Foreign chocolate brands such as Dove, Cadbury and Hershey have now captured around 70% of the Chinese chocolate market. While Barry Callebaut, the world’s largest chocolate maker with 25% of the global market, recently opened its first China chocolate factory in Suzhou, the world’s 20 largest chocolate companies have now all entered the Chinese market. But in the face of global competition, Chinese local chocolate companies have been further suppressed along the value chain.
Second largest chocolate market
As Barry Callebaut, with a turnover of 4 billion francs a year, set up his first production line in Suzhou, a full multinational chain of the chocolate industry is also emerging. Industry insiders have suggested it will be a blow to local Chinese chocolate companies in this globalized competition. He further noted that it was especially important to keep abreast of international competition, otherwise the Chinese industrial chain would become even more vulnerable.
In recent years, the global chocolate market has slowed down considerably, growing only 2-3% per year. This is mainly due to the fact that per capita chocolate consumption in developed countries is already at a high level, averaging 11 kg. On the other hand, China’s per capita chocolate consumption is only 0.1 kg and its domestic chocolate market is growing at a staggering rate of 10-15% per year, with an estimated market potential of 2.7 billion US dollars. Thus, China has become the second largest chocolate market in the world only behind the United States. The world’s 20 largest chocolate companies have all entered China, and today there are over 70 imported chocolate brands or JVs in the Chinese market.
Barry Callebaut made it clear that they are coming to share and participate in China’s economic growth. It plans to make the Suzhou factory the largest of its 38 factories in the world and increase its sales six-fold over the next five years thanks to the large capacity of the Suzhou factory. “We hope to be able to make full use of the capacity of this factory to rapidly increase production from 25,000 tonnes to 75,000 tonnes, which will make it the largest chocolate factory in the world,” said Patrick De Maeseneire, CEO of Barry Callebaut.
It is understood that Barry Callebaut’s new factory in Suzhou will become the company’s Asia-Pacific headquarters, as well as a sales network center to serve Chinese and multinational food manufacturers and specialty customers. Major brands, such as Cadbury, Hershey and Nestlé all currently have a large amount of outsourcing manufacturing contracts with Barry Callebaut, whose OEM production of cocoa liquor and chocolate products accounts for 15-20% of the annual output of each of the three major brands. The Swiss Barry Callebaut is therefore indeed the big brother of the global chocolate industry.
In fact, even before Barry Callebaut’s arrival, local Chinese chocolate companies had already lost market share to multinational competitors. The US Hershey has decided to survey the Chinese market, expecting to achieve 23% local market share by 2010 and second place in China. At the same time, Korean and Japanese chocolate producers are also accelerating their entry into the Chinese market.
Local businesses not present in the local market
Although the rapid growth of the Chinese chocolate market is good news for its local chocolate companies, Chinese consumers today often refer to foreign brands such as Dove, Cadbury, Hershey and Ferrero, but rarely mention local brands.
As a foreign product, China only has a chocolate-making history of less than 50 years, so there is an inevitable gap behind foreign brands in terms of production techniques and technologies. Due to improper processing equipment and incomplete production facilities, product quality assurance is difficult for many local chocolate companies. In addition, most Chinese chocolate companies are weak in product R&D, resulting in slow changes and updates. Right now, most of the local chocolate companies are stuck in an embarrassing situation with poor product quality.
The aforementioned industrial problems have cost local businesses the opportunity to compete for the Chinese chocolate market. Multinational chocolate brands have entered the Chinese market one by one since the 1990s, and they now occupy a dominant position in the market. Thanks to their considerable financial power, multinationals can play their technological and cultural cards, as well as promote their premium quality and unique tastes, to quickly conquer the Chinese market.
As Barry Callebaut has finally entered the Chinese market, his factory in Suzhou will make chocolate production even cheaper for multinational brands. For local Chinese companies which are mainly in the low-end market, they may no longer own this market segment business.
Statistics showed that there are around 63 large local chocolate companies in China, with an annual output of 150,000 tons. Statistics from industry associations also revealed that China currently has around 250 chocolate companies in total.
Industry insiders pointed out that China’s food and beverage industry is a highly competitive market internationally. The vast potential of the Chinese chocolate market is not only for foreign brands, but is also presented to local chocolate producers. The local chocolate industry is now in a phase of structural change and survival of the fittest, and there is no doubt that the entry of foreign brands will present challenges for the local industry. But if local chocolate companies can participate in this international competition, it could not only stimulate the demand for chocolate from Chinese consumers, but also promote the development of the Chinese chocolate market.
Local Chinese chocolate companies have to constantly improve the quality of their products, select finer raw ingredients, modernize their production facilities, adopt international technologies, improve product innovation and brand management. Only then can they compete with multinational companies on an equal footing and break into this overseas-dominated Chinese chocolate market.
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