Confectionery: BRICs and beyond: China a sweet spot for gum makers
Chewing gum manufacturers have seen sales come under pressure in developed markets in North America and Europe but other parts of the world are providing growth - and China is one such market.
Demand for gum in many markets like the UK and the US has waned. A number of reasons have been put forward as to why sales have come unstuck, from concern over sugar intake to manufacturers not investing enough in product development and marketing.
Mondelez International, the owner of chewing gum brands including Stride, has insisted there were signs of improvement in developed gum markets in the latter part of 2013.
Speaking to analysts last month as Mondelez reported its 2013 financial results, Irene Rosenfeld, the snacks giant's CEO, said: "Although gum revenue in developed markets was down mid-single digits that's encouraging progress from the mid-teens decline we saw earlier in the year," she said.
Rosenfeld said in the US Mondelez was trying to emphasise "core benefits" of chewing gum including "freshness" and "oral core" to "address the long term growth of the category that we're hoping will start to improve".
However, she added: "We're not expecting any dramatic recovery in the category anytime soon."
And, against that short-term outlook, gum manufacturers like Mondelez and larger rival Wrigley are looking for growth elsewhere.
Mondelez highlighted the growth its chewing gum business was seeing in China (unlike, it must be said, it was seeing - for now at least - in its local biscuits business). The company, which launched Stride in China in 2012, said it had enjoyed "strong growth in gum" in the country last year.
Chewing gum is by no means a new product to China. Torsten Stocker, partner at consulting firm A.T. Kearney, says Mars-owned Wrigley has been selling gum in the country for over three decades. However, the sector remains in good health.
According to data from Euromonitor published in November, chewing gum sales were forecast to rise 12% in 2013 to reach CNY17.33bn (US$2.79bn). Wrigley dominates the sector, with, according to data from Euromonitor, a forecast market share of 45.2% in 2013. However, Wrigley's chunk of the market has been steadily falling; in 2009, it accounted for 54.1% of chewing gum sales in China. South Korean confectioner Orion has been taking bigger bites of the market year-on-year since 2009. In 2013, Orion's share of the market was forecast to be 9.5%, making it the second-largest player. Fellow South Korean group Lotte is third, although their share of what is a growing market has been declining and in 2013 stood at 6.2%. Mondelez is fourth, accounting for 4% of the market.
While brand owners have come under fire for not doing enough to drive sales in developed markets, industry watchers in China suggest manufacturers' marketing tactics have been central to growing sales in the country.
"Companies like Mars and Mondelez are ramped up their marketing spend and have done a lot of market education that has been very effective. They have positioned gum as helpful for all kinds of things, from freshening breath to relieving stress, staying trim by using as a replacement for snacks. These are messages that have appealed to young people who have more disposable income, more stress in their lives, and less free time," James Roy, associate principal at China Market Research Group, tells just-food.
Stocker points to the gum makers' product development. "Wrigley's and other brands - Lotte and Orion, Perfetti Van Melle and more recently, Mondelez - have also continuously invested into product innovation, in form of new formats, flavours and package types that have expanded the occasions for gum consumption."
Euromonitor has forecast the market for chewing gum in China will enjoy a CAGR of 9% between 2013 and 2018, slower than the growth seen in 2013 but robust and an indication the country will be one gum manufacturers will be hoping will offset challenges elsewhere.
Euromonitor believes sugar-free gum sales will almost double between 2013 and 2018 from CNY10.74bn to CNY19.33bn. Chinese consumers are becoming more interested in healthier products, Euromonitor said, although the analyst firm suggest another reason why that sub-category could grow. "According to trade sources, manufacturers are keen to drive sales growth for sugar free gum as these products generate higher profit margins in comparison to sugarised gum," Euromonitor said in its report.
What Euromonitor calls "sugarised" gum will see sales rise, the group predicts - but at a slower rate than the market. Euromonitor estimates the sugarised gum sub-category will grow at a CAGR of 2%, while it says sales of bubble gum will stagnate.
Brand owners are expected to highlight the "oral care benefits" of chewing sugar-free gum and work more to develop products with "functional" ingredients.
However, Euromonitor warns chewing gum makers that there could be challenges on the horizon in China.
"Sales of gum are nearing saturation in developed cities. However, growing sales in lower-tier cities may prove challenging, as consumers in rural areas have often not developed the habit of chewing gum," it says. "Potential threats to sales growth [also] come from sugar confectionery such as mints, which also offer a similar function in freshening breath. Some environmentalists also promote a shift from gum to mints due to the latter having less impact on the environment."
Nevertheless, China is seen as a market that will continue to provide a sweet spot for gum makers facing a prolonged sticky period in North America and Europe.
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