Chocolate

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  Butlers Point of Sale Logistics:The Sweet Taste of Growth in the South African Chocolate Retail Industry.

  25 Jul 2017 by Johan / No Comments

  The South African Chocolate Retail Industry, as a result of international inclinations, seems to be bulletproof. Although the industry is currently dominated by the larger role players, what impact does the individual’s search for a unique chocolate experience mean for the industry?

  “Chocolate is one of those products that is recession proof. The market is still growing at around 10% per year.” These are the words of Cathal Queally, brand manager of the South African based company, Chocolate Direct (IndustrySurvey, 2017). Given the current global financial climate one does not seem to find this kind of reaction in many retail industries worldwide, however, on closer inspection it seems that Queally’s description on the Chocolate Retail Industry to be “recession proof”, is more than reliable.

  The constant growth in retail figures owes thanks to a few key aspects, the first of which is the increasing awareness of chocolate’s health benefits (FranchiseHelp, 2017).

   

  Health Benefits

  Research over the past decade has proven that the presence of antioxidants found in darker chocolate (chocolate containing more than 60% cocoa) could prevent or delay the development of cardiac medical diseases. The famous medical doctor and television personality, Dr Oz, argues that “Dark chocolate keeps one looking and feeling younger as it helps control blood pressure, avoids wrinkles and keeps one’s skin younger and slimmer.” This medical breakthrough has caused increased sales of dark chocolate, which in turn has led to an increase in the demand to cacao (FranchiseHelp, 2017).

  Cocoa Demand

  According to the article published by Franchise Help, Chocolate Industry Analysis 2017 – Cost & Trends, the increased demand to cacao seems to be met with poor supply (2017). The reasons therefor are threefold:

  Firstly, 70% of total cocoa production originates from West African countries. Due to the politically unstable nature of these countries resulting in sporadic outbreaks of war, the international supply of cocoa seems to be subdued at times. Although the expansion of supply to different parts of the world seems imminent, the International Cocoa Organisation explains that it takes up to five years for a new cocoa plant to yield its first crop. This results in expansion of supply being a timely process (FranchiseHelp, 2017).

  Secondly, the supply of cocoa is under a great deal of stress due to global warming. The International Centre for Tropical Agriculture has issued a warning that, at the current rate of temperature increase, West African countries may experience an increase of average temperature of 2-degree Celsius by 2050. As argued in the article Future of the Chocolate Industry Looks Sticky, Barnato and Graham explains that the temperature in West African countries by 2050, might be too high for cocoa crops to grow, as trees could struggle to obtain enough water (Barnato and Graham, 2017).

  Finally, Barnato and Graham argue that due to the high level of child labour utilised within the harvesting of cocoa crops, delays are experienced in the supply of cocoa due to protest action based upon the ethical matter surrounding child labour. There are reportedly more than 2 million children working in the cocoa harvesting industry, 500 000 of which under “exploitative conditions” (Barnato and Graham, 2017).

  These reasons have led to global cocoa production decreasing from 4,3 million tonnes in 2013 to 4,1 million tonnes in 2016 (FranchiseHelp, 2017) (Barnato and Graham, 2016). This inevitably resulted in an increase in cocoa price and subsequently the price of chocolate to the end user. According to Franchise Help, consumers do not mind the increase in the price of chocolate as it is seen as an “affordable luxury” (FranchiseHelp, 2017), indirectly concurring on Queally’s views as set out above.

  Industry Growth

  The Global Chocolate Retail Industry grew by 13% between 2010 and 2015 hitting the $101 billion mark (Barbato and Graham, 2016) with the USA occupying the largest portion at $21,1 billion (FranchiseHelp, 2017). The reasons therefor are twofold:

  Firstly, over the past decade, Asian Pacific countries have shown a growing interest in chocolate (FranchiseHelp, 2017). As these countries get increasingly more accustomed to “western tastes”, their demand for chocolate has grown to such an extent that the impact thereof on global sales may increase with approximately 30% by 2020 (FranchiseHelp, 2017).

  Secondly, one has to consider the emergence of niche chocolatier chocolate stores who create unique and individualised products (FranchiseHelp, 2017). Alternatively known as Retail Chocolate Stores, these are defined as stores that retail exclusive chocolates to consumers who focus on premium and seasonal sweets (Watt, 2015). In her article Chocolate Retailers to Grow Through 2020, Watt argues that, although the majority of chocolate sales emerge from the grocery store sphere (22%), exclusive chocolate stores are experiencing growth due to the rise in individuals’ disposable income combined with their high demand for premium chocolate (2015). According to Watt, the international chocolate sensation Lindt showed to most growth under these circumstances (2015).

  South African Context?

  Parallel to the international market, the South African Chocolate Retail Industry, valued at R5,03 billion, is highly secure with Cadbury, Nestlé and Beacon controlling 85% of total sales (InsightSurvey, 2016). Considering that 50% thereof emerge from chocolate slabs, the leading South African brands are currently Cadbury’s Dairy Milk, Lunch Bar, PS and Chomp, as well as Nestlé’s Bar One and KitKat (InsightSurvey, 2016). According to the international snack manufacturer Mondelēz, South Africa will be responsible for 70% of the global chocolate growth by 2020 (InsightSurvey, 2016).

  Although these role players are currently occupying the local market, since 2014 South Africa saw a growing amount of private chocolatiers creating unique dark, vegan, spicy and fruity speciality chocolates. According to the SA Chocolate Industry Landscape Report as published by Insight Survey, it becomes apparent that niche chocolatiers are eroding the market share of big role players (2016). Kees Beyers argues in the report that this is due to the eradication of import duty on raw materials combined with the consumer’s association of small speciality chocolates with quality, good service and attention to detail (InightSurvey, 2016).

  Conclusion

  The South African Chocolate Retail Industry currently parallels the international horizon. Although there exist intercontinental factors that may cause an increase in the price of chocolate to the end user, the nature of the industry seems to accept this fate better than others. Through the course of this article, it had become apparent that the consumer is constantly searching for a unique chocolate experience. Even though this might have detrimental effects on the larger role players within the industry, it currently ensures a brighter future for the individual chocolatiers.

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