Product and Service

Companies, who are  grouped into chocolate &confectionery sector of Candy industry, focus on manufacture and sale of confectionery products by wholesale or retailers,

Demand for Product and Service

The demands for chocolate products exist solidly but may be declining slowly. Sales and marketing channels have significant impacts on manufacturers’ performance due to changes in retail industry in the past several years.

The Sector

Sector’s current, trend, causes behind trend, and future

Current and Trend

  • Demands for chocolate products in US market are solid but, based on the sales volume, may be declining in the past two years following a few of years’ slow increase (at about 1% annually).
  • Sales volume in traditional mall-based stores slowed down faster than in more diversified sales channels including mass merchandise and online stores.
  • Decrease in sales of many manufacturers resulted from decrease in demand or retail industry troubles and thus the increasingly intensive competition of price, which has been worsened by increasing costs, significantly hurt profitability of companies in this industry.


Causes behind the trend

  • There are no fundamental changes in factors that influence the consumption of chocolate of US market. The growth in chocolate sector should be following changes in demographic development and thus should be similar as the 2% growth rate in the whole food industry. Accelerating recovery of economy will bring more positive factors for this industry.
  • Before the increasing costs in ingredient and labour can be smoothly passed on to the final consumers cross the whole sector, chances may be given to distribution channels (online or mass merchandise) where extra costs can be better absorbed. In this competition, traditional franchised stores obviously are on disadvantage situation.


Industry Future

  • Upward trend in selling price may still be limited by the combined effect of demands and competition. At the same time when organic demands keep constant sales may still go to the most cost efficient distribution and marketing channels.
  • Manufacturers will continue to compete for retailers’ shelf or other types of selling spaces.
  • Manufacturers’ sales and decreased margins will be able to catch up eventually as retailers can absorb more costs when terminal consumers are able to accept the raised price for their products.


General Financial Performance of Companies In the Sector

It seems sales volume is declining for those chocolate manufacturers in this sector probably as a result of generally declining demand in US market. Our data indicates that there are two different stories for traditional in-store retail sales channels and for massive merchandise or online sales channels. Sales pressure seems to be bigger for traditional mall-based store sales (presented an annual decrease of about 3%). Decrease in sales volume seems to be slower for other manufacturers with diversified sales channels (presented an annual decrease of 1%), a result attributable to retail traffic’s shifting from mall-based stores to mass merchandise stores.

However, we think that another reason that caused a difference may lay in competition in price, which usually significantly relies on margins in different sales channels. After experienced high margins due to low costs for years, companies in this sector started to feel pain brought by rising ingredient costs and labour costs started since 2015. And this is a strong incentive for them to raise selling price and caused huge pressure on margins of their retailers. Obviously, traditional candy stores have the least flexibilities in dealing with the balance between raising price/cutting expenses and thus lose sales.

Our data indicates, however, that while, due to being more flexible to lower price, chocolate companies with diversified retailers experienced less decrease in sales, due to increasing production costs and general pressure on top of wholesale price the companies in both stories have had to endure shrinking margins and profitability. At the current level, the average gross margins for chocolate manufacturers vary between 28% - 36%. They usually spend 24% of the total sales on SG&A and can generate a 13% operating margin. 

According our analysis, the sector’s ratios of enterprise price/adjusted EBI ranges 19-52, which is a big gap because of the industry trend discussed above about their retailer types.


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