China and Chocolate - Can the Global Big Five Exploit the Opportunity?

Demand for chocolate products in China is growing fast, but from a very low base. Nevertheless, the "Big Five" global chocolate firms are now all firmly focused on capturing their share of what promises to become one of the world's most valuable chocolate markets.

With a population of 1.3 billion people, you might expect the volume and value of chocolate sales in China to already be pretty high. However, this is not the case. The vast majority of Chinese consumers prefer to snack on salty rather than sugary food and hundreds of millions of Chinese have never even tasted chocolate. However, as the pieces of video evidence below demonstrate, that is beginning to change.

In particular, the emergence of a large and increasingly affluent middle class, mainly located around the eastern seaboard of China, has stimulated rapid growth in demand for chocolate.

From a low base, chocolate sales in China are enjoying a high percentage growth now, but the market size is still substantially below that of developed economies largely because of very low per capita (per person) chocolate consumption.

The market for China is currently dominated by just three of the Big Five global chocolate firms - Mars, Nestlé and Ferrero - who together have over 70% of the market. That leaves Hershey (USA) and Mondelez (a spin-off from Kraft Foods which includes Cadbury's) chasing hard to keep up.

Hershey's response has been to turn to an external growth strategy by acquiring one of China's leading producers of candy and chocolate. As the WSJ article points out:

"industry insiders say foreign companies often have struggled to develop flavors that work for Chinese consumers, who like combinations that would seem like mismatches in Western markets—yogurt with aloe chunks, blueberry-flavored potato chips and sweet-onion cookies."

That sounds like a product strategy of localisation might be required if the major multinational confectionary firms are to succeed in China. Or, will it be enough for them to rely on growing numbers of Chinese consumers changing their tastes and switching to the kind of chocolate bars and other confectionary that we consume so much of in the West?

Recent sales data from Euromonitor about chocolate consumption in China is discussed in this recent video:

This video from Reuters (2012) is a good introduction to the role of chocolate in Chinese society:

In this video from the Wall Street Journal, the strategy of Hershey in China is discussed: