14 November 2008 - Chocolate is seen as a comfort food. During troubled times, consumers often turn to chocolate for comfort, but may have to carefully consider what they are buying this year, says Rabobank Confectionary Analyst Maria Castroviejo.
According to a recent UK survey, the best performing chocolate category in the first half of 2008 was chocolate tablets and the worse hit were boxed chocolates, confirming a trading down within the segment. “When chocolate is purchased for self-consumption, consumers look for cheaper options and not for status. Chocolate tablets offer better value for money and may benefit from the trend to trade down as consumers look for less expensive chocolate alternatives,” Castroviejo said.
Seasonal chocolate trade down
As the holiday season approaches, boxed and seasonal chocolates are the most susceptible to wavering consumer spending decisions. For the European Processed Food and Retail industry, spending on confectionery goods is seen as discretionary and hard to predict, especially in penny pinching times. Quarterly sales may suffer from consumers trading down to cheaper chocolates or buying less, concluded Castroviejo in a Rabobank presentation Financial Turbulence Impacts European Processed Food and Retail.
Chocolates are also a typical Christmas treat. For some consumers, a box of chocolates is an infrequent, odd, occasional purchase. Predicting what the European consumer will do for chocolates this 2008 holiday season is like a box of chocolates, you never know what you are going to get. “Those who bought a posh box of Neuhaus last year, may trade down to Merci boxed chocolates. Those who bought Merci in the past, may trade down to a box of supermarket chocolates,” said Castroviejo.
So, this holiday season, will consumers go for rich, premium boxed chocolates or cheaper supermarket tablets? “People want to feel good in these tough times. They want to treat themselves and treat their families,” said the chocolate analyst, “In most cases, when buying for self-consumption we are expecting consumers to trade down this year. They may buy smaller boxes or a cheaper brand,” said Castroviejo.
Less chocolate for your money
Chocolate has also been affected by European food inflation. Consumers may not spend less on chocolates this holiday season, but they will actually get less. “With double-digit food inflation in some countries, if customers spend the same amount of money as last year on chocolate, they will get 10% less chocolate for their euros.”
A sales growth of 5% may seem like an achievement, and would have been in the old scenario of low food inflation. But now, it is just indicating that the market is shrinking in real terms. “For the chocoholic, the only way to stick to the budget and maintain volumes is to trade down. For the gourmet, to buy less. The final outcome for the industry will be somewhere in the middle: lower volumes or cheaper chocolates. In both cases, the result for the producers may be lower profits,” said Castroviejo.
Indulging at home
On the positive side, the sector could benefit from a decline in going-out expenditure in Europe and consumers indulging at home. More families are cooking at home to save money and staying in rather than going to a show or movie. “To compensate for skipping take-aways and restauranting, consumers may still splurge on premium boxed chocolates,” predicted the analyst.