Blog: Dean BestDoes the recession mean posh chocs are out?

Dean Best | 29 January 2009

In recent years, the story in chocolate has been: go premium.

High-end Swiss chocolate firm Lindt & Sprungli has enjoyed double-digit growth on both sides of the Atlantic – even if currency fluctuations meant the company's 2008 sales missed its own heady expectations.

Upmarket chocolatier Godiva was gobbled up in a US$850m deal by Turkey's Ulker Group at the end of 2007.

And the likes of Mars have swiftly moved to broaden their chocolate portfolios from the mainstream to the pricier ends of the market.

The trend towards premium chocolate, and particularly dark varieties, has been held up as one of the more buoyant trends in confectionery – as this just-food report on the category highlights.

And while chocolate makers have been scrambling to tap into the demand for posh chocs, one major manufacturer has been criticised for being too slow to enter the market – Hershey.

Hershey moved into the premium space in the US last year with the launch of Bliss and its venture with Starbucks. However, industry watchers have claimed that Hershey's late entry into the category means it is playing catch-up with the like of Mars and Lindt.

For some, the economic downturn and falling consumer confidence should have little effect on chocolate – and the buoyancy of the premium end of the market. Chocolate is, after all, seen as one of the more defensive consumer good sectors in times of recession.

This week, however, came claims that the once-buoyant demand for premium chocolate in the US is starting to wane.

Upon announcing Hershey's 2008 results on Tuesday (27 January), the company's CEO Dave West said US consumers had begun to trade down when buying chocolate – a trend that has helped the oft-criticised Hershey.

West said US consumers had begun trading down from the "premium" and "trade-up" segments of the chocolate market to more "everyday" products, particularly among gifting and novelty products.

"We saw a significant slowdown in both premium and trade-up and a shift more down toward everyday in the fourth quarter to the point where both the premium and the trade-up segments were pretty much flat for the fourth quarter – which is a significant slowdown versus historical growth rates," West told analysts.

According to West, premium chocolates sales rose 9% last year but the stagnation in the last three months is likely to last into 2009.

"What we'll see in the category next year is a little bit of space at retail will shift out of premium and trade-up as those parts slow down and are less productive. They'll move back into things that are everyday," West said.

And Hershey, West insisted, is likely to benefit.

"We're relatively well-positioned in the category for that kind of a shift because of the strength of our core brands. We did see some of that happening in the fourth quarter and we think we'll see it through the beginning of 2009 as well."


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