In spite of growth in areas such as organic chocolate and functional products, the German confectionery sector has been hard going in recent years, as consumer health concerns have changed consumer buying habits. Francisco Redruello of Euromonitor International assesses the current state of the market.

Market maturity, price pressure from private label, and health concerns are taking their toll on the German confectionery market, which saw retail value sales growth of just 1% in 2006, according to Euromonitor International data. What is more, the poor performance in 2006 continued a trend of difficult market conditions in the two preceding years.

Nevertheless, while health concerns are clearly constraining demand in the broad confectionery market, changing consumer habits are creating some demand for new products.

Euromonitor International’s research shows that the health and wellness trend is influencing purchase decisions in the chocolate confectionery category due to increasing concerns about obesity. Chocolate confectionery is the largest confectionery sector, accounting for almost 70% of total retail sales in 2006, followed by sugar confectionery and gum with respective value shares of 25% and 7%.

New healthy ingredients added to chocolate confectionery lines in 2006 include yoghurt, which appears as an additional filling with berries and fruits in ‘summer chocolate products’. Organic and fairtrade chocolate also continued to grow in importance in 2006, along with dark chocolate with a high cocoa content.

Also reflecting heightened health concerns, and the increased interest in functional and healthier food products in general, sugar-free and functional confectionery have become significant categories. Medicated confectionery brands, such as Ricola and Wick, have also performed well in recent years.

Sugared products, however, still accounted for two thirds of confectionery retail sales in 2006 according to Euromonitor data. But the split between sugar and sugar-free products will move in favour of the latter in the medium term, due to the continuing impact of health and wellness trends and the rising numbers of diabetes sufferers among middle-aged consumers.
Undoubtedly one of the categories most affected by the health trend is gum. German consumers do not see chewing-gum as a healthy product as it causes tooth decay, its growth being constrained further by an ageing population and a low birth rate. As a result, retail sales of gum stagnated in 2006.

Retail bubble gum sales, in contrast, maintained relatively healthy growth in 2006, with value sales rising by around 3%. The relaunch of Wrigley’s Hubba Bubba Max and various new flavours, such as Hubba Bubba Berries, contributed to this positive performance. Promotions run during the football World Cup also played a key role in underpinning growth in both 2005 and 2006. As well as bubble gum, functional chewing-gum is a comparative bright spot in the sector. Lines offering breath freshening and dental care properties are the most popular.

Confectionery is a relatively consolidated sector in Germany, with the three top players, Ferrero, Storck and Mars accounting for around 34% of total retail sales in 2005. Ferrero Group remained the leading player in chocolate confectionery in Germany, with a retail value share of around 22%. Storck and Mars hold a strong position in both chocolate and sugar confectionery, but lack a presence in the gum category.  Wrigley has maintained its overwhelming dominance in the gum market, holding a 76% share of retail sales in 2005.

However, while the confectionery market is consolidated, acquisition opportunities clearly still exist. Last week saw an initial public offering by the country’s oldest chocolate producer Halloren which said it was looking to raise money to finance acquisitions as well as reduce debt. “We want to use the proceeds from the successful stock market debut to finance further growth,” said Halloren CEO Klaus Lelle. “We can also very well imagine acquiring suitable brands or companies.”

However, possibly reflecting the tough market conditions in the confectionery category, last week’s flotation of some 2.235m shares raised less money than the company had hoped, yielding EUR15.6m, compared with Halloren’s target figure of EUR20m to EUR30m.

In another recent corporate development, the Swiss chocolate company Barry Callebaut revealed this week that it was open to the idea of sharing control of its German operation Sarotti. While the company said it was not looking to offload Sarotti it said it would be willing to talk with a potential distribution partner.

Looking at the market as a whole, the confectionery sector in Germany is set to remain tough going. Euromonitor International forecasts that total retail sales will grow by a mere 2% in constant value terms between 2006 and 2011. This is well below countries such as France and Italy, where retail sales of confectionery are expected to grow by 8% and 11% respectively over the same period. Gum is the sector expected to record the weakest performance, with sales set to decline marginally in the five years from 2006 to 2011, while chocolate and sugar confectionery will perform slightly better, achieving constant value growth rates of 2% and 3% respectively.

In addition to heightened health concerns, the lower birth rate – which means fewer children – will also be a restricting factor. While health concerns will affect both chocolate and sugar confectionery, the latter is expected to suffer more acutely as it is not seen as an ‘indulgence’ product to the same degree as chocolate, and therefore does not benefit from consumption as a ‘reward’ for good dietary habits. Furthermore, sugar confectionery producers are concerned that German parents will look to reduce their children’s consumption of sugar confectionery in the face of publicity over child obesity.

One possible crumb of comfort for confectionery brands, however, is that private label is unlikely to sustain sales growth across all confectionery products, given that new launches and innovation – a prerequisite for success – mostly come from manufacturers of branded products. Euromonitor International’s research shows that German consumers are particularly loyal to confectionery brands and are willing to pay a higher price for products offering a premium, either in terms of flavour, health properties or packaging.