Food Bites Chocolate

1. Food Bites Chocolate Snacks and Confectionery Annual Market Quantification March 2011

2. Market Context Chocolate comes in three basic varieties; milk, dark and white. The ingredients as well as the nutritional contents of these different chocolates vary by type. All three types contain sugar, cocoa butter, full cream milk powder, cocoa liquor, lecithin and vanilla. Dark chocolate contains the least amount of added ingredients, while milk chocolate has the least amount of cocoa liquor, and white chocolate contains the most flavourings. The primary ingredient used in the manufacture of chocolate confectionery is cocoa beans and this typically contributes more than 30% to the final unit price. As such, the commodity price of cocoa beans has a major bearing on the performance of the category. Chocolate slabs are by far the most popular chocolate confectionery type in South Africa, with over 50% share of the market. The general retail market is the most popular destination for chocolate confectionery, while regional distribution of chocolate concentrated in metropolitan areas with Gauteng and Western Cape being the prime regional consumers of chocolate. 2

3. 2010 Category Shares *Speciality chocolate 3

4. Slabs under pressure • Chocolate slabs lost some share to speciality chocolates in the base year to contribute 52.4% to total volumes, reflecting a 3.7% share decline from 2009 levels. • The chocolate slabs category returned to near pre-recession levels in 2010, with 8.6% growth recorded. The market for slabs is expected to experience marginal volume decline in 2011 and to maintain stable volumes in 2012. • The price of slabs remained fairly constant in 2010 but is expected to rise in 2011 due to political unrest in Ivory Coast; the world’s largest cocoa producer. The price of cocoa hit a new high in February 2011 driven by a ban imposed on cocoa exports by the president elect, in a bid to oust the former president from controlling key sectors. The ban, which was expected to be lifted on the 15th of March 2011 was extended to the end of the month. • The rise in ingredients costs has already seen chocolate giants reducing slab sizes, both internationally and locally, in a bid to remain profitable. In the British market, 2011 will see further reductions of popular favourites with Toblerone expected to shed off one triangle and Dairy Milk bars expected to loose a few chunks. The reduction in size is not only price driven but health driven with smaller portion sizes expected to help tackle the obesity epidemic. 4

5. Good performance for speciality chocolates • Growth in the speciality chocolate market was experienced across all three categories, with boxes, packets and novelty chocolates experiencing 38.5%, 16.2% and 36.3% growth respectively. The category is expected to remain stable in the medium term. • Several factors contributed to the good performance of the speciality segment: • Increased manufacturer focus on boxes and novelty chocolate due to growing demand for authentic South African chocolate in the foodservices market. • Notable growth was seen in the import market, with increased volumes seen across all three speciality chocolate categories. Some smaller local manufactures cited the increased threats of cheap imports. • New product launches in the boxes and packets categories by smaller manufactures were contributing factors to higher volume growth seen in 2010. • The pricing issue will perhaps be the biggest challenge faced by most speciality chocolate manufacturers going forward as they strive to balance the price/ quality perception of their products. 5

6. Food Bites Chocolate For more information, contact: Jan Wegelin Research Manager Tel: (011) 615 7000 Mobile: 082 938 0744 www.bmi.co.za