Sweet spot

With the region a major market of confectionery items, more and more players are competing for a slice of the action.
Sweet spot
By Administrator
Mon 09 Jul 2007 02:38 PM

Chocolate manufacturers have few reasons to complain in the Middle East. While the soaring summer temperatures might not always be the ideal weather for the storage and consumption of confectionery, sales have been rising consistently by around 10% a year, in the past few years. Indeed, according to figures from market research company MEMRB, the entire chocolate category across the Middle East grew by 9.1% between 2005 and 2006.

Meanwhile, value sales of countlines - better known as chocolate bars - in Saudi Arabia have risen from US $453.8 million in 2001 to US $619.9 million in 2006, according to Euromonitor International. Furthermore, the sector is showing no signs of slowing, with Euromonitor International predicting that confectionery sales in Saudi Arabia will reach US $846 million by 2011. Not surprisingly, chocolate producers in the region are also upbeat about the sector, with companies involved in various aspects of the industry, from countlines to luxury chocolates, reporting solid growth.

If you look at countries and cities such as Qatar and Dubai there is a clear impact of a growing population, which is essentially immigration into these cities with the expanding economies and opportunities.

But this level of growth has led to competition becoming increasingly tough, with multinational companies such as Masterfoods and Cadbury Schweppes competing with smaller Middle East players such as Gandour, a Lebanese company, and the UAE's Federal Foods.

Kheirallah Wakim, chief operating officer at Gandour, one of the largest confectionery producers in the region, said that sales of confectionery products in the Middle East are growing but also thinks the sector is becoming more competitive. Gandour is the number-two player in the Middle East in terms of volume sales, according to MEMRB, giving the company a good overview of the market. "Many confectionery products sell well and many countries in the region are proving to be good markets, each with its own relative size and consumption level," Wakim said.

Gandour, which manufactures a range of products including chocolates, countlines and biscuits from manufacturing plants in Saudi Arabia, Lebanon, Egypt, Malaysia and China, offers lower priced products than some of its rivals, and grocery stores remain an important sales channel for the company. In terms of the drivers of growth in the market, Wakil pin-points the region's rising population, a high percentage of which is young, and improved purchasing power.

"Throughout most of the Middle East, the traditional retail outlets contribute to a high percentage of confectionery sales," Wakim said. "Yet the Middle East is undergoing a high surge in the development of the modern trade channel, thus following the global trend."

Sachin Goel, business executive manager for Nestle Confectionery in the Middle East, said the sector is buoyant with all chocolates, especially assortments and wafers, selling well. He added that sales are particularly strong in all of the GCC countries and Kuwait. Nestle experienced strong growth with its Mackintosh Quality Street brand during the past year, largely because a special campaign involving a competition to win a luxury holiday proved successful for the second year in a row.

For Goel, the main driver of growth in most Middle East markets is population growth. "If you look at countries and cities such as Qatar and Dubai there is a clear impact of a growing population, which is essentially immigration into these cities with the expanding economies and opportunities," he said. "At the same time, there is a clear increase in snacking and you notice that with growth in not only chocolates but in other related categories such as biscuits, savouries, and other sweet snacking products in the marketplace."

But Goel is relaxed about the high number of cheaper chocolate bars that flood the shelves of many Middle East grocery stores, although he admits that producers of premium confectionery must keep a close eye on pricing. "It's [cheaper chocolate brands] a different sub-category altogether for which there is a different type of shopper and consumer," he said. "In volume terms it remains an attractive chunk of the confectionery business; however the dynamics ruling this business are quite different to the mainstream business where the consumer is a lot more discerning about the product and the brand.

"As a significant player in the confectionery business, you need to tread carefully that you don't compromise on your offer in the value for money segment and at the same time have a viable, sustainable model. This is not always easy," he added.

Opportunityknocks

The continuing growth in the sector throws up many opportunities for distributors and smaller producers to enter the market with new products. One company that has brought new confectionery brands to the UAE is Emirates Snack Foods, a UAE-based food and drink distributor. The company recently expanded its children's confectionery range with the launch of Zaini Disney chocolate eggs from Italy's Zaini, in the UAE and Oman.

The 20 gram chocolate eggs, which each contain a collectable Disney character, will be available in single and multiple packs aimed at all retail channels. The surprise set of Disney characters will change every six months, to help maintain consumer interest.
Salim Irshad, general manager of Emirates Snack Foods is optimistic about the potential of the Zaini product, not least because he has already seen sales of Schogetten, another confectionery brand that Emirates Snack Foods distributes, sell strongly in the past few years.

"Our popular brand Schogetten, which has a completely new packaging this year, has performed very well, especially in the modern trade such as Carrefour, Spinneys, the Co-ops and of course the C-stores at the petrol stations," Irshad said.

However, he added that significant cost inflation and the continuing erosion in the value of the UAE's Dirham and other GCC currencies, against the Euro has put some pressure on sales of Schogetten, which is a German confectionery brand.

Indulgence value

Another distinct component of the confectionery sector is luxury chocolates, and the market for these products is also increasing rapidly. In the UAE, Matajer, which manufactures and sells luxury chocolates from its own outlets under the Pistache banner, is experiencing particularly strong growth and plans to expand in the GCC and Kuwait. "We're doing good. We have had sales growth of around 30% until April this year, compared to the same period last year," said Matar Al Hosani, of Matajer.

"We are only operating in the UAE at the moment although we have initiated some negotiations with some prospective partners in the GCC. We expect to close some agreements by the end of this year, and we expect KSA to become our biggest market followed by UAE and Kuwait." He added that the company hopes to open 10 Pistache branches this year.

Hosani said luxury chocolates are becoming more popular as consumers become more aware of the difference between fine chocolate and mass produced products. "Luxury chocolate is still the perfect choice for gifts for all occasions, and also as a self-indulgence product," he said. But Matajer does face some challenges with the Pistache brand, such as chocolate being relatively new to the regional culture and often being positioned with sweets.

"We have to deliver chocolate that fits the local and Eastern taste, educating customers and introducing chocolate as a valuable and rewarding product," he said.

Counting on countlinesBy Euromonitor International

In 2006, countlines were the most popular chocolate confectionery in KSA, with sales reaching SR620 million (US $165.3 million). The products, which include premium brands of Master Foods, Nestlé SA or Cadbury Schweppes, are sold at prices ranging from only SR0.50 to SR2.00.

Countlines are consumed mainly by children and young adults; a consumer group that is becoming more westernised and increasingly responsive to multinationals' intensive and continuous marketing, promotional and advertising campaigns.

The majority of countline sales in KSA are impulse purchases, and the sector is largely dominated by imported merchandise from multinational brands. In 2005, Euromonitor International's research shows that Master Foods, Nestlé and Kent Gida Maddeleri Sanayii ve Ticaret AS alone captured around 79% of sector value sales.

Master Foods was the best performer in the sector in 2005 with its share up by more than three percentage points on 2001, thanks in large part to strong investment in advertising, promotion and new product launches. Master Foods countlines in the Saudi Arabian market include Galaxy, Snickers, Twix, Bounty and Mars.

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