India’s Chocolate Market -Sugar Rush

Retail recently acquired a S1% controlling stake in Lotus Chocolate for Rs 74 crore. Just last week, DS Group, which had forayed into the space earlier this year through a partnership with luxury Swiss chocolate brand Läderach, acquired Good Stuff, the owner of chocolate and confectionery brand LuvIt, at an undisclosed sum.Mars Wrigley also entered the dark chocolate segment with the launch of its new range, Galaxy Fusions Dark Chocolate in February.Mean- while, popular Finnish confectionery brand Fazer has partnered with Aberdeen Group to launch chocolates in India.

What has led to such heightened activity in the Rs 2.4-billion Indian chocolate market?

The chocolate sector, dominated by a handful of large brands, is set to grow to Rs 4.1 billion by 2028 at a CAGR of 8.8%.

Sweet Gains

Rajiv Kumar, vice-chairman of the DS Group, points out that despite chocolate dominating the Indian confectionery market with an almost 60% share, the per capita consumption of chocolates in the country is far lower than global standards and thus has a lot of room to grow.

According to the International Cocoa Organisation, the country‘s per capita consumption of choco- late is between 100 and 200 gm a year, much lower than, say, Japan which consumes around 2 kg of chocolate per person per year and Europe, where the consumption lies between S and 10 kg ayear.

Kumar adds, “We see a huge opportunity in this segment. The acquisition of LuvIt is a strategic decision to enhance our confectionary basket.” Rajat Wahi, partner, Deloitte India, agrees chocolate companies have a huge opportunity to grow. First, chocolate is being increasingly used in Indian cuisine as chefs experiment with new ways to in corporate it into their dishes.Second, online sales is growing fast and chocolate gift boxes have become a popular choice for special occasions.

The occasion of usage of the product has increased, with many replacing mithai boxes with special chocolate packs on occasions such as Rakhi and Diwali. Increasing disposable incomes, urbanisation, innovation and deeper penetration into rural markets have aided the segment’s growth. Demand for chocolate is also

growing on the back of premiumisation, points out Angshuman Bhattacharya, partner and national leader, consumer products and retail, EYIndia. While the reference price point in the segment was ₹10-1S about two decades back, it has moved to the ₹100-200 range now. So while volume consumption might still be low, value growth is high, he says. As customers shift online, the scope for eliminating middlemen has also grown, which can in turn increase margins for companies says Karan Taurani, senior vice- president, Elara Capital. Experts also say innovation in the space and marketing to adults, and not just children, has also widened the consumerbase.

Bitter challenges

Bhattacharya says that the scope for growth is not without its own set of challenges.”It is difficult to be in the chocolate category without having your own manufacturing set up. Established players in the space are all manufacturers. It is difficult to buy from a third-party and build a brand of your own.This is a category that needs backward integration and manufacturing capabilities.” This is perhaps a key reason that RIL chose to acquire Lotus, says an expert.A source told FE that RIL plans to leverage Lotus‘ production facilities to launch a new range of products that are customised for the Indian consumer and market conditions. In turn, Lotus, which was largely a B2B player, will be able to leverage the distribution and retail might of Reliance to improve the penetration of its previously launched brands.

High import duties on cocoa beans and other chocolate ingredients, changing consumer preferences, and climate change‘s effect on the cocoa bean crop may also serve as further hindrances, warn experts. Above all, fighting the existing players that have been in the industry for decades won’t be easy, as they have clear distribution and marketing advantage, along with high brand recall. Says Nitin Saini, vice-president, marketing, Mondelez India,”Strong category insights, a 7S-year legacy, strong brand equity and robust ecosystems across supply chain, sales and manufacturing have been crucial in building our strong chocolate business.”

According to Statista, Mondelez International had the biggest market share of the Indian chocolate market in 2021 at SS.9%, fol- lowed by Nestle SA(14.9%),others (13.3%), Ferrero & related entities (9.1%),Mars Inc(2.6%),and Global Consumer Products (1.3%).

It will take more than just deep pockets to dislodge market leaders, says Samit Sinha, founder and managing partner, Alchemist Brand Consulting. “It will need innovative marketing strategies.

Moreover, deep and extensive distribution and high visibility are both critical as chocolates are relatively low involvement and high- impulse categories,”he adds.

Rising health consciousness may also pose a challenge as more and more consumers like to stay off sugary foods. That said, the growing popularity of dark chocolates, often marketed as healthy and rich in antioxidants and flavonoids that have been linked to a number of health benefits might bring some relief on that front.