Europes confectioners facing struggle to grow category

Europe's confectioners facing struggle to grow category

Europe's confectionery market is the world's largest but sales are stagnant. How can confectioners eke out growth? IRI business insight manager Cristina Lazzaroni, investigates.

As European confectionery sales continue to decline, manufacturers are left scratching their heads concerned about the state of the sector - and how to eke out growth.

Europe is the largest region for confectionery sales worldwide but it is a mature category in a mature market. On a long-term basis, sales of confectionery in Europe are declining and have been for some while, according to IRI data. While sales of tablets and chocolate bars/blocks show positive trends, especially in Italy, France and Germany, and there are reasons for optimism in seasonal confectionery in most countries, overall value sales in the sector were down 0.5% across Europe last year. The UK saw the biggest decline, with sales dropping 3%.

Some of the world's largest confectioners, including Mondelez International, Ferrero, Nestle, Mars and Lindt & Sprungli, dominate the confectionery sector in Europe and the pressure is on companies like that to up their game and look at growth drivers.

An obvious tool could be new product development. However, that may not always act as a boon to sales. In the UK, for example, sales from NPD account for only around 3% of confectionery sales in a given year. While seasonal and gifting products tend to be more reliant on NPD, even they are showing signs that product development is contributing less and less to category growth.

It appears that those confectioners that are enjoying growth, like Lindt and Ferrero, are doing so through increasing promotions and distribution.

However, confectionery brands still need to keep their finger on the pulse of changing public opinion and not rely on promoional deals to increase sales in the long term. Issues around health and sustainability, while not significantly moving the sales needle at the moment, are likely to have an impact in the future.

Health and obesity is a growing concern worldwide. In the UK alone, the number of obese people has more than trebled in the past 25 years, and one in three children is now overweight and one in five obese. According to projections by the World Health Organization, other countries facing obesity problems, including Greece, Spain and Austria – even Sweden – will see significant rises in the future.

There is also the prospect of more government intervention in the form of legislation around the amount of sugar in our food and drink, given the current publicity around sugar in soft drinks, which is likely to have a knock-on effect for confectionery.

Manufacturers are concerned about health from a social responsibility standpoint, and have made efforts on reformulation, but as yet, there has not been a notable real impact from consumer anxiety around health on confectionery sales in the UK at least, although there are some signs of sales decline on sugar confectionery and chocolate biscuit bars.

Other matters like artificial ingredients in confectionery are also starting to change attitudes among manufacturers in response to consumer demand. In March, Nestlé announced that it will remove all artificial colours and flavourings from its sugar confectionery in the US in response to calls for more natural alternatives. Mars has also said that it is exploring natural alternatives.

Then there is sustainability – the ethics of chocolate and palm oil production – which is being more widely discussed. Palm oil, a commodity now used in half of the products we buy, has been under the spotlight for its unsustainable production practices. Again in the UK, while sustainability is not yet a significant sales driver – appealing only to a niche group of shoppers – this is likely to change over time.

We have seen both Mars and Ferrero respond to calls for more sustainability, saying they will buy 100%-certified sustainable cocoa by 2020. Nestle has also announced it is on target to achieve the same by the end of this year, becoming the first major confectionery company to do so.

Operating in a mature market with strong brands and little inroads from private label, confectionery manufacturers are relatively well isolated from competition - but sales are stagnant. In a bid for growth, their position in the category could leave them in a position to be more experimental in line with growing concerns around health, sugar, artificials and sustainability.