Capturing India’s sweet tooth: The confectionery chronicles

Indian confectionery market is competitive and has evolved drastically over the years. With multinational companies accounting for major market share, small businesses are making their way with new product innovations and marketing strategies for surviving in the segment. 

Prefer rochers over traditional Indian motichoor laddoos or a bar of snickers over our very own barfi? If you do, you’re one among the many Indians silently swept over by the chocolate culture. The change often goes unnoticed, yet the rich culture of local sweets and the bright, colorful looking gooey Indian sweets are all being replaced by chocolates, candies, cakes and cookies. Come any Indian festival, even TV commercials play the trick in our minds. Gone are the days of finding a no-frills, down-by-the-lane sweet shop where you could have a plateful of Dahi Jalebi for breakfast.

Years of bringing home premium chocolates as gifts for relatives and friends – be it for the sake of societal status confirmation or general show-off – has made the Indian taste buds more comfortable with the candies and chocolates even for their auspicious and everyday moments. This clearly reflects the fact that the confectionery sector has attracted our sweet-tooth, and is pulling up the growth ‘bar’ strongly.

Customising for the Indian palate as per Statista.com, revenue in the Indian confectionery segment amounts to US$ 11,567 million in 2019, while the market is expected to grow annually at a CAGR of 6.7 per cent for the period of 2019-2023. Connoisseurs of candies and chocolates believe that people’s palette has changed drastically over the past few years and this can be attributed largely to well-connected citizens and flavour innovations in the industry. Chocolate confectionery has been experimenting with a mix of different ingredients. Apart from fruit flavours such as strawberry and orange peel, new flavours such as coffee, cinnamon and many more are making way into chocolate confectionery. Also, it is now considered as healthy to consume chocolate. Social media, research and dieticians’ suggestions of consuming chocolate for a healthier dessert option also make people choose chocolates over sweets, because it has low sugar content.

Durga Prasad Devabhaktuni, Managing Director at DP Chocolates, says, “Chocolates have a high shelf life, as it goes through various processes before reaching the consumers. Traditional sweets can go rancid; and that’s also one of the reasons why chocolate is becoming more popular in the Indian scenario.” DP Chocolates is a cocoa bean processor in India. It provides raw material and manufactures for various national and international chocolate brands.

Increasing Indian love for chocolates

When asked about why chocolate confectionery is becoming a big hit these days, most industry experts believe it is because candy is mostly an impulse purchase, while chocolates are planned. It’s indeed true, as an industry research by Mintel Food and Drinks reveals, that when it comes to chocolate confectionery consumption (volume sales), it seems India is a nation of chocolate lovers, as it consumed 228 thousand tonnes worth of chocolate in 2016. Meanwhile, Australia and Indonesia consumed 95 thousand tonnes and 94 thousand tonnes worth of chocolate in 2016 respectively.

Another research by MarketInsightsReports.com reveals data for 2017, which says, “Chocolate consumption volume in India surpassed 193 million kg in 2017, with moulded Chocolate registering the largest volume sale. Rising per capita income and westernization trend is the key driver for the market.”

Durga-Prasad

While Statista.com suggests, in the year 2017 and 2018 chocolate consumption volume was 239.8 million kg and 255.5 million kg respectively, it is expected to amount to 301.6 million kg by the year 2023. The report further states that the average volume per person in the market for chocolate confectionery, currently amounts to 0.2 kg in 2019.

Prasad further informs that it is not just chocolate makers, but various other subsectors also consume chocolate as a raw material and thus chocolate confectionery is a huge market. “Not only chocolate makers but the food processing, ice-cream, biscuit and bakery industry consumes a good share of chocolate as a raw material. We provide raw material in bulk to companies such as Britannia, Mother Diary and Cream Bell; and produce bulk chocolates for various brands such as Mondelez and Mars,” he says.

Expanding retail channels and a growing trend of impulse purchase are further driving the market. Additionally, increasing demand for premium varieties offer the foreign brands a potential opportunity to tap the market.  Taking the plunge, US based chocolate maker, Mars is strengthening its operations in India and is building a sustainable supply chain to expand its reach beyond metro cities. “With our continued focus on growth in the India market through our expanding distribution network, flexibility to scale as per demand, ongoing efforts to build sustainable supply chain and strong market potential, we anticipate one-fourth of our growth contribution for AMEA region, coming from India, over the next few years,” says Andrew Leakey, Mars Wrigley Confectionery, General Manager – India.

The company has an innovation centre in Bengaluru which helps in localising the flavours; and is working to introduce products that suit the Indian taste. When asked about the growth, Leaky says, “Confectionery market has been growing with a CAGR of 9 per cent in last 5 years and we are growing at a double rate and we would continue to grow at that rate.” To expand its reach in the mass market, Mars has introduced a small ₹ 10 pack of Snickers, as around 80 per cent of the chocolates in India are sold in the ₹ 10 price segment, he further shares.

Confectionery-Trends

Candies continue to be a favourite

While chocolates have their own sweet spot in the market, the confectionery trend has also been recently seen moving towards hard boiled candies and gums. Professionals with minimal breaks or people with smoking habits tend to buy gums and hard boil candies to curb poor oral health and bad breath. “While adults have become more health conscious, with children the same taste and liking towards confectionery, still exists.  Therefore, the sales have seen a consistent growth of 6 to 8 per cent since last couple of years. I believe, confectionery in India is an impulse purchase which is governed by price point of ₹ 1 and ₹ 2 now, which earlier was the 50 paisa segment,” says BK Gurbani, Chairman of Sampre Nutritions Ltd and President of Indian Confectionery Manufacturer Association (ICMA).

According to domain experts, Hard-Boiled Candy (HBC) segment is growing at the never-before annual rate of 12-14 per cent. Also, dominant market leaders are pushing the ₹ 6000 crore candy market to grow at 1.5 times the FMCG industry growth in India. Despite constituting a third of the total candy market, the hard-boiled segment is witnessing heightened traction due to the entry of new players and product innovations in terms of formulation, processing and packaging.

In addition to this, the ongoing success of several innovative sugar confectionery products such as the Pulse candy from DS Group, have disrupted the Indian market and created opportunities for several small companies to offer imitation products. These products are usually offered at lower price points compared to other products and are often confused with the originals.

“The confectionery segment recently moved to ₹ 1 segment and people have started liking the taste of hard-boiled candies more than soft toffees such as éclairs and other chewy toffees.  Moreover, Indian taste palate is used to of the spicy, tangy, sweet and sour masala flavours and hence, the hard-boiled candy with a masala filled centre, quickly gained popularity and the manufacturers have focused towards this category more than the soft candy products,” says Gurbani.

BK-Gurbani

It is largely the demographics and the demand, that play an imperative role in driving sugar confectionery sales, as it continues to retain a wider audience with all age groups. “Significant popularity of confectionery comes from the rural and semi urban areas, where in 80 per cent cases, it is sold as an individual unit, mostly at the paan (a betel leaf preparation) shops or small grocery stores,” says a confectionery factory owner.

On the other hand, as per industry speculations, the chocolate éclairs and soft toffee category is apparently struggling with lower margins due to the premium nature of the product. As a matter of fact, any HBC maker will easily earn more by selling a candy for ₹ 1 than a chocolate éclair company charging ₹ 2. While the gum sector is also seeing flat growth, despite lack of promotions it is consumed by all age groups. Last year too, there were no innovations and new product launches in this segment, however, experts believe that shopping habits for gums have drastically changed.

A Euromonitor report on the confectionery segment reveals that impulse purchases of gum by price conscious consumers has undergone change due to several reasons, which include refraining from consuming sugar-based snacks and the existence of artificial flavours. Sugar-free gum is bought by consumers to maintain oral hygiene rather than as an impulse purchase.

SMEs in confectionery segment

Currently, the confectionery market is well entrenched with multinational players such as Mondelez erstwhile Cadbury India, Nestle, Perfetti Van Melle, Mars India and Lotte; along with large domestic players such as Amul, Parle, ITC and so on. Multinational companies such as Ferrerro, Hersheys and Lindt too have a strong presence in the premium chocolate market.

In the chocolate confectionery segment, Cadbury holds a market share of around 65 to 70 per cent, followed by Nestle at around 20 per cent. However, there is a significant number of small businesses that cater to urban, semi-urban and rural areas. As consumers are now more conscious about sugar intake and are shifting towards products that offer a high nutrition value, the demand for sugar-free, organic, and low-calorie products is also increasing. Innovative small businesses that manufacture healthy and customized confectioneries, are cropping up increasingly.

Udit Khaitan, Founder of Chandigarh based Get Desserted tells us, “Indians love to eat sweets and are very open to try out new concepts. Confectionery segment is also seeing new paradigms in terms of innovations which make this sector lucrative for startup ventures.” He further talks about his first startup Get Desserted, which he started in 2014 from Chandigarh and now has seven outlets in different cities running on a franchise-based business model. “We have a variety of chocolate-based ice creams, shakes, waffles, cupcakes, pancakes, sorbet etc. but people are so health conscious today, that we have also customised our products accordingly. Now we also have smoothies and yogurt as part of a separate healthy menu as our offering,” he adds. Khaitan explains that today, consumers want to try new and innovative products and are ready to spend on impeccable service and taste. “Our concept is different from others, as we use liquid nitrogen and we make fresh ice creams and other products live for our customers. There is no use of chemicals and added preservatives,” he shares.

According to Khaitan, his brand started franchising in 2018 and is growing at a rate of 15 per cent Y-o-Y as they plan to create more franchise outlets going ahead. “Currently, we are more focused on creating innovative products, especially in the waffle and ice cream segment. While we are also looking forward to opening 15 to 16 new franchise outlets by the end of this year,” Khaitan informs.

Udit-Khaitan

While talking about small businesses in HBC sector, Association president Gurbani tells us that there are more unorganised players in this field than any other confectionery sub sectors, and they have a lot of opportunities to sell differentiated products, provided they focus on a better distribution system and reach of the product upto the retailer’s shelf. “Hard boiled confectionery items do not need hi-tech setup and hence, there are numerous unorganised small industries across the country,” he says.

Most of the multinational companies operating in the country are trying to develop the product with imported lines and technology driven formula while introducing it to different regions across the country. However, irrespective of whether it is an international or a domestic player, the success of the products also often depends upon the supply chain and end point retail counters.

Gurbani explains the phenomena, “The success rate for the products highly depends upon retail and supply chain. Similar products may or may not see the high acceptance level in different regions; while their price point at shelf space remains same. For instance, for a ₹ 1 product, the customer may not go for specific brand when buying confectioneries. Here, the sales depend upon, retail sellers as they play an important role for displaying and selling these products as they even use these candies in exchange for coinage.”

It’s-getting-Sweeter

Where the taste is getting sour

No doubt, the Indian confectionery players have excellent skill to manufacture and market their products, the proof of which is the sector’s growth over the years, now at a mark of ₹120 billion. Having said that, there are still several areas where this sweetness fades a little.

Firstly, companies have to deal with slowdown and product imitation by unorganised players. There is also a greater competition from new snacks and the growing awareness of health issues making the consumer more conscious. The new market of bars that talk energy, nuts, oats, and protein, have managed to attract audiences looking for healthy alternatives to confectionery. These products are here to stay and will make it difficult for chocolate to grow, unless it taps into local health trends.

On behalf of all the manufacturers, Gurbani talks about policy change and its compliance as a roadblock to the sector. He tells us, “The confectionery manufacturers are facing challenges with the government regulatory authorities, wherein the codex and Food Safety and Standards Authority of India (FSSAI) are changing their norms and regulations for the safety of the customers and the manufacturers need to comply with that by changing their packaging material primary and secondary very often.”

Actually, the new regulations prohibit packaging material made of recycled plastic, including carry bags for packaging, storing, carrying or dispensing food items. Primary food packaging refers to packaging material in direct contact with food products; whereas secondary packaging encloses the primary food packaging which doesn’t come in direct contact with food products. Taking cognizance of the carcinogenic effect of inks and dyes, the norms also prohibit the use of newspaper and other such material for packing or wrapping of food articles. This includes respective Indian standard for printing inks for use on food packages. Food businesses need to comply with new packaging regulations that prohibit the use of recycled plastics and newspapers to wrap food articles w.e.f. July 1, this year. While, organised sector may not face any difficulties in implementing these regulations but unorganised sector is feeling the heat as it comes into force.

Other stakeholders in the confectionery segment, such as cocoa processors are dealing with issues of import duties on cocoa and cocoa preparations. According to Prasad, India consumes around 1 lakh tonnes of cocoa based products annually, while the growth is relatively less than what it should be despite the increasing demand. This has led to a steep increase in import duty charged on cocoa beans imports. “We have to pay around 33 per cent in addition to GST as import duties on cocoa beans, while cocoa products are duty free.” Prasad further explains, this is a government gimmick which is creating a huge setback for domestic chocolate based confectionery makers as there is no import duty on finished products.

As per the Directorate of Cashewnut & Cocoa Development (DDCD), the production of cocoa bean was estimated at 20,000 tonnes in 2018-19, whereas imports in 2016-17 were at 63,613 tonnes, amounting to ₹ 1,542.31 crore. Stakeholders are of the opinion that government is overlooking the issue rather than pushing farmers to maintain the demand and supply gap. “In addition to this, the withdrawal of import duty on powdered beans has affected domestic companies who buy cocoa powder locally for processing,” Prasad reveals. Countries like Singapore and Malaysia have huge processing capabilities and are exporting finished products to India which are way cheaper than what manufacturers are producing locally. This is leading to manufacturers’ loss.

The future is sweet

Overall, rising demands of premium quality confectionery products has certainly revolutionised this sector in terms of innovation, products and consumer awareness. With this, chocolate and hard-boiled confectioneries are ruling the sector and are dominating the retail sale figures followed by countlines. The trend of gifting chocolates and candies has also resulted in increase in the sale of boxed assortments. Heavy discounts offered at supermarkets/hypermarkets and healthy eating habits are other factors contributing to the boost in sales.

Online shopping is also increasingly attracting Indians with its exciting offers and variety of brands. There is a strong appeal for imported goods in India that are widely available on online channels, eliminating the need for visiting gourmet stores. The growing internet user population in tier-II & tier-III cities offers a promising growth in the rural areas as well. Convenience, ease of searching, billing, wide selection of products and discounts and promotion has fueled the online chocolate sale. Online retail recorded an impressive CAGR of 57.9 per cent during 2012-2017.

Convenience Stores led the sale with a share of more than 70 per cent in the distribution channel. With more variety and innovative packaging, along with increasing consumption due to rise in population, increasing per capita income and urbanization, this trend is sure to continue in the near future.

Substantiating the fact, owner of Delhi-NCR based The Chocolate Factory, Reema Singh says, “We provide homemade chocolates and chocolate-based products. Nowadays, people love to have different kinds of packaging. Thus, we have variety of categories of packaging for every occasion, whether it is life celebrations, corporate or thematic events. Consumers can choose options accordingly their needs from our website.”

Overall, it seems the experience of eating chocolates and craving for them is never going to die. With this, even the confidence of chocolate makers is at an all-time high as any innovation in chocolates is being well received by the consumers. Consumer demand for cocoa content in chocolates and consumer awareness about cocoa products is further escalating the growth in this sector. That said, it wouldn’t be unjustified to state that these dopamine (happiness hormone) releasing products are clearly here to stay!

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