall success. Consequently, the need to be “everywhere” might represent an important barrier to entry for new manufacturers. To conclude, while the venture of introducing Swiss, organic, and fair-trade certified chocolate in Sweden might turn a small profit, it is unlikely to provide a return that an investor cannot obtain elsewhere, and that with lower risk. To be successful in these conditions, one must be able to present something rather unique: until then, it is better to explore alternative investment options.