The German Chocolate Market

The German Chocolate
Market
Part 1: Market overview
Authors: Michiel Arnoldus & Kerry
Kyd, Sense
THE CHOCOLATE MARKET
It’s big, but very competitive
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Consumption: 649,000 tons/ 7.8kg per person
Sales value in 2013 of between EUR 6.5 and 9.23 billion
233 German chocolate producers & hundreds of imported brands
Average retail price per 100 gram: EUR 0.95
(source: canadean 2014 euromonitor 2013)
Profit margin of chocolate producers is only 6.8% Highest number of new product launches in chocolate in the world
Left: a small selection
of 70% cocoa bars in
German retail
Right: Organic Fair
trade high cocoa
chocolate for 1,49/
100 grams in
supermarkets
THE CHOCOLATE MARKET
The Big Players, their brands & estimated market share
Ferrero (Kinder, Rocher, Mon Cheri, Hanuta) 21%
Mars (Mars, Twix, M&Ms, Balisto, Snickers, Maltesers etc.) 12.2%
Mondelez (Milka, Côte d’Or, Toblerone, Suchard) 11.8%
Private labels 10%
Nestlé (KitKat, Smarties, Quality street, Aero, After Eight) 9%
Lindt (Lindt, Lindor) 8.5%
Barry Calebaut (couverture for luxury stores) 4.5-8%)
Stolwerck (Alpia) 4.7%
Ritter (Ritter Sport) 3%
Storck (Merci)
Source: Canadean 2014, Euromonitor 2013 10% of chocolate producers have 59% of market THE CHOCOLATE MARKET
Saturated market in status quo: big brands battle for
each 0.1% market share
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Only 1.5% growth in retail sales, driven by inflation (consumption is not
growing, only prices are increasing)
Despite high number of launches no real product innovation in the last
5-10 years à (Not even from Ferrero, which competes on innovation)
Market share per type (bars, pralines etc.) is not changing
Heavy marketing spend, particularly in-store is essential to compete
Brands are desperately looking for new products & mkt channels
Value (€ Million )
Growth
Volume (1000 Tons)
Growth
Price/Kg
Boxed (Pralines)
1873
1,30%
129,1
0,54%
14,51 Classic bars
1784
1,48%
202,7
0,16%
8,80 Candy Bars
1552
1,70%
233,2
0,12%
6,66 Seasonal specials
990
1,76%
79
0,12%
12,53 Mini bars in bag
348
1,75%
42,1
0,15%
8,27 77
1,83%
9
0%
8,56 Other
Source: Canadean 2014 THE CHOCOLATE MARKET
Segmentation by product & packaging format: stable for the
past 5 years
Current posiQon of Ecuador Market share on value (€)
Classic bars
27%
Boxed
(Pralines)
28%
Candy Bars
24%
Seasonal
specials
15%
Mini Bars in
bag
5%
OpportuniQes for Ecuador Source: Canadean 2014 THE CHOCOLATE MARKET
Segmentation by type of chocolate/ flavour
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Milk chocolate 34%, white 6%
Largest category: Chocolate with fillings
(40%):
–  Popular: Nuts, caramel, chocolate
mousse
–  New: fruit & exotic flavours
–  Includes candy bars & pralines
–  Outside can be milk or pure
20% of market is pure chocolate (>35%
cocoa)
Consumption of high cocoa chocolate
(>50%) relatively common
Many eat milk & pure, depending on
occasion; for example milk at work & pure
after dinner with coffee
Source: Barry Callebaut 2012 THE CHOCOLATE MARKET
The standard range each brand has: probably 80% of
the market in bars
White
Hazelnut
Milk
Pure/ dark Very dark 70% plus
Weiss
Hazelnuss
Milch
Vollmilch
Halb biVer/ Zart biVer/ Edel Zart biVer
biVer
20%
20%
35%
50%
>70%
100 other flavours: to claim space in shelf
THE CHOCOLATE MARKET
Segmentation by consumer need
Indulgence
Gifting
Sugar rush
More conscious buying
Impulse buying
Quite moments alone
with tea or coffee
After dinner
Sharing with friends/
visitors
Token of appreciation for
friends, when you visit
people, small
celebrations, seasonal
(particularly for children)
During work & travel
& sport
Larger quantity in
one go
Milk & White &
Candy bars
Quality instead of
quantity
More luxury, pure & filled
& high cocoa
Current posiQon of Ecuador Packaging, originality &
story is important
Boxed chocolates,
special bars
Pure: if you are sure
people like it, otherwise
Milk
Opportunity RETAIL CHANNELS
Chocolate sales per channel
•  Supermarkets & Convenience stores dominate with sales of big brands
•  Drug stores & Pharmacies (e.g. Rossman) & webstores are winning
market share from department stores, variety stores & others
Source: Canadean 2014 RETAIL CHANNELS
Supermarkets, discounters & convenience
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Mass market driven by massive marketing budgets & scale
In-store visibility is key:
–  Range of at least 10 flavours and variants, preferably 50 – 100
–  In store displays & promotions are crucial & common
Lindt is dominating the pure quality chocolate category
€ 2,5/ 100 gram is maximum price for bars
Edeka & Rewe offer best opportunities for premium chocolate
Occasionally smaller brands appear in organic & fair trade isles
The competition is already there: Rausch. Fine flavour single origin
chocolate at €1,92/ 100 gram or €2,95 for a bag with 125grams of
individually wrapped mini-bars.
Conclusion: difficult space to compete for Ecuadorian brands
RETAIL CHANNELS
Organic supermarket, store & reformhaus
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Often chains of 50-150 stores, e.g. Denn’s, Engelhardt
Focused on environment & healthy living
Large assortment of high quality (pure) chocolate
Dominated by small(er) producers & brands, e.g. Vivani, Rapunzel
original beans
Home to new trends & specialties: raw chocolate, new flavours, vegan,
lactose free, country specials etc.
Smaller stores=less space, fewer brands & smaller assortment
Original packaging and large range (10+) essential to stand out in shelf
Up to €5/ 100 grams possible for very special products, but bulk of
sales is between €1- €2
Conclusion: Potentially important channel for Ecuador, but already very
competitive. It may not be easy to claim shelf space.
RETAIL CHANNELS
Department stores: home of the luxury brands
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Examples: Galeria Kaufhof, Karstadt etc.
Shop-in-Shop concept: Each brand has an own isle, Large assortment
needed to fill an isle
Dominated by Medium and large German & Swiss brands with a premium
positioning
Focus on gifting & indulgence
Little if any organic & fair trade
Terms of trade comparable to supermarkets, but more focused on luxury
store concept
Conclusion: Can be an opportunity for brands from Ecuador with a very strong
& distinctive product story & packaging style, but a large assortment is needed.
Perhaps a combined effort from Ecuador producers to fill an isle.
RETAIL CHANNELS
Fair trade stores: niche with focus on ethics & gifting
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More than 800 stores selling only fair-trade products
Often independent stores with (some) volunteers and non-profit
Can source directly, but mostly buying in groups. Weltladen and Contigo are
the most common buyer groups
Focus on gifting
Many different products (from hammocks to crockery, clothing, wallets,
lamps to coffee and chocolate) but only 2-3 brands or versions of each
product
Only 1-3 brands of chocolate, with a strong fair trade story and suitable for
gifting
Conclusion: Not an easy opportunity, because you need to replace an existing
brand that performs well (e.g. Zotter in Contigo)
RETAIL CHANNELS
Specialist stores: domain of Barry Callebaut couverture
•  2 main types :
•  Confiserie: a store specialised in chocolate, often independent
•  Chain stores for boxed pralines: Godiva, Neuhaus & Leonidas
•  Both make their own chocolate bars & pralines from couverture; Barry
Callebaut dominates with wide assortment of cheaper and expensive
blends. A few niche players are active (e.g. Valrhona)
•  Very limited if any space for branded bars:
•  Godiva etc. only sell pralines
•  Most confiseries only sell ‘home made’ bars, some shops add a few
special & exclusive brands supplied by wholesalers/ distributors/
agents
•  Gifting is very important in this segment
•  This is where ‘the chocolate connaiseurs’ go, they may come once a
month from far to stock up on their favourite bar
Conclusion: Limited opportunity with independent confiseries, network of
agents/ distributors is needed to convince them to place your brand in store
RETAIL CHANNELS
Delicatessen stores & coffee houses: new channel for fine
flavour
•  Delis (Feinkost laden): independent stores specialised in high quality food,
often Mediterranean. They typically sell olive oil, bread, sausage, olives,
pasta, freshly cooked meals, fresh fruits& vegetables etc.
•  Coffee houses: serve high quality coffee & tea with cake & pastries in
relaxed atmosphere. They often also sell coffee, tea & snacks for home
consumption
–  Thousands of independent stores
–  Biggest chains are Tchibo (500 stores), Starbucks (164) & Balzac (32)
•  Increasingly sell (fine flavour) chocolate, typically only 1-3 brands, but
many do not sell chocolate yet
•  Suitable for more expensive chocolate because they attract wealthy
consumers who are prepared to pay for a quality product with a story
about origin (Tea, coffee, olives, oil etc. are increasingly marketed by
origin, variety etc.)
Conclusion: Promising channel but needs investment in sales (agent/
distributor
RETAIL CHANNELS
Central Procurement department & shop owners are the
entry point
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Chocolate assortment for supermarkets, faire trade & organic chains &
coffee house chains is determined at corporate level; individual stores can
deviate, but for chocolate this is not common
–  Most chocolate producers sell directly to these chains, but some use a
distributor/ sales agent
Individual Confiseries buy:
–  Finished products (e.g. packaged bars) from agents/ distributors
–  Couverture from wholesalers or agents/ distributors
Delicatessen stores & individual coffee houses buy from a wholesaler/
agent/ sales representatives
à Small producers need to recruit agent/ distributors who can sell to individual
stores & chains
IMPORT & EXPORT
German producers are net exporters of chocolate
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Chocolate Exports in 2013: 775,665 tons (EUR 3.2 billion)
Chocolate Imports in 2013: 419,643 tons (EUR 1.5 billion), which is 40%
of consumption:
•  32% of chocolate is imported as bulk blocks, slabs and bars
•  68% as finished products
•  May include German companies producing abroad
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60% of consumption is produced locally, using 343,946 Tons of
imported cocoa beans, powder, butter & paste
•  Includes foreign brands producing in Germany (i.e. Lindt from Switzerland
producing in Aachen, Germany)
Chocolate Imports in Germany in 2013
Bulk chocolate (blocks, slabs, bars >2kg)
Finished chocolate products (<2kg)
Total Chocolate
Source: ITC Trademap 2014, Euromonitor 2013 Volume (tons) Value (Million EUR)
133,930 32%
€ 363,193 24%
285,713 68% € 1,180,072 76%
419,643 € 1,543,265 IMPORT & EXPORT
99% of chocolate imports are from Europe
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Belgium, Netherlands, Switzerland, Poland,
France & Austria are the biggest suppliers
About 1% comes from Russia, China, US &
Canada and other non-European suppliers
Only 0.01% is supplied by cocoa producing
countries
In 2013 Ecuador exported 13 tons with a value of
142,000 EUR to Germany
Source: ITC Trademap 2014 World Belgium Netherlands Switzerland Poland France Austria Côte d'Ivoire Ecuador Brazil Mexico Colombia Peru El Salvador Nicaragua Ghana Viet Nam Bolivia Venezuela Costa Rica Value 2013 QuanRty (1000 EUR) 2013 (tons) 1543265 345922 282453 231684 146530 128299 105957 447 142 26 20 16 9.79 5.27 5.27 3.76 3.76 1.51 1.51 0.75 Source: ITC Trademap 2014 419643 114037 96681 49712 23555 33926 30652 174 13 0 0 0 0 1 0 0 0 0 0 N/A IMPORT & EXPORT
Ecuador is important cocoa supplier for high quality chocolate
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4.3% of cocoa used by German chocolate producers is from Ecuador
Reputation as high quality cocoa, though importers know that most fine flavour
cacao is ‘secretely’ blended with CCN
Used for high quality chocolate: Added to blend of cheaper West African cocoa
to improve flavour
MARKET TRENDS
1. Big players are forced to move away from the middle
Discounters •  Discounters are winning market
share from traditional
supermarkets:
•  Brands need to offer cheaper
products to maintain market
share
Luxury chocolate •  Producers search new products/
markets with higher margin
•  They are moving towards the fineflavour niche of Ecuador
•  Increasingly through buying smaller
brands focused on these niches MARKET TRENDS
2. Pure and high cocoa (70%) chocolate
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Drivers:
–  Aging population & change of flavour profile as people get older
(bitter instead of sweet)
–  Health: concerns about sugar & stories about good properties of
cocoa (more cocoa, less sugar)
Social sustainability
Stories about poverty, slave & child labour in Cocoa production drive
consumer demand for sustainable cocoa
Producers are responding with ambitious targets
Certification is crucial & increasing:
–  Fair trade: Growing but remains niche
–  Utz Certified: Minimum standard, exponential growth
MARKET TRENDS
4. Fruit & Experimental flavours
Drivers:
•  More variants to claim shelf space & increase in-store visibility
•  Producers trying to target variety seeking consumers
•  Producers trying to target younger consumers with fruit flavours
Classic Experimental Fruit Marzipan
Chocolate mousse
Sea-salt
Chili pepper
Cranberry
Strawberry
(Rhum) raison & nuts
Nuts (almonds etc.)
Mocca/ coffee
Peppermint
Roses
Mango
Coconut
Yoghurt
Sheepmilk
Blueberry
Pineapple
Cherry
Nougat
Biscuit/ crisps
Caramel
SQck to classics and a few experimental e.g. sea salt MARKET TRENDS
5. Fine flavour & Single origin: new trend or extreme niche?
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Too small for mainstream brands; Lindt developed origin bars (e.g. Ecuador)
but stopped due to low sales (‘consumers didn’t understand it’)
Local brand Hachez had origin bars in supermarkets, but seems to refocus
on 3 types of cocoa (Arriba, Macaibo, Wild Amazonas)
Niche player Rausch is trying to enter main stream market (Edeka
supermarket) with single origin assortment
Small brands have single origin bars in organic & fair trade stores; Ecuador
is a common variety
The German Chocolate
Market
Part 2: Buyer Requirements
BUYING CRITERIA & TERMS OF TRADE
Supermarkets
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Buying criteria for premium chocolate:
–  Maximum expected wholesale price: € 2.35 for €3.50/ 100 gram retail price
incl. VAT
–  Unique addition to assortment
–  Professional & attractive packaging
–  Marketing support: advertisement, in-store promotions etc.
–  Reliable supplier of high volumes of consistent quality
–  At least 10 varieties are needed to stand out in shelf
–  HACCP certification
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Terms of trade:
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40% Retail margin for premium products such as premium chocolate
60 day payment terms
Shelf ready packaging
You may need to pay listing fees
Retailer determines consumer price
BUYING CRITERIA & TERMS OF TRADE
Organic stores: comparable but less strict
Buying criteria for premium chocolate:
•  Organic certification, or strong story to prove you are organic
•  Health benefits are important
•  Unique addition to assortment
•  Reliable supplier, but volumes are smaller than in supermarkets
60 days payment terms common but exceptions possible
Fair Trade stores: Gifting is important
Buying criteria:
•  Fair trade certification & Interesting story about producers
•  Openness/ response to questions about working conditions etc.
•  Suitability for gifting (quality, format, packaging, story)
•  Unique addition to assortment
Payment terms are negotiable & retail margins are lower
BUYING CRITERIA & TERMS OF TRADE
Delicatessen stores & Coffee houses
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High quality product
Interesting story about origin & flavour
Sustainability story is more important than certification
Brands that is not sold in mass retail (supermarkets etc.)
Retail margin at least 40%
In-store displays may be required
Payment terms are usually negotiable
CERTIFICATION
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HACCP: Essential for sales in mass market (supermarkets etc.)
Organic : For organic & health shops & to support product story
–  Many premium chocolates are organic
–  Organic stores are important channel for premium chocolate
–  Bio and Rainforest Alliance are well known
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Fair trade: To qualify for fair trade stores & support product story:
–  Growing importance due to concerns labour conditions of farmers
–  Utz is minimum ethical certification intended for the mainstream
market, Fair Trade is more thorough but for niche market
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Consumer trust in organic & fair trade certification is decreasing: A
good environmental & social story is more important than certification
Several producers/ retailers have developed their own organic & fair
trade standards & programs, e.g. Naturland & Gepa
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–  They set their own rules, no third party verification
–  They develop logos & stories that look like the ‘official’ certification
Conclusion: Go for organic certification & a good social story
LEGAL REQUIREMENTS
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EU regulation is leading
EU regulation for foods is extensive. See an overview on
chocolate product & labelling legislation.
Also see buyer requirements as presented on the CBI website
Contact a local expert before designing a product
Rausch fine flavour assortment in Edeka supermarket MARKETING STRATEGY FOR ECUADOR
Product & packaging
•  Develop new product formats aimed at gifting & suitable for consumption in small bits
–  Mini bars & pralines in metal & wooden boxes, mini-bars in bags etc.
–  Blend of flavours in one package
–  Well executed product & origin story supported with online information, to make it
an interesting gift with a story
•  Develop a product range of at least 10 flavours to claim shelf space and get noticed by
shoppers, but stick to the proven classics (i.e. mousse, nuts, marzipan, praline etc.)
•  Include at least one ‘vollmilch’ for gifting to people who do not like dark chocolate
•  Develop unique packaging style that stands out:
–  Examples: Vivani, Labooka
–  Avoid: classic designs & colors that look like Lindt, Hachez, Feodora etc. (black &
gold colours)
•  German language
•  Organic certification supports story
MARKETING STRATEGY FOR ECUADOR
Examples of gift packaging
MARKETING STRATEGY FOR ECUADOR
Distribution
Channels with most potential:
1.  Development of coffee houses & delicatessen stores channel
2.  Organic stores (particularly independent), fair trade stores & independent confiseries
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What is needed is a professional German distributor:
–  That can assist with product development & testing & packaging & instore display
design
–  With sales agents throughout the country, who can go from store to store to
promote the product
–  With access to central purchasing departments
–  Who can help you sell a container in stead of a box.
Or find German experienced agents/ sales reps
Finding a distributor/ agent: ask confiseries, coffee houses, delis & organic stores who
supplies their chocolate & visit trade shows
Sales Target: 30 units per store per week
MARKETING STRATEGY FOR ECUADOR
Promotion
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Develop a unique product story & execute it
well: (with packaging, Facebook, internet, video
& photography)
Visit trade fairs & chocolate festivals: Anuga,
ISM, Biofach, Salon de Chocolat, ChocolART
Organise chocolate tastings together with
stores & coffee houses
Develop in store product displays: both smaller
counter top and larger stand-alone displays
Sales reps that visit stores
Enroll in chocolate competitions to win prices
that support the story
Countertop display MARKETING STRATEGY FOR ECUADOR
Price
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For a simple 100gram bar of excellent quality with great design packaging &
story suitable for gifting the optimal price is between €2,50 and €3,50 incl.
6% VAT and a 40% retail margin.
Other formats suitable for gifting can be sold for much more (reference point
is the cost of pralines at Neuhaus or Godiva
Consumer reference point: Excellent 73% cocoa chocolate sold for €0,99/ 100 grams The German Chocolate
Market
Part 3: Doing Business in
Germany
GERMAN BUSINESS CULTURE
Formal & conservative culture:
–  Use formal titles and qualifications (Herr, Frau (Mr./Ms./Mrs.), Professor,
Doctor (Phd, Msc. Etc.) in written and spoken communication until other
part confirms this is no longer necessary
–  Wear formal suit (men with tie) first time
–  Love for official logo’s, stamps and certifications
Hierarchical culture:
–  The Manager/ owner decides everything
–  Employees only work on things their boss has told them to do
–  Know what decisions your counterpart is allowed to take to avoid
wasting your time
GERMAN BUSINESS CULTURE
Communication
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Pünktlich (Punctual):
–  Arrive on time, call on agreed time
–  Respond to emails & voicemails same day!
Agreed is agreed:
–  Do what you promise/ agree
–  Respect contracts, even if the situation changes…
–  No news is good news: if you don’t tell them there is a problem, they will
assume the goods arrive exactly at the agreed time…
Face-to-face meetings remain important
Business fairs/ trade shows are essential to spot trends & network & find
new customers
Communication style is direct (more than in Southern Europe)
Having lunch or coffee together is common, dinner is less so
GERMAN BUSINESS CULTURE
German language is important • 
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Many people even in higher management speak limited English, particularly
over 45 years of age
Even those who do speak English are often not comfortable (Very self
conscious, afraid to make mistakes in front of superiors/ employees)
Making an effort to speak (some) German greatly appreciated
To do a lot of business you need to work in German
German cultural is the reference point • 
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Germans may have difficulties understanding your challenges in Ecuador
and why you can’t do certain things that are standard in Germany
Germany has its own culture, type of humour etc. GERMAN BUSINESS CULTURE
Culture is changing…but slowly
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More people speak English;
–  Young people learn on Internet, TV, School
–  International business has forced older people to learn English
–  English is slowly replacing German in business with Neigbouring
countries (i.e. Netherlands)
Importance of official titles is declining
Email & Skype make contact less formal
More travel & international business increase cultural understanding
à  Beware: It may appear you wont need German language & customs, but it
will make a difference!
GERMAN BUSINESS CULTURE
There are regional differences
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The South is more formal & conservative & Catholic and well organised.
The North is less formal, Lutheran, and less organised.
Berlin is more alternative & Arty & cosmopolitan with less industry and
more public sector
Pralines for gifting &
indulgence in Leonidas store in
Hamburg
AN OVERVIEW OF THE GERMAN FOODS MARKET
Every foods manufacturer wants to be in Germany:
•  Biggest population in Europe: 83 million people in 2013
•  Low unemployment (5.2% in 2014) & High disposable income per
capita ($30,000 in 2012)
Population:
•  Not growing & aging
•  Decentralized: Many big cities that are spread over the whole country
•  Large cultural differences North & South and distinct from other EU
countries
•  Few people are comfortable in English language.
(source: euromonitor 2013)
(source: euromonitor 2013)
AN OVERVIEW OF THE GERMAN FOODS MARKET
Competing in Germany: Scale, scale and scale
•  German consumer is quality & price oriented: value for money
•  Highly competitive market because every big company want to be in
Germany
•  Even niche markets are crowded
•  Everything is big: population, distances and one small chain of shops has
hundreds of stores
•  Competition is driven by scale
AN OVERVIEW OF THE GERMAN FOODS MARKET
The retail environment
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67,000 stores selling foods
Supermarkets compete on value for money
Discounters are popular and growing at the expense of supermarkets..
Germany is still a market for luxury stores
42% of food products sold are private lable, and this market share is
growing
Retailers have the power in the value chain to set prices and impose their
conditions on producers
AN OVERVIEW OF THE GERMAN FOODS MARKET
The big players in German food retail
Source: Euromonitor 2012
REFERENCES FOR IMAGES
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All images used in this presentation have either been take in German
stores with the consent of the store manager, or downloaded from the
public websites of the producers/ brands.
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