Brand owners driving French chocolate growth

With a plethora of brands from which to choose and long-established patterns of consumption, the prospects of significant growth in the French chocolate market might seem remote. But a new report suggests that there is plenty of movement in the market, driven almost entirely by the marketing efforts of the major brand owners.

Innovation has been the key to growth in the market, according to the new report from market analysts Xerfi. Improvements in product quality and variety have helped stimulate consumer demand in a market which has long been considered mature, but this has also created long-term problems for brand owners.

For this continuous need to 'reinvent the wheel' has led to a significant shortening of the life span of many products, as consumers demand ever more interesting and unusual products, obliging manufacturers to spend increasing amounts of time on developing new products in order to maintain consumer loyalty.

The market has had something of a rollercoaster ride in recent years. Volume growth of 2 per cent in 2000 was followed by a much more modest 0.2 per cent in 2001 and 0.6 per cent in 2002, before declining sharply to an estimated -1 per cent in 2003 as a result of significant price rises caused by cocoa supply concerns.

But Xerfi forecasts a return to growth in 2004 (of around 0.5 per cent), with the same increase predicted for 2005 as chocolate manufacturers continue with their two-pronged strategy of product innovation and intensive marketing, shifting their focus from tablets with a high cocoa content - the most recent growth segment - to new flavour variations.

Among the new varieties currently on offer are lavender- and chilli-flavoured chocolate, as well as chocolate containing other ingredients such as red fruits or mango.

Branded chocolate remains the most important in France, with retailers' own labels making only minor inroads into the market share of companies such as Nestlé and Kraft. Indeed, the high levels of product innovation and marketing expenditure necessary to maintain consumer demand dictate that its is the brand owners, rather than the retailers, which lead the market.

Nestlé is the number one chocolate producer in France with a 21.6 per cent share in value terms last year, but Kraft (whose Milka brand is widespread) comes a close second with 20.5 per cent, according to Xerfi. Italy's Ferrero is third with 16.9 per cent, while Masterfoods (the Mars brand) is in fourth place with 12.1 per cent.

Own labels have a combined share of around 9.4 per cent, according to the report, although this is shrinking at an average of 0.5 per cent each year as brand owners step up the innovation. Swiss producer Lindt should, therefore, take over fifth place in the near future, given that its market share is already 9 per cent.

The differences in consumer tastes between European nations are reflected in the low standing of British market leader Cadbury in France - its share is a modest 6.6 per cent, mainly through the Poulain brand it owns there - and Cadbury's ubiquitous UK brands are all but unknown across the English Channel (although it is a major player in the sugar confectionery market in France, where it owns the Hollywood chewing gum brand, among others).

Cadbury has in fact reduced its chocolate market presence in France in recent years, selling its SEAC production unit to local French player Cantalou back in 2003, allowing the latter to substantially increase its production of seasonal chocolate specialities - and take its national market share to 1.9 per cent.