On China’s version of Valentine’s Day, big international chocolate makers like Hershey are not feeling the love.
Hunger for the dark delicacy in the world’s second-largest economy has hit a soft spot as the government cracks down on bribery gifts and a meltdown in the stock market has made consumers nervous.
Smaller, local chocolate makers appear to be making slight gains, but the big multinationals are struggling to match recent growth rates in a crowded marketplace.
The Chinese market is “a challenging one and we’re certainly finding that out,” the chief financial officer of Hershey said on a recent conference call.
Earlier this month, the US-based confectionery giant said sales of its Shanghai Golden Monkey chocolates would fall to less than half the $200m (€180.9m) it initially expected this year.
President Xi Jinping’s two-year corruption crackdown has already hurt sales of cars and other luxuries. Also, the country’s Shanghai SE Composite Index has collapsed 27% since mid-June, rattling consumers’ confidence and their willingness to splurge on sweets.
“People used to buy expensive chocolate as gifts, but now they no longer do it, so the consumption falls,” said Zhao Yanping, secretary-general of the China Association of Bakery & Confectionery Industry.
That means yesterday’s Qi Xi Festival, celebrating the mythological meeting of thwarted lovers, and usually marked by the exchange of chocolates and other gifts, may be a damp squib.
The shortfall in demand is hurting the global bulk cocoa market, threatening to leave big processors like Olam International and Cargill with idle capacity.
Cocoa grinding fell 12% in Asia in the second quarter to 142,345 tonnes.
It sunk to three-year lows in the fourth quarter of last year. The popularity of chocolate has surged in China over the last decade as a growing middle and upper-class consume more western goods day-to-day and as treats on holidays like Qi Xi.
China, home to roughly 20% of the world’s people, consumed just 0.2kg of chocolate per person in 2014, compared with 2.2kg in the US.
That massive deficit gives the confectionery industry confidence that it has the potential for long-term growth in China. But the near-term outlook is not as robust.
China is expected to consume 220,700 tonnes of chocolate this year, a rise of 6.3% on last year.
That is on a par with recent annual growth rates. A problem for international competitors is growing competition. Locally-produced ‘tao’ brands like Amovo or Bouquet are taking off, with 17% of consumers saying they had bought them.
“These small players are getting more popular online,” said Xu Ruyi, head of research at Mintel China.
Hershey has cited growing competition as one of the reasons for its lagging sales. Rival US company Mars, which leads the Chinese market, declined to comment, and third-place Ferrero of Italy did not respond to requests for comment.
Nestle of Switzerland, which sells a wide array of foods in China, said last week its confectionery segment contributed to overall growth in China despite a difficult economic situation.
© Irish Examiner Ltd. All rights reserved