C2172 Chocolate and Confectionery Manufacturing in Australia

Transcription

Organic, fair trade or dark: Chocolate takes on
new characteristics to please ethical consumers
IBISWorld Industry Report C2172
Chocolate and Confectionery
Manufacturing in Australia
August 2010
Naren Sivasailam
2 About this Industry
23 Competitive Landscape
41 Key Statistics
2
Industry Definition
23 Market Share Concentration
41 Industry Data
2
Main Activities
23 Key Success Factors
41 Annual Change
2
Similar Industries
24 Cost Structure Benchmarks
41 Key Ratios
2
Additional Resources
25 Basis of Competition
42 Historical Performance
26 Barriers to Entry
3 Industry at a Glance
27 Industry Globalisation
4 Industry Performance
28 Major Companies
4
Executive Summary
28 Kraft Foods (Australia) Limited
4
Key External Drivers
29 Nestle Australia Ltd
5
Current Performance
30 Mars Australia Pty Ltd
9
Industry Outlook
13 Industry Life Cycle
44 Jargon & Glossary
34 Operating Conditions
34 Structural Risk Index
15 Products & Markets
34 Investment Requirements
15 Supply Chain
35 Technology & Systems
15 Products & Services
36 Industry Volatility
17 Demand Determinants
37 Regulation & Policy
18 Major Markets
38 Industry Assistance
19 International Trade
39 Taxation Issues
21 Business Locations
www.ibisworld.com.au | (03) 9655 3881 | [email protected]
Chocolate and Confectionery Manufacturing in Australia August 2010 2
www.ibisworld.com.au
About this Industry
Industry Definition
This industry consists of establishments
mainly engaged in manufacturing
confectionery, chocolate or cocoa
products, with or without sugar.
Chocolate is produced from roasted
ground cacao beans that are combined
with other ingredients like milk and
Main Activities
The primary activities of this industry are
sugar. Cocoa is a powder produced from
cocoa seeds that have been roasted,
shelled, and ground. Sugar
confectionery is produced by boiling,
crystallizing, and moulding sugar or
molasses into solid pieces that are
usually coloured or flavoured.
Chewing gum manufacturing
Chocolate manufacturing
Cocoa products manufacturing
Confectionery manufacturing
Crystallised or glazed fruit manufacturing
Drinking chocolate manufacturing
Liquorice candy manufacturing
Marshmallows manufacturing
Nuts, candied, manufacturing
Popcorn, candied, manufacturing
The major products and services in this industry are
Chewing gum
Chocolate
Sugar confectionery
Similar Industries
C2163 Biscuit Manufacturing in Australia
Establishments mainly engaged in manufacturing biscuits and cookie products.
C2171 Sugar Manufacturing in Australia
Establishments engaged in the manufacturing of cane sugar.
C2175 Snack Food Manufacturing in Australia
Establishments mainly engaged in manufacturing snack foods.
Additional Resources
For additional information on this industry
www.candy.net.au
Confectionery Manufacturers of Australasia
www.confectionerynews.com
Confectionery News
www.icco.org
International Cocoa Organisation
Industry at a Glance
Chocolate and Confectionery Manufacturing in 2010
Key Statistics
Snapshot
Revenue
Annual growth 06-11
Annual growth 11-16
Profit
Exports
Businesses
$2.9bn
2.1%
2.4%
$197.9m $336.6m 179
Downstream demand from supermarkets
and other grocery stores
Revenue vs. employment growth
Kraft Foods
(Australia)
Limited 49.1%
% change
Nestle Australia
Ltd 21.5%
Mars Australia Pty
Ltd 14.3%
15
5
10
4
5
3
% change
Market Share
0
2
1
−5
−10
Year 01
0
03
05
07
Revenue
09
11
13
−1
Year
15
04
06
08
10
12
14
16
Employment
SOURCE: WWW.IBISWORLD.COM.AU
p. 28
Business Locations
4.2%
5.4% TAS
Downstream demand
from supermarkets and
other grocery stores
1.7% 0.6%
ACT
NT
WA
38.1%
10.3%
Fat consumption
NSW
SA
World price of cocoa
World price of sugar
Health consciousness
15.1%
QLD
24.6%
p. 4
VIC
Industry Structure
Life Cycle Stage
SOURCE:
WWW.IBISWORLD.COM.AU
SOURCE:
WWW.IBISWORLD.COM.AU
Regulation Level
Medium
Revenue Volatility
Medium
Mature
Technology Change
Medium
Investment Requirements
Medium
Barriers to Entry
Medium
Industry Assistance
Low
Industry Globalisation
Concentration Level
High
Competition Level
For additional statistics and time series see the appendix on page 41
High
Medium
Industry Performance
Executive Summary | Key External Drivers | Current Performance
Industry Outlook | Life Cycle Stage
Executive
Summary
The Australian Chocolate and
Confectionery Manufacturing industry
has remained resilient despite a
recessive economy, falling disposable
incomes, volatile commodity prices and
increasing import competition. The
advent of the health conscious
consumer has required producers to be
innovative with their product lines, and
adapt them to constantly changing
consumer trends. In the five years
leading up to 2010-11, industry revenue
increased at an annualized rate of 2.1%,
to total $2.9 billion.
The high level of value addition during
the production process has enabled the
industry’s major players to realize high
profit margins and perform well in spite
of recessive economic conditions. High
brand and customer loyalty commanded
by the major players, have also
contributed to high profit margins and
sales growth. The presence of a mature
and stagnant market has seen an
increase in the volume of exports, which
is expected to increase by 3.6%, to
account for an expected 11.6% of
industry revenue. Further, the volatility
of key inputs such as cocoa and sugar
has also resulted in strong import
growth, as producers have had to resort
to foreign markets to source their
products. The appreciation of the dollar
over the current performance period
further aided import growth, which is
expected to have grown by 5.6% over the
past five years.
Further, as economic conditions
improve, IBISWorld expects sustained
consumption of chocolate and
confectionery as consumers choose to
indulge themselves in inexpensive, ‘feel
good’ luxuries such as candy, in an
attempt to ease more pressing concerns
such as mortgage or loan re-payments.
Strong brand loyalty combined with new
product innovations and aggressive
marketing strategies will see the
industry ride through the current
economic storm relatively unscathed. To
this end, IBISWorld predicts that the
industry will grow at an annualised rate
of 2.4% until 2015-16, with revenue
totalling $3.3 billion.
Downstream demand from
supermarkets and other grocery stores
Supermarkets and grocery stores are key
stockists of confectionery products.
Demand for confectionery by retailers is
a function of final consumer demand.
This is influenced by factors affecting
consumption levels such as health
concerns and eating patterns.
World price of cocoa
Besides sugar, cocoa is also a key input
into confectionery, especially in
chocolate. An increase in the price of
cocoa will increase production costs in
confectionery manufacturing. This
impacts heavily on overall profitability
unless firms can pass the increased costs
onto final consumers.
Fat consumption
Nutritional factors can affect sales
relative to substitutes. Generally,
increased public awareness about health
and nutrition is having an adverse impact
on confectionery sales. In particular, the
growing popularity of low-fat diets is
leading to lower chocolate sales since the
average chocolate bar contains a high
proportion of fat.
World price of sugar
Sugar is a primary input in the
Confectionery Manufacturing industry.
Given this, an increase in the price of
sugar will inflate production costs.
Higher sugar prices will reduce
manufacturing profitability unless firms
can pass these cost increases on to
consumers. Further, as trading
conditions in Australia and overseas are
The
presence of a mature and stagnant market
has seen an increase in the volume of exports
continued
highly competitive, there is usually
limited opportunity for manufacturers to
implement selling price increases for
their products.
Health consciousness
Nutritional factors can affect sales
relative to substitutes. Generally,
increased public awareness about
health and nutrition is having an
adverse impact in some traditional
confectionery markets such as
chocolate. The opposite is true for
confectionery promoted on a healthy
platform such as sugarless candy
and gum.
Fat consumption
Downstream demand from supermarkets
and other grocery stores
5
19.5
Kilograms Per Capita
% change
4
3
2
1
0
−1
Year
04
06
08
10
12
14
16
19.0
18.5
18.0
17.5
Year 00
02
04
06
08
10
12
14
Current
Performance
Australia’s sweet tooth has seen the
Manufacturing industry remain
resilient despite being faced with
some onerous challenges over the
past decade. The industry has had to
contend with an increasingly health
conscious marketplace, changing
dietary trends, rising input prices,
increasing import penetration and
recessive economic conditions. There
has also been a rise in consumption
of healthy substitute products such as
snacks, cereals, nuts, yoghurt, and
fruit that has further squeezed
demand. However, in the five years
leading up to 2010-11, industry
revenue is estimated to increase by
an annualized rate of 2.1% to total
$2.9 billion.
Recessional resilience
From the late 1980s to early 2008,
chocolate producers have focused on the
trend of ‘premiumisation’, in line with
periods of robust economic growth.
Consumers, especially in the developed
world, looked to trade up to more luxury
food products with indulgences in higher
priced products and premium brands.
The deterioration of the economic
climate in late 2008 saw a dramatic fall
in discretionary spending as
unemployment levels soared and
consumer confidence plummeted. Sales
of chocolate and confectionery however,
remained firmly resilient as it offered
temporary respite from more pressing
issues such as loan repayments and
falling house prices.
Over 2010-11, as global economic
conditions begin to trend upward and
developing economies continue to grow,
sales of chocolate are expected to remain
strong. Amongst the developed world,
there exist strong opportunities within
Recessional resilience
continued
the organic and fair trade segment, which
represent the fastest growing segments in
the EU, North America and Australia.
Presently, fair trade cocoa still captures
less 2% share of the world cocoa market,
while the organic segment represents less
1% of the world cocoa industry. Further,
as evidence of the economic recovery
became more pronounced, discretionary
spending is also expected to increase with
a shift back towards premium brands and
indulgent choices.
Consumption trends
In 2009-10, industry revenue is
estimated to increase by 3.3% to total
$2.8 billion, largely driven by the
expected recovery of the Australian
economy during the latter half of the
year. As consumer sentiment and
spending begin to be restored to prerecession levels, chocolate and
confectionery demand is also expected to
rebound. Further, given the emphasis on
healthy eating and living, industry
producers are expected to continue to
introduce sugar free confectionery and
gum, along with dark, organic and
naturally produced chocolate products.
Prices of key inputs such as cocoa, sugar
and milk are all expected to decline over
the year, translating into lower retail
prices and thus, higher sales growth.
In 2008-09, Chocolate and
revenue is estimated to total $2.7 billion,
representing an increase of 130% from
the previous year. Following a year of
excessively high input prices, especially
that of cocoa and sugar, a substantial
tempering is expected in the current
period. One of the most important
developments affecting the industry has
been the importance of health and
nutrition in driving consumption choices.
Australians have become increasingly
wary of their food intake and account for
factors such as sugar and fat content,
quality of ingredients, packaging etc.
before deciding on a brand or product.
This has consequently resulted in a
number of product extensions and
introductions in order to address these
changing needs and drive sales revenue.
The industry’s major players have
responded by introducing low-sugar or
sugar-free versions of traditional
products such as Wrigley’s sugar-free
Extra chewing gum and Eclipse sugarfree mint drops. A recent study
conducted by industry publication Retail
World, found that 76% of consumers eat
mints to freshen their breath or mouth.
Given rapidly deteriorating incomes and
rising unemployment, chocolate sales are
expected to perform modestly, with
gourmet and specialty producers being
particularly affected.
The 2007-08 year saw industry
revenue increase by 1.9% to total $2.7
billion. The year was characterized by
unduly high key input prices, with sugar
prices increasing by 25.0% and cocoa
prices rising by 31.3%. This considerably
affected supply levels, which resulted in
manufacturers having to raise the
word indicator prices
year
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
Cocoa
($US per tonne)
(% change)
Sugar
(cents)
(% change)
1,590.6
1,958.1
2,572.8
2,800.0
3,300.0
3,000.0
N/C
23.1
31.4
8.8
17.9
-9.1
14.8
10.0
12.4
13.0
12.5
13.0
N/C
-32.4
24.0
4.8
-3.8
4.0
SOURCE: IBISWORLD
Consumption trends
continued
average selling price in order to offset the
increase in production costs. The
industry’s major players were
successfully able to pass on majority of
the cost increases down the supply chain,
evidenced by the growth in revenues. The
industry was also aided by new product
introductions, particularly in the natural,
organic and fortified product lines.
Further, the 3.7% increase in household
discretionary income over the period,
largely drove sales for premium,
indulgent, dark and gourmet chocolate
products. Chewing gum and mint
confectionery also performed well over
the year, driven by strong innovation
from category leader Wrigley’s.
During the 2006-07 period, industry
revenue increased modestly by 1.9% to
$2.6 billion. The 23.1% increase in cocoa
prices was partially offset by the 32.7%
fall in sugar prices. New product
introductions in the sugar-free and diet
chewing gum and mint segments
stimulated demand for non-chocolate
confectionery. The mint category alone
grew by more than $27 million over the
past three years, driven by clever and
timely product innovation that addressed
pressing consumer concerns of health
and convenience. For example, Wrigley’s
introduced Extra Professional, a mint
that claims to “clean the tongue and
reduce oral bacteria by up to 74%”.
Chocolate producers aggressively
promoted the health benefits of cocoa
and dark chocolate, while also fusing
traditional chocolates with fruits, nuts
and other functional ingredients such as
Mars’ CocoVia range. The 4.6% rise in
household discretionary income further
aided sales of premium and gourmet
chocolates such as Lindt and Ferrero
Rocher.
Decreasing
profitability
Industry profitability is estimated to be
6.8% of revenue recording a marginal
decrease of 0.2% from the previous year.
The high level of value addition during
the production process, combined with a
highly concentrated market allows
manufacturers high gross margins and
lower per unit costs. The increasing level
of capital intensity within the industry
reduces labour costs, resulting in
improved profitability.
The industry’s major players enjoy a
high level of brand and customer loyalty,
allowing them to pass on unexpected cost
increases down the supply chain with
only marginal impact on demand.
Further, as branded products also attract
a premium price, they are inherently a
high-margin sale, and therefore more
profitable. Given that majority of the
world’s most recognizable chocolate and
confectionery brands are owned by the
major players, it is a comparatively
profitable industry.
Employees per establishment
15
50
10
48
46
5
Ratio
% change
Profit vs. wages
0
42
−5
−10
Year 01
Profit
44
40
03
05
07
09
11
13
15
38
Year 01
03
05
07
09
11
13
15
Wages
Health and nutrition
One of the most important developments
affecting the chocolate and confectionery
industry has been the importance of
health and nutrition in driving
consumption choices. Australians have
become increasingly wary of their food
intake and account for factors such as
sugar and fat content, quality of
ingredients, packaging etc. before
deciding on a brand or product. This has
consequently resulted in a number of
product extensions and introductions in
order to address these changing needs
and drive sales revenue. Traditionally,
most Australian consumers have based
purchasing decisions on taste, quality,
price and use-by-dates. However, the
increasing sophistication of consumers in
the past five years has driven greater
product development than recent
decades. IBISWorld expects this trend to
continue as the confectionery industry
faces an increasingly dynamic and
evolving marketplace.
Organically sweet
IBISWorld expects greater development
in the area of organic foods that also
include chocolate and confectionery.
This trend has already begun to take off
in the US, United Kingdom and many
European countries where consumers
can now access a wide variety of organic
products in major supermarket chains.
However, the success of organic
confectionery in the Australian market
will depend on the availability of
organically produced inputs such as
milk powder and butter. Currently, there
are already a number of organic
chocolate brands, with more expected to
be launched in the near future.
Change of process
One of the key features of the Australian
food manufacturing sector has been the
shift from primary processing of raw
materials to semi-processing and final
processing. This has had a direct impact
on elementary confectionery production,
as much of this shift has represented
value adding initiatives. Today, industry
players themselves are moving into
downstream food manufacturing in
response to greater demand for
convenience by consumers. This trend is
expected to persist into the future,
especially as improving infrastructure
encourages higher primary processing by
developing and transitional countries.
Improved access to
foreign markets
As a result of improvements in
production technology,
manufacturers can now distribute
confectionery products over longer
distances and thus, service wider
markets. In the future, ongoing
investment in new processing
technologies is likely to result in
greater competition between
domestic confectionery makers
servicing previously distant markets
and from rising import competition.
Ethical consumerism
The recent emergence of the ethical
consumer has seen a shift towards more
sustainable methods of production with
an emphasis on fair and equitable trading
conditions. Given that majority of the
world’s cocoa is produced in small farms
in countries with low or very low GDP,
the buying practices of multinational
corporations have come under scrutiny
for unfair and exploitative treatment of
cocoa farmers. Consumers have become
more wary of where their chocolate is
Ethical consumerism
continued
sourced from, evidenced by the rapid
increase in sales of fair-trade labelled
products that increased 37% in 2006-07.
This issue is critical as the ethics of
chocolate production can seriously affect
demand for a particular product or brand
and erode the credibility of the
manufacturer involved.
Industry
Outlook
The future prospects of the Chocolate and
are relatively modest. Over the next five
years leading up to 2015-16, IBISWorld
estimates that industry revenue will
increase at an annualized rate of 2.4% to
total $3.3 billion. Principally driving this
outcome is expected to be a function of
moderating commodity prices, health
and dietary changes, product
innovation, and advancements in
technology and production.
Market trends
Forward indicators suggest that growth
in domestic demand will be modest,
reflecting a general saturation in overall
consumption across industrialised
countries. Two key factors expected to
affect domestic demand and
consequently determine future
consumption patterns is the emphasis on
health and nutrition in making dietary
choices, and the changing demographic
profile of the Australian population. The
wave of health consciousness sweeping
the nation is expected to adversely affect
demand for sugar-rich, high-cholesterol
products such as sugar based
confectionery. However, this has also
forced producers to innovate and
provided opportunities in growing
segments such as low-sugar
confectionery, sugar-free chewing gum,
organic and natural chocolate etc. This
trend is expected to continue into the
next five years, as more products
addressing these trends are introduced
into the market.
Another key factor expected to affect
consumption is the changing
demographic composition of the average
Australian household. Typically,
teenagers are the largest consumers of
confectionery products as people tend to
develop a preference for savoury food
with age. Australia’s ageing population
will see the size of this consumer segment
fall, leading to lower aggregate sales.
Further, as adults living in households
with children are also more likely to
consumer chocolate and confectionery
products, demand from this segment is
also expected to fall.
Revenue growth
Industry revenue is expected to increase
at an annualized rate of 2.4% to total
$3.3 billion in 2015-16. In comparison,
Industry Value Added is expected to
increase at an average of 2.1% over the
same five year period. Improved
efficiency is expected to be one of the
main contributors to the faster growth in
IVA. Competitive pressures also seem
likely to produce further rationalisation
of plants, leading to modernisation,
reduced duplication and economies of
scale in production. Complementing this
trend will be a move toward higher
The
wave of health
consciousness sweeping
the nation is expected to
adversely affect demand
margin products. IBISWorld expects
greater focus on high quality, premium
chocolate bars as well as premium priced
functional confectionery.
Slightly offsetting these developments
will be the expected increase in sugar
Revenue growth
continued
prices over the period. This is primarily
due to the vast increase in demand for
ethanol which has adversely affected the
supply of sugar, thereby increasing its
price. However, cocoa, the industry’s
other primary input, is expected to
decline over the period. Farm gate milk
prices are forecast to decrease
marginally over the next five years,
which will put downward pressure on
the prices for the industry’s products.
Milk prices are forecast to decrease over
the period as global supply growth of
dairy products exceeds global demand
growth. Although, prices are forecast to
remain firm due to continued strong
global demand for dairy products, high
costs of milk production with forecast
continued high feed and oil prices, and
low world dairy product stock levels.
Despite overall moderation in raw
material and input prices compared to
the current period, post-production costs
like advertising are expected to increase
in the period. The Australian
confectionery industry is highly
competitive as indicated by the large
number of new product lines introduced
by the major producers. Furthermore, in
the last few years, brand proliferation in
the confectionery market has created the
need for extensive promotion and
marketing programs. The importance of
advertising is set to increase as a growing
number of industry players seek a larger
share of the industry’s profits.
The industry is expected to remain
profitable over the next five years, with
an average of 7.0% share of overall
industry revenue. This represents an
increase of 0.2% when compared to the
current performance period. Gains from
production efficiencies and lower labour
costs are expected to be partially offset by
higher spending on advertising and
marketing activities.
Production issues
IBISWorld projects a moderate rise in
the real price of confectionery over the
next five years. Price increases will
largely stem from the introduction of
higher valued product lines, reflecting
the growing popularity of specialty and
premium chocolates. Real confectionery
prices are also set to rise as
manufacturers pass on higher input
costs to customers.
Production volumes are forecast to
increase at an average rate of 1% per
annum over the five years to 2015-16.
Higher output will depend heavily on
exporting activity undertaken by the
industry. In the short term, production
may fall following the closure of
manufacturing plants, including Nestle
Australia’s sugar confectionery
manufacturing plant in Maryborough,
Victoria, after the company discovered
that it could produce Kit Kat chocolate
bars in New Zealand 10% cheaper than
the Australian product.
The coming few years should witness
some changes to the distribution of
production. Confectionery
manufacturing in Australia will continue
to be dominated by a few major ‘mass’
producers. However, scope exists for the
establishment and/or expansion of
specialist confectionery producers. The
next few years should also see the direct
entry of a couple of existing importers.
Jacobs Suchard for example has tabled
the possibility of local plant. Given the
company’s interest in Asia, Australia
would be a suitable base from which to
supply the region, particularly in view of
the availability of sugar and milk.
Although chocolate confectionery
will continue to dominate local
production, there are likely to be some
changes in the product mix in the next
five years. The chewing gum segment is
forecast to increase as it outperforms
chocolate and sugar confectionery in
sales growth. This trend will reflect
underlying changes in consumption
patterns as consumers shift from
Production issues
continued
traditional confectionery products
toward functional/fortified food and
healthy snack foods. Underpinning
growth in the chewing gum segment
will be the ongoing production of gum
products promoted as heaving dental
health benefits. This will be further
enhanced by the new trend of banning
vending machines that offer
confectionery in Australian schools.
Regulation outlook
Confectionery manufacturers are also
likely to face greater regulatory
restraints over the next five years,
especially in relation to product
labelling and food safety following
increased lobbying from consumer
groups. The impact of tighter
restrictions on confectionery
manufacturers is likely to vary among
different segments. To date, larger
establishments have been successful in
implementing requirements such as
those under the Food Standards Code
and food safety programs. However,
anecdotal evidence shows that costs for
implementing legislative requirements
can disproportionately affect small
manufacturers.
Expected increases in regulatory
requirements are likely to increase costs
that manufacturers. However, there is
scope for confectionery producers to
benefit from pre-emptive regulatory
compliance, particularly those relating
to food labelling. The ‘%DI’ (percent
daily intake) front-of-pack nutritional
labels have been broadly adopted across
several food manufacturing industries
over the past year, and IBISWorld
expects an increasing number of firms
across this industry to follow suit over
the next five years. Further, as
confectionery manufacturers face
external competition from producers of
muesli and snack bars (who have wholeheartedly embraced the new labelling
format), IBISWorld believes there is
opportunity for producers to highlight
the benefits and comparability of their
products. For instance, the kilojoules
and fat content of some of the industry’s
chocolate bars is lower than some nut
and muesli bars, thus confectioners
have the opportunity to objectively state
this through their nutritional labels.
One regulatory area currently being
aggressively targeted is chocolate and
confectionery advertising. In a survey of
Australian parents, the consumer
group, Choice, found that 82% parents
were in favour of increased government
regulation over the way high sugar and
fat foods are marketed to children.
Choice has joined a contingent of more
Productivity
Profit vs. exports (% change)
380
Profit/employees ($ '000)
20
% change
10
0
−10
−20
−30
Year 01
Profit
03
05
07
09
11
13
15
360
340
320
300
280
Year 01
03
05
07
09
11
13
15
Exports
Regulation outlook
continued
than 50 consumer groups globally
backing a voluntary code of practice
which includes tight restrictions on
television and internet advertising, and
has since called on the Australian
government to support the proposal.
However, the Federal Government has
said that it will not change existing
regulations until later this year after the
Australian Communications and Media
Authority’s report on junk food
advertising for children is released.
Going into the future, any such ban
would extend to confectionery products,
and consequently impact the current
marketing of the industry’s products.
Life Cycle Stage
Innovative packaging and product development
is stimulating some industry growth
The industry is a market characterised
by well-established brand names
Industry growth and consumption over
the past decade has been moderate
% Growth of profit/GdP
Growth segments tend to be focused in
gourmet chocolate and sugar-free gum
Maturity
30
Quality Growth
Company
consolidation;
level of economic
importance stable
25
Key Features of a Mature Industry
High growth in economic
importance; weaker companies
close down; developed
technology and markets
Revenue grows at same pace as economy
Company numbers stabilise; M&A stage
Established technology & processes
Total market acceptance of product & brand
Rationalisation of low margin products & brands
20
15
Quantity Growth
Many new companies;
minor growth in economic
importance; substantial
technology change
10
Milk and
Cream
Processing
5
Confectionery and Soft
drink wholesaling
Cake and Pastry
Manufacturing
0
Shakeout
decline
Crash or Grow?
–10
–10
–5
Sugar Manufacturing
biscuit Manufacturing
Shakeout
–5
Chocolate and Confectionery Manufacturing
0
Potential Hidden Gems
Time wasters
Future Industries
5
10
Hobby Industries
15
20
25
30
% Growth of establishments
Industry Life Cycle
This
industry
is Mature
The Chocolate and Confectionery
Manufacturing industry is in its mature
life cycle stage, characterised by a
saturated domestic market and a range
of well established products and
manufacturers. Although barriers to
entry remain relatively low, the
industry is typified by a few, large
producers who fiercely compete for
market share thus, restricting the
number of new players entering the
industry. In the five years leading up to
2010-11, there were only an additional
five enterprises within the industry.
Industry value added increased at an
annualised rate of 0.2% between 200506 and 2010-11. Over the same period,
real GDP grew by 2.1% and household
discretionary incomes increased by 3.6%.
This indicates a mature and stagnant
industry, one that is growing at a slower
pace compared to the Australian
economy. Given a high level of
saturation, it is imperative for
manufacturers to constantly introduce
new products in the marketplace, so as to
stimulate sales growth and differentiate
themselves from their competitors. This
has particularly been the case in the
chewing gum and mint segments, with a
number of new product introductions
and innovative packaging and marketing
initiatives being implemented each year.
However, the confectionery market
in Australia is reaching saturation.
Confectionery has been widely available
and affordable for the last century.
Consequently, the domestic market is
characterised by well-entrenched
brands and product lines. It is not
surprising that industry sources believe
that long-term increases in domestic
demand will largely reflect population
growth. As the domestic confectionery
market matures, more manufacturers
will seek growth through exporting
opportunities. Asia’s close proximity
and its rising disposable incomes make
it an obvious export target for
Australian producers.
Products & Markets
Supply Chain | Products & Services | Demand Determinants
Major Markets | International Trade | Business Locations
Supply Chain
Key buying industries
C2162
Cake and Pastry Manufacturing in Australia
Cake manufacturers purchase chocolate products as inputs into some caking baking.
C2163Biscuit Manufacturing in Australia
Biscuit manufacturers purchase chocolate, and other confectionery products as ingredients in
some biscuit lines.
F4716
Confectionery and Soft Drink Wholesaling in Australia
Confectionery Wholesalers purchase the output of this industry for distribution to
supermarkets, grocery stores and other food service operators.
G5111
Supermarkets and Other Grocery Stores in Australia
The key industries purchasing the output of confectionery manufacturers include supermarkets
and other grocery stores.
G5112
Convenience Stores in Australia
Convenience stores are purchasers of the output of this industry.
H5731
Cafes and Restaurants in Australia
Restaurants acquire confectionery products as inputs into food production.
H5732
Caterers and Food Service Contractors in Australia
The Food Service industry acquires requires chocolate confectionery products as raw
ingredients in food production.
Key selling industries
C2121
Milk and Cream Processing in Australia
The confectionery industry derives its two major raw materials from Milk and Cream
Processing
C2124
Milk Powder Manufacturing in Australia
The confectionery industry derives a major raw material from Milk Powder Manufacturing.
C2129Butter and Other Dairy Product Manufacturing in Australia
The confectionery industry derives its key raw material inputs from Dairy Product
Manufacturing.
Products & Services
C2171
Sugar Manufacturing in Australia
The confectionery industry purchases large quantities of sugar as inputs into chocolate and
candy manufacturing.
C2172
Chocolate and Confectionery Manufacturing in Australia
Industry players sometimes purchase elementary chocolate products as inputs into high value
added production.
C2179
Tea, Coffee and Other Food Manufacturing in Australia
The confectionery industry procures one of its major ingredients, cocoa from the Other Food
Manufacturing industry.
F4795
Paper Wholesaling in Australia
Confectioners typically procure product packaging from paper product wholesalers.
The confectionery industry can be
broadly classified into three segments:
chocolate, sugar confectionery, and
chewing gum.
Chocolate
Chocolate is the industry’s major
product category, accounting for
approximately 62.5% of industry
revenue. The chocolate segment is
highly concentrated and characterised
by a small number of well-established
brands. The Confectionery
Manufacturers of Australasia reported
that the top ten selling brands accounted
for approximately 70% of sales in 2008.
Further data suggests that roughly 40%
of total chocolates sold are chocolate
Products & Markets
Products & Services
continued
bars. The top three selling bars in
Australia are currently Mars Bar, Kit
Kat, and Cherry Ripe. Chocolate blocks
are another important segment, with
retail sales of an estimated $860 million
in 2006-07, which is believed to be the
highest within the chocolate segment.
Gourmet chocolates, in particular dark
chocolate have become a new growth
segment in recent years, with a number
of specialty chocolate cafes opening in
most major cities. This has been
supported by consumers becoming
more health conscious and informed
about chocolate.
Sugar confectionery
Sugar confectionery is the second major
product segment, and is expected to
account for approximately 28.0% of
revenue. This includes, mints, hard
candy, sugar candy packs, candy rolls,
and medicated candy products. Unlike
chocolate, this segment is highly
fragmented and caters to niche markets
and needs. As sugar manufacturing is less
capital intensive than chocolate
production, it tends to attract a greater
number of small players. Leading brands
within this category are Minties, Cool
Mints, Jaffas, Snakes Alive, and Fantales.
Nestle, Cadbury and Mars (Masterfoods)
dominate the market, commanding
around 60% of domestic segment sales.
Gum
Gum is the smallest product segment,
generating approximately 9.5% of total
industry revenue. Gum production in
Australia is highly concentrated, with
segment leader Wrigley accounting for
majority of sales. Brands such as Extra,
Juicy Fruit and P.K. have been in
existence for over 60 years and have an
extremely high level of customer loyalty.
However, the introduction of sugar-free
gum represented a significant shift in
consumption and stimulated demand for
gum products. Today, Australian
consumers spend around $162 million
each year on sugar-free gum, which is
likely to continue to grow at a fast pace.
Within each major segment, the
breadth of variety is increasing. A
maturing domestic market has resulted
in greater diversification in the past
decade as manufacturers have
aggressively defended market share and
attempted to tap into the limited
opportunities for developing new niche
markets. Most notably, this has extended
to the introduction of hybrid products
that cross over into other industries such
as combining biscuits and ice cream, but
are classified and included within their
respective industries.
Products and services segmentation (2010)
9.5%
Chewing gum
28%
62.5%
Chocolate
Sugar confectionery
Products & Markets
Demand
Determinants
A broad range of factors influence the
level of demand for confectionery, such
as consumer incomes, trends &
preferences and the natural dynamics of
the industry.
Discretionary income
Typically, a rise in disposable income
will increase expenditure on
discretionary items such as
confectionery. However, an increase in
income may also encourage consumers
to simply switch to more expensive
chocolates rather than increase the
volume of confectionery purchased.
Given this, a long-term rise in income
should see production shift from lower
margin to higher margin products (such
as premium chocolate).
Pricing and presence of substitutes
A rise in the price of chocolate and
confectionery can adversely affect
demand. For instance, a significant
increase in the price of chocolate bars
may persuade consumers to switch to
sugar-based confectionery instead.
Additionally, the presence of alternative
substitutes can also influence the level of
demand for the industry’s products.
Today, there is an increasing range of
products competing for the coveted
discretionary dollar, such as snack foods,
cakes, cereal, and biscuits.
Health and nutrition
The industry’s products have for long,
been perceived as unhealthy and
harmful due to their high sugar and
calorie content and the publicised risk
between obesity and heart disease.
Increased concern about dental health
has also discouraged consumption of
candy and chewing and bubble gum.
There has however been increasing
evidence that certain chocolate, in
particular dark chocolate is healthy as it
is rich in antioxidants, and can be
beneficial in many ways. Some
confectionery makers have also
responded to consumer concerns by
releasing reduced-fat or sugar-free
product lines. For example, The Wrigley
Company has been very successful in
capturing a large-share of the sugar free
market. Its ‘Extra’ chewing gum range
currently commands 88% of the sugarfree gum segment. Moreover, a number
of industry players are introducing
certified organic products to capitalise
on this developing niche market.
Innovation and branding
Given the highly saturated domestic
market, clever and timely innovation,
branding and promotional initiatives can
significantly stimulate demand. The past
five years have seen a number of such
initiatives, especially in the low-fat,
low-sugar chocolate segment and in the
sugar-free and functional gum segment.
Meanwhile, line extensions have also
proven to be a popular method of
igniting interest in existing products. In
the last couple of years, manufacturers
have released white chocolate versions of
Kit Kat, Aero bars, and Maltesers.
Seasonality
Confectionery consumption is influenced
by the seasons, the time of day and the
scheduling of special events. Chocolate
sales are also seasonal and tend to be
highest in the colder months between
May and July. Peak confectionery sales
are also recorded during special
Christian events like Easter and
Christmas. Australians are among the
largest consumers of Easter eggs in the
world. According to the Confectionery
Manufacturers of Australasia Limited,
the average Australian consumes around
ten chocolate eggs each Easter. Other
special gift occasion like Valentine’s Day
and Mother’s day also generate demand
for confectionery, especially boxed
chocolate.
Distribution
Distribution is an important determinant
of demand as confectionery items
constitute an impulse purchase, that is,
an unplanned or spontaneous purchase.
The presence of chocolate, candy,
chewing gum, and mints prominently
displayed at strategic locations such as
Products & Markets
Demand
Determinants
continued
checkout aisles and vending machines
can trigger purchases that may have
otherwise not been considered. The
pricing of these items also affects
demand, as consumers will not pay
higher prices for a product that they did
not intend to purchase. Further, as
parents make majority of the candy
related purchases for their children,
higher retail prices may result in
increased purchases of private label
confectionery products.
Major Markets
Australian confectionery manufacturers
sell their output to two major purchasing
groups: large retail outfits and
wholesalers. Large supermarket chains,
convenience stores, petrol stations, and
department stores typically enter into
direct supplier agreements with
manufacturers. Recently, the
concentration of ownership among these
large customers has caused some
concern among confectionery producers.
Smaller customers like milk bars and
specialty shops usually have to source
their confectionery supply from grocery
wholesalers and distributors.
and grocery chains are using their
enormous buying power to negotiate
lower prices from producers, thereby
squeezing their margins.
The route distribution channel is
much smaller and diverse, ranging from
convenience stores, petrol stations to
vending machines. The structure of this
channel is however changing as more
corner stores disappear. The
Confectionery Manufacturers of
Australasia reported that over 1000
corner stores have closed over the past
decade. In the same period, the number
of convenience stores has risen by
around 30%.
A smaller proportion of industry sales
are made to companies in the hospitality
industry. Motels, hotels, restaurants, fast
food chains and convention centres
purchase large quantities of foodstuffs
(including confectionery products) for
use in their kitchens. Sometimes these
are purchased directly from
manufacturers at reduced cost. Like
supermarkets, large restaurant chains
Retail trade
At the retail level, consumers may
purchase chocolate and confectionery
products through two main distribution
channels; grocery and route. The grocery
channel comprises large supermarkets
and other grocery stores, with this
segment expected to account for 75.4%
of industry revenue. In recent years, an
increasing number of large supermarket
Major market segmentation (2010)
11.6%
Exports
13%
Wholesalers and distributors
75.4%
Retail trade
Products & Markets
International Trade
Level & Trend
xports in the
E
industry are
Medium and
Increasing
Imports
in the
industry are
Medium and
Increasing
often wield considerable power in supply
relationships with this industry.
affect the products that are eventually
stocked by retailers.
Wholesalers and distributors
Grocery wholesalers and distributors
are expected to account for 13.0% of
revenue. They in turn supply
supermarkets, convenience stores, drug
and discount stores and other specialty
stores. This market is essentially the
most important link in the supply chain
because relationships with wholesalers
Exports
Exports are expected to account for
approximately 11.6% of industry
revenue. The contribution of exports has
declined over the past five years,
primarily due to the perishable nature of
the industry’s products and
unfavourable economic and exchange
rate movements.
In 2004, Australians consumed 3.7 kg of
sugar confectionery and 4.4 kg of
chocolate per capita and are amongst the
highest snack food consumers in the
world. Chewing gum consumption has
increased strongly as a result of
continued product innovation, for
example the introduction of sugar free
chewing gum has lifted sales significantly.
The consumption of chocolate is also
estimated to have increased strongly, as a
result of continued media releases and
growing evidence on the benefits of
chocolate, in particular dark chocolate.
According to Confectionery
Manufacturers of Australasia (CMA),
nine out of ten Australians consume
confectionery on a regular basis. Eighty
percent of these consume a combination
of chocolate and sugar confectionery.
According to industry-based studies,
females are the biggest purchasers in
Australia, however, this finding may
simply reflect the fact the females tend to
The Bigger Picture
Of
the 499 industries in
the Australian economy,
79 have medium exports
– but only 35 of those are
experiencing an increasing
trend as is the Chocolate
and Confectionery
Manufacturing industry
Industry trade balance
600
300
$ million
Major Markets
continued
0
−300
−600
−900
−1200
Year 01
Exports
03
05
07
Imports
09
11
13
15
Balance
be the principle food buyers in most
households.
In the five years to 2010-11, the value
of imports is estimated to have increased
by 5.6% per annum, totalling $785.9
million and comprising 31.9% of
domestic demand. In recent years, the
flow of imports has risen as more local
manufacturers have begun importing
products from their sister/parent plants
overseas. New Zealand is expected to
account for majority of imports, with
15.2%, followed by Singapore (13.1%),
Belgium (8.1%), China and Indonesia
(7.6% respectively).
International market
In the five years to 2010-11, the value of
Australian exports is expected to have
increased at annualised rate of 3.7%, to
total $336.6 million, accounting for
11.6% of revenue. In the past five years,
Products & Markets
International Trade
continued
the importance of export markets has
grown as producers have taken
advantage of growing disposable income
in the Asia Pacific Region. However,
tariff barriers continue to dampen
exports levels for Australia.
Exports to...
Approximately 70% of confectionery
exports are chocolate products. Sugar
confectionery reportedly accounts for
around 22% of total exports with
chewing gum making up the balance of
total sales.
Imports from...
8%
China
48%
8%
Indonesia
6%
6%
Hong Kong
3%
Other
8%
Philippines
Belgium
Singapore
16%
13%
Japan
Singapore
45%
New Zealand
24%
15%
Other
Year: 2008
SIZE OF CHARTS DOES NOT REPRESENT ACTUAL DATA
New Zealand
Total $331.1m
Total $769.8m
SOURCE: ABS
Products & Markets
Business locations 2011
NT
0.6
QLd
15.1
wA
5.4
SA
10.3
NSw
38.1
ACT
1.7
VIC
24.6
Establishments (%)
Cold zone (<10)
<25
<50
Hot zone (<100)
Not applicable
TAS
4.2
Products & Markets
Distribution of establishments vs. employment
40
30
30
Establishments
Establishments
Population
Employment
WA
VIC
ACT
WA
VIC
TAS
SA
QLD
0
NT
0
NSW
10
ACT
10
TAS
20
SA
20
QLD
Percentage
40
NT
Distribution of establishments vs. population
located in the surrounding areas of
Melbourne and Sydney. Leading player,
Cadbury Schweppes Australia has
concentrated most of its production
within Melbourne. Its facilities are
spread across suburbs like Abbotsford,
Prahran, Ringwood, Scoresby and
Richmond. An advantage that Victoria
has over other states is that it has the
highest quality and cheapest milk
compared to the rest of Australia.
Although most confectioners are
located in capital cities, operations in
rural areas currently include the Cadbury
Schweppes plant at Claremont in
Tasmania and the Mars plant at Ballarat
in Victoria. In recent years, the industry’s
top manufacturers have concentrated
their operations on a small number of
sites because high throughput, automatic
equipment and almost continuous
operation produce significant economies
of scale. Products are then transported in
bulk form to distribution centres across
the country.
NSW
Chocolate and confectionery
manufacturing is primarily concentrated
along the Eastern Seaboard. It is
estimated that approximately 77.8% of
production facilities will be situated in
the three states of New South Wales,
Victoria and Queensland. NSW is
estimated to account for the majority of
establishments with 38.1%, in addition
to 33.5% of all employees within the
industry. Victoria is expected to
account for 24.6% of all industry
establishments, along with 26.0% of all
industry employment.
Confectionery manufacturing tends to
develop in metropolitan areas. Of those
employed in this industry approximately
80% work in cities. Historically, the
fragile and perishable nature of
confectionery (especially chocolate) has
made it necessary for confectioners to
establish operations in close proximity
to major consumer markets. This trend
has continued and today, the majority of
Australia’s confectionery makers are
Percentage
Business Locations
Competitive Landscape
Market Share Concentration | Key Success Factors | Cost Structure Benchmarks
Basis of Competition | Barriers to Entry | Industry Globalisation
Market Share
Concentration
Level
Concentration
in
this industry is High
Key Success Factors
IBISWorld
identifies
250 Key Success
Factors for a
business. The most
important for this
industry are:
Manufacturing industry is characterised
by a high level of concentration. Although
the industry has a number of small to
medium sized operators, the majority of
its turnover is generated by the major
players. In 2010-11, IBISWorld estimates
that the top four manufacturers will
account for 89.4% of industry revenue.
This concentration of ownership is
primarily a result of an increase in
acquisitions, along with organic growth
for a majority of major players
engendered by continued product
innovation, strong brand loyalty and
aggressive marketing.
Concentration also varies between
product segments. Chocolate production
tends to be heavily dominated by a few
foreign owned firms such as Cadbury,
Nestle and Mars that account for around
80% of domestic production. Sugar
confectionery and gum production
however, is more fragmented and
therefore less concentrated.
Typically, the industry’s larger firms
tend to specialise in mainstream products
targeting the low to mid-price range of the
final market. Smaller firms tend to
concentrate on specialty products that
require short production runs and lower
volumes. Despite the presence of smaller
firms, confectionery manufacturing is
moving toward, larger-scale, concentrated
production and consequently has
significantly fewer firms than a decade
earlier. Today, fewer commercial
confectionery manufactures are serving
wider geographic markets. Improvement
in transportation methods, ownership
consolidation, and the development of
extended shelf-life products are enabling
manufacturers to reduce costs by
centralising production facilities.
Marketing of differentiated products
Branding is extremely important within
certain market segments like chocolate.
Effective marketing helps manufacturers
capture maximum market share.
Moreover, appropriate marketing of
differentiated products avoids overreliance on core products.
particularly important for those
participants not involved in the
production of niche products.
Economies of scope
Scope economies achieved by producing
a range of confectionery and related
products. Economies of scope enable a
company to modify its production output
in response to changing conditions in
various market segments. This can
reduce volatility in sales.
Establishment of export markets
The importance of export markets
reflects the saturated nature of the
domestic market.
Economies of scale
Strong price competition means
that economies of scale are
Ability to pass on cost increases
The ability to raise product prices in
response to cost increases is limited by
high price elasticity.
Guaranteed supply of key inputs
The price of raw inputs like sugar and
cocoa can be highly volatile and is
subject to market vagaries. Contracts
with suppliers of raw materials such as
sugar, milk powder, and cocoa reduce
supply volatility.
Cost Structure
Benchmarks
Cost structures vary widely among
industry players, depending on their size,
scale of production, ease of access to
production inputs, level of technology
and capital investment etc. Typically,
larger the manufacturer, the lower per
unit cost of production tends to be. Over
the past five years, the average size of an
establishment is increasing due to
industry consolidation, largely driven by
the major players such as Mars’
acquisition of Wrigley.
Profits
IBISWorld estimates that net profits will
account for 6.8% of industry revenue.
Manufacturing industry is characterised
by high profit margins primarily due to
the high level of value addition during the
production process. That is,
manufacturers employ considerable
resources and costs in terms of capital,
technology and branding that translate
■ Profit
■ rent
■ utilities
■ depreciation
■ Other
■ wages
■ Purchases
into high retail prices that are passed on
to consumers. The difference between
production costs and prices received for
final products is therefore high which is
reflected in higher profit margins.
Purchases
In 2010-11, purchases are expected to
constitute the largest percentage of
industry costs at approximately 63.4% of
revenue. Key production inputs such as
cocoa, sugar and milk represent the
biggest expenses and their prices are
largely a function of the world market.
The past five years have seen dramatic
fluctuations in the prices key inputs,
especially that of cocoa and sugar, which
have affected purchase costs and thus,
profitability. Other inputs include
flavourings, fruits, nuts, colourings,
additives, and packaging materials. Of
these, packaging is the largest expense,
accounting for around 15% for the
purchases of materials.
Industry Costs and Average Sector Costs
Industry
Costs
(2011)
1.1 7.6
6.8 3.5
0
Profit
100%
16.6
1.0
0.3
8.1 4.3 11.5
Average Costs
of all Industries
Profit
in sector (2011)
63.4
13.7
61.3
0.9
INduSTry COdE ANd TITLE
2005-2010
C2121
Milk and Cream Processing
C2124
Milk Powder Manufacturing
C2129
butter and Other dairy Product Manufacturing
C2171
Sugar Manufacturing
C2172
•
•
•
−
−
−
2011-2015
•
•
•
•
•
Costs for operators in the Chocolate and Confectionery Manufacturing industry are affected by the
price of goods and services from supplier industries. IBISWorld has estimated the trends of key
input prices over the previous five years and for the coming five years. is good news for this
industry as IBISWorld expects the price of key inputs to fall; shows where this industry is
negatively affected as IBISWorld expects the price of key inputs to rise; means price changes will
not be a key issue for the industry.
•
-
Cost Structure
Benchmarks
continued
Wages and salaries
Labour costs represent the second
biggest expense for chocolate and
confectionery manufacturers. Wages are
estimated to account for 16.6% of
revenue and total $482.3 million. Over
the past five years, wages have decreased
their share of total costs falling from
18.6% of revenue in 2005-06, primarily
due to select periods of rapid expansion
and increase in employment. Further, as
majority of new employment has been
focused on food scientists and research
and development (R&D) staff who
command higher wages, thereby
increasing the average industry wage.
Selling, general and administrative costs
Expenses relating to selling, marketing,
promotions and administration comprise
the third largest component of industry
costs. Considering the importance of
branding in driving sales revenue,
Basis of Competition
Level & Trend
ompetition
C
in
this industry is
Medium and the
trend is Increasing
Manufacturing industry is highly
competitive, with the major players
fiercely competing for market share.
Relatively low barriers to entry further
aid competitiveness, as new players enter
the industry with niche products and
sophisticated marketing strategies.
Competition within this industry is
primarily based on the following;
Price
The price sensitivity of consumers in the
industry varies between product
segments. Although the market is
dominated by well established brand
names, consumers are still price sensitive
and can easily switch their preferences to
a lower-priced substitute. The chocolate
bar segment for example, is typified by a
number of different brands and varieties
and is highly sensitive to changes in
price. Conversely, the chewing gum
segment is less sensitive to price changes
as they are of comparatively lower value
manufacturers invest heavily in
aggressive advertising, marketing and
promotional activities. As a result,
manufacturers have designed
sophisticated marketing and advertising
strategies that aim to harness the power
of their brands to increase customer
loyalty and retention rates. These include
expensive media advertisements, pointof-purchase tasting and displays, and
related promotional costs. Such costs are
estimated to account for approximately
5.1% of industry sales.
Other costs
Other costs that can significantly affect
the industry include overhead expenses
such as logistics and distribution,
depreciation, interest rates, research and
development costs, and utility costs.
Collectively, IBISWorld estimates that
these costs will represent approximately
8.1% of total industry revenue.
and tend to be dominated by fewer
producers. Further, the growing segment
of low priced, private label brands has
made price-based competition more
intense, especially given the current
economic climate.
Quality
The perceived quality of particular brand
will determine the price consumers are
willing to pay for it. The industry is
dominated with well-established brand
names and producers, most of which
have been in existence for nearly a
century. Consumers are therefore highly
brand loyal and have high expectations of
quality from the industry’s products,
which forms a key base of competition.
The sensitivity to quality also varies
between product segments. For example,
consumers of chocolate products are
significantly more discerning to aspects
such as quality, texture and taste
compared to chewing gum or sugar based
confectionery.
Basis of Competition
continued
Relationship with key suppliers
Developing and maintaining strong
relationships with downstream suppliers
is also a critical area of competition. The
ability to secure coveted impulse
purchase outlets (such as check out isles)
and supermarket shelf space has
conventionally set market leaders apart
from their competitors. Brands with the
most recognizable products or packaging
placed visibly at strategic locations, have
the best chances of maximizing sales at
the retail level. As competition
intensifies, more manufacturers are
expanding their traditional distribution
networks to include convenience stores,
drug and discount stores, shopping mall
kiosks and other venues with high
pedestrian traffic.
Innovation and differentiation
The ability to be innovative and
differentiate a product/brand forms one
of the key bases of competition within the
industry. Considering the limited
opportunities for growth, it is essential
for manufacturers to distinguish
themselves in order to maintain market
share. Changing consumer tastes and
dietary trends have further compelled
producers to be innovative with
packaging, marketing and labelling
initiatives. Wrigley’s for example, cites
innovation as the most important
element in its continued success, and
Barriers to Entry
Level & Trend
arriers to Entry
B
in this industry are
Medium and Steady
The barriers to entry in the Chocolate and
are relatively low, as the absolute cost of
entry is not prohibitive. Once again,
barriers to entry vary between product
segments. Chocolate production is more
capital intensive and thus requires higher
levels of investment to commence
operations. Sugar confectionery and gum
production however are more labour
intensive and easier to enter, evidenced
by the large number of players servicing
those segments.
The biggest threat facing potential new
entrants is the extremely well entrenched
holds over 200 significant patents and
trademarks relating to packaging,
chewing gum confection processing, and
product formulae. Further, in 2005,
Wrigley opened its Global Innovation
Centre in northern Chicago, dedicated to
the research and development of new
products and enhancement of its existing
product lines.
Branding and promotion
Branding and promotion has historically
played an important role in generating
sales for confectioners. Generally,
manufacturers heavily promote products
through mass media advertising and
in-store promotion. The latter is
particularly important since consumers
often purchase confectionery ‘on
impulse’. The Confectionery
Manufacturers of Australasia found that
up to 75% of all chocolate and
confectionery sales are made on
impulse. Other popular marketing tools
adopted by confectioners include prize
give-aways and free gifts inside
packaging. Major players like Mars Inc.
also periodically increase chocolate bar
sizes at no extra cost. Such tactics are
often employed to ignite new interest in
existing product lines. As competition in
the branded segment intensifies, more
manufactures are exploring nontraditional advertising method including
event sponsorship.
barriers to entry checklist
Competition
Concentration
Life cycle stage
Investment requirements
Technology change
Regulation & policy
Industry assistance
Level
Medium
High
Mature
Medium
Medium
Medium
Low
position of the industry’s major players.
These companies enjoy high brand and
customer loyalty and have considerable
Barriers to Entry
continued
resources to invest in advertising and
promotions to protect and grow their
market share. Further, the major players
enjoy favourable contracts with key
suppliers such as grocery stores and
supermarkets that maybe difficult for
new entrants to secure.
All of the industry’s major players have
very strong product portfolios with most
of the world’s best known chocolate and
confectionery brands being owned
between them. Enormous advertising
budgets allow them to aggressively
promote their products through a range of
media outlets that are simply inaccessible
to new entrants. Incumbent firms also
enjoy efficiencies created by economies of
scale and scope. Lower per unit costs of
production and varied product lines
combined with high levels of investment
in technology and equipment make
competition very difficult.
Nevertheless, new entrants have
established themselves within the
industry, with the majority in the lowpriced, non-branded segment. Other
smaller players have managed to carve
out regional market niches, thereby
reducing the directness of competition
from the major players.
Industry
Globalisation
Manufacturing industry is exposed to a
high level of globalisation. All of the
industry’s major players are owned and
controlled by foreign multinationals
such as Cadbury (United Kingdom),
Nestle (Switzerland), and Wrigley
(USA). The presence of these firms has
greatly increased the industry’s
exposure to globalisation by
introducing technology sharing,
trans-national marketing, and global
sourcing into the Australian
marketplace.
International trade is a
major determinant of
an industry’s level of
globalisation.
Exports offer growth
opportunities for firms.
However there are legal,
economic and political risks
associated with dealing in
foreign countries.
Import competition can
bring a greater risk for
companies as foreign
producers satisfy domestic
demand that local firms
would otherwise supply.
Trade Globalisation
200
Going Global: Chocolate and Confectionery
Manufacturing 1996-2010
Global
Export
150
100
50
0 Local
0
Chocolate and
Confectionery
Manufacturing
Import
40
80
200 Export
Exports/revenue
in
this industry is
High and the trend
is Increasing
Exports/revenue
Level & Trend
lobalisation
G
120
Imports/domestic demand
160
Global
150
100
50
1996
0 Local
0
2010
40
Import
80
120
160
Imports/domestic demand
Major Companies
Kraft Foods (Australia) Limited | Nestle Australia Ltd
Mars Australia Pty Ltd | Other
Major players
Nestle Australia Ltd 21.5%
(Market share)
15.1%
Other
Mars Australia Pty Ltd 14.3%
Kraft Foods (Australia) Limited 49.1%
Player Performance
Kraft Foods
(Australia) Limited
Market share: 49.1%
In January 2010 after months of fierce
negotiations, Kraft Foods Inc., the
world’s second largest food company,
acquired the world’s largest confectioner,
Cadbury plc for an estimated $18.6
billion. Globally, the group would be
number one in the chocolate and sugar
confectionery segments and a strong
number two in the high growth gum
segment. Cadbury’s leading brands, such
as Cadbury, Trident and Halls, are highly
complementary to Kraft’s portfolio and
would benefit from its global scope, scale
and array of proprietary technologies and
processes. In addition, the acquisition of
Cadbury will significantly enhance the
strength of Kraft’s presence in the
confectionery sector, enabling Kraft
Foods to leverage Cadbury’s product
development capabilities.
Established in 1824, Cadbury is the
world’s largest confectionery company by
market share. The company has an
estimated 10% share of the international
confectionery market, and currently
employs more than 50,000 staff in 60
countries worldwide. Cadbury merged
with Schweppes, a mineral water
business, in 1969 to become Cadbury
Schweppes plc. However, on 7 May 2008,
the company finalised the separation of
their confectionery business from the
Americas Beverages business. The
de-merger followed a series of disposals
by the company during 2007 which were
intended to streamline operations. The
split meant that the confectionery
business was now separate from the
North American beverage unit, which is
now known as Dr. Pepper Snapple Group
(DPS). Cadbury Schweppes Australia Ltd.
was a wholly owned subsidiary of UKbased Cadbury plc. However, in March
2009, it was announced that Cadbury’s
Australian Schweppes Beverage business
will be sold to Asahi Breweries for an
estimated $1.1 billion.
The company has a well-entrenched
position in the Australian market, with
two of its flagship production facilities
located in Claremont, Tasmania and
Ringwood, Victoria. Cadbury owns a
number of iconic chocolate and
confectionary brands including; Cherry
Ripe, Crunchie, Freddo, Roses, and Dairy
Milk that are household brand names
and enjoy a high level of customer
loyalty. Sustained new product
introductions such as Boost, Time Out,
and Breakaway have also stimulated
demand and consumption.
Despite the recessive climate that
dampened spending and confidence over
2009, revenue increased 4.8% to $1.0
billion. Consumers sought respite from
the gloom through simple and
inexpensive indulgences such as
chocolate and confectionery. Cocoa and
sugar prices eased, while new product
introductions helped sales volumes.
NPAT grew dramatically driven by lower
production costs, higher volumes of
high-margin indulgent products.
In 2008, Cadbury Australia sales
revenue decreased by 0.7% to $985.5
million, despite rising world cocoa prices
that increased by 37.9% during the year.
Growth within the Asia Pacific region,
inclusive of Australia, was driven by
strong growth in the emerging markets of
India, and China, driven by increased
chocolate sales. The deteriorating
economic climate in Japan, Australia and
New Zealand however, partially offset the
above gains. Cost cutting initiatives
continued during the year, with the
Major Companies
Player Performance
continued
closure of around 10 of the company’s
manufacturing sites, and corresponding
downsizing of 15% of the workforce by
2011. In addition, Cadbury announced a
$135 million proposal to improve the
productivity and efficiency at their
chocolate manufacturing sites in
Tasmania, Victoria and New Zealand.
In 2006 and 2007, Cadbury
Schweppes achieved revenue declines of
13.4% and 48.7% for each year
respectively. Despite strong growth in the
Australian confectionery market,
Cadbury attributed the slower revenue
growth to a combination of retailer
de-stocking and a reduction in their
promotional activity.
Cadbury Schweppes rebounded after
2003, with revenue growth of 9.2% and
6.8% in 2004 and 2005 respectively.
The strong results saw revenues reach
nearly $2.3 billion, while NPAT reached
$234.2 million. The launch of the Boost
bar was a major driver behind growth
over the period, as it was the top selling
medium-sized bar in the grocery channel
for that year.
The company posted its ninth
consecutive rise in revenue during the
year ending December 2003, with total
revenue growing by more than 24% to
$1.9 billion. However, in the same
period, after strong growth in the past
four previous years, net profit after tax
only reached $61 million as a result of a
poor first half year. Lower profitability
over the year was related to the
company’s acquisition of The Natural
Confectionery Co., which played a role
in raising total business costs.
Kraft Foods (Cadbury division) – financial performance
revenue
($ million)
(% change)
NPAT
($ million)
(% change)
2005-06
2,233.6
N/C
234.2
N/C
2006-07
1,935.3
-13.4
467.5
99.6
2007-08
992.1
-48.7
172.6
-63.1
2008-09
985.5
-0.7
212.9
23.3
2009-10
1,032.5
4.8
460.0
116.1
year
SOURCE: IBISWORLD
Player Performance
Nestle Australia Ltd
Market share: 21.5%
Nestle Australia Ltd, a wholly owned
subsidiary of Nestle SA of Switzerland, is
the world’s largest food and beverage
company, employing more than 250,000
staff across 500 sites in 86 countries.
Nestle’s Australian operations are part of
the Oceania geographic segment, which
employs 4,700 staff across Australia,
New Zealand and the Pacific Islands. The
Oceania segment operates across five
product categories: Beverages; Milk
Products and Ice Cream; Prepared Dishes
and Cooking Aids; Confectionery; and Pet
Care. Specific to this industry, the
Confectionery segment accounted for
11.8% of revenue in 2008.
Nestle owns some of the country’s
most recognized chocolate and
confectionary brands including, Aero,
Milky Bar, Kit Kat, Smarties, Wonka,
Milo, Smarties, Life Savers, Minties etc.
Similar to competing producers, Nestle
has sought to revamp popular products
in order to increase its market share.
For example, the launch of the Kit Kat
Temptations range that included the
introduction of new flavours such as
Coconut eclair, Hazelnut Praline and
Caramel Fudge, accelerated company
growth 7% in the first six months of
their introduction.
In 2008, total revenue increased by
Major Companies
Player Performance
continued
3.3% to $2.7 billion, despite the year
being typified by unprecedented and
rapid changes in economic
environment, rising unemployment
and volatile commodity and currency
prices. The impact of rising input costs
was partially offset by the increase in
selling prices, while the company’s
flagship branded products, Kit Kat and
Nescafe achieved organic growth of
almost 10% respectively.
Over the 2007 financial year, the
company performed modestly, with
revenue increasing by 2.2% to $2.6 billion,
and a net profit after tax (NPAT) of $95.2
million. On 24 June 2008, Nestle
announced it had sold its yoghurt and
dairy dessert business, including its
Echuca factory, to Fonterra. The
agreement became effective from
September, 2008 and Nestle has indicated
that a large number of employees will be
moving across to Fonterra.
In 2006, total revenue increased
modestly by around 3.0% to $2.5 billion,
partially due to unrelated declines across
major product segments. However,
chocolate brands such as Kit Kat showed
moderate growth, with other
confectionery brands also showing
marginal growth. NPAT increased by
17.9% to $60.0 million due to higher
average selling prices and lower
operating costs.
The 2005 years saw sales revenue
increase by 1.7% to reach $2.5 billion,
with much of this growth coming from
the company’s other food products. In
particular, sales were boosted by the
launch of the Cheerio’s breakfast cereal in
July 2005. The product is currently the
top-selling cereal brand in the US market
and has generated significant sales in the
Australian market. NPAT declined by
62.5% to $50.9 million because of higher
advertising costs and investment costs.
Nestle Australia – financial performance
year
2005-06
revenue
($ million)
(% change)
NPAT
($ million)
(% change)
2,450.1
N/C
50.9
N/C
2006-07
2,523.6
3.0
60.0
17.9
2007-08
2,579.4
2.2
95.2
58.7
2008-09
2,727.5
5.7
86.4
-9.2
2009-10
2,784.8
2.1
162.3
87.8
SOURCE: IBISWORLD
Player Performance
Mars Australia Pty
Ltd
Market share: 14.3%
Mars Australia Pty Ltd is a proprietary
company that supplies local and export
markets with food, pet care, and snack
food products. Although most of Mars’
sales revenue is derived from its domestic
operations, the company exports to more
than 30 countries. The Australian
business began in 1954 with the sale of
the Mars bar. The first factory was built
in 1967, and operations have since
expanded to six manufacturing sites
across Australia, and employment of
more than 2,500 staff. The company’s
headquarters are located in Wodonga,
Victoria. Mars Australia is wholly owned
by US-based diversified food wholesaler
Mars Inc. Across its product categories,
established brands include Pedigree and
Wiskas (two of the world’s leading brands
of food for dogs and cats respectively),
and Masterfoods (herbs, spices and
condiments), Dolmio (pasta sauces), Kan
Tong (marinades), and Uncle Ben’s (rice,
sauces and curries).
Major Companies
Player Performance
continued
Specific to the Chocolate and
Confectionery Manufacturing industry,
the company produces and markets a
number of household brands including
Mars, Maltesers, M&M’s, Snickers,
Skittles and Starburst. The Snackfood
operations were established in Ballarat in
1979, and a second manufacturing site
was acquired in Melbourne in 1997. Mars
Snackfood employs more than 800
associates, and exports to over 12
countries including New Zealand, the
Middle East, Japan and markets
throughout Asia and the Pacific. Mars’
exports account for more than half of
Australia’s total confectionery exports.
Mars Inc. has been adopting a fairly
aggressive position as a part of its
strategy to raise its competitiveness in
the non-chocolate confectionery segment.
Recent years have seen the introduction
of a number of product extensions,
including ice cream lines and various
biscuit-confectionery hybrids. In April
2008, Mars Inc., along with Berkshire
Hathaway Inc., acquired market leader
Wrigley Company, for an estimated $23
billion. The two companies together, are
expected to generate sales in excess of
$27 billion and unseat Cadbury as the
world’s largest confectioner.
IBISWorld estimates that revenue from
the company’s confectionery interest’s
account for an estimated 18% of its total
revenue. No public results for Effem
Foods are published at the divisional level;
however its confectionery division, Mars,
is believed to have performed relatively
well during the past decade.
At a broader level, the company’s
consolidated accounts reveal a steady
upward trend in sales revenue, increasing
by an average of 1.5% per annum. During
this period, revenue results were helped
by a series of acquisitions including the
purchase of Kenman Kandy Australia Pty
Ltd in late 1997. Kenman Kandy
reportedly added an extra $40 million
worth of sales or the equivalent to three
percent to Effem’s share of the
confectionery market.
By 2005, revenue declined for the
second year in a row, falling by 5.9% to
$1.3 billion. This was largely as a result of
an incident that occurred in July 2005
involving an extortion threat that led to
the recall of 3 million chocolate bars from
more than 5,500 stores across New South
Wales stores. In August, the company
re-launched the two chocolate bar lines
with an extensive mass media campaign.
Industry analysts believe that the brief
recall cost Mars several million dollars.
Revenue in 2006 was still slightly
affected from the previous year’s events,
falling by 1.3% to $1.30 billion in 2006,
while NPAT declined by 41.3% because of
increased advertising costs.
Wrigley Company Pty Ltd
The William Wrigley Jr. Company is the
world’s largest manufacturer of chewing
gum, with a 63% share of the world
market. The Wrigley Company was
founded in 1891 in Chicago, Illinois and
has since expanded operations to service
over 180 countries worldwide with 22
manufacturing facilities in 14 countries.
wrigley Company Pty Ltd – financial performance
revenue
($ million)
(% change)
NPAT
($ million)
(% change)
2003-04
143.3
N/C
21.1
N/C
2004-05
147.7
3.1
18.2
-13.7
2005-06
151.8
2.8
22.4
23.1
2006-07
165.1
8.8
20.6
-8.0
2007-08
186.9
13.2
24.0
16.5
year
SOURCE: IBISWORLD
Major Companies
Player Performance
continued
The company produces some of the
world’s most recognizable confectionery
brand names such as Juicy Fruit, Big Red,
Wrigley’s Spearmint, Eclipse, Airwaves,
Life-Savers, Extra, Orbit, Freedent etc. As
of December 2007, the company recorded
total sales revenue of $5.4 billion,
employing 16,400 people worldwide.
In April 2008, the Wrigley Company
was acquired by its major competitor and
confectionery giant, Mars Incorporated
for an estimated $23 billion. As part of
the merger, Mars’ non-chocolate sugar
brands including Starburst and Skittles
were to be added to Wrigley’s
confectionery portfolio in an attempt to
increase its competitiveness in the
non-chewing gum segment.
In Australia, Wrigley Company Pty
Ltd has been manufacturing chewing
gum since 1915, and is a wholly owned
subsidiary of its US-based parent. With
operations in most Australian states,
Wrigley employs a workforce of around
328 people. The company distributes a
mix of locally produced and imported
gum, including the Juicy Fruit, P.K,
Arrowmint, Hubba Bubba, Extra and
Airwaves brands. Locally, the company
invests heavily in advertising and
promotion. Over the past decade,
Wrigley has successfully boosted sales
via a series of campaigns based on
dental hygiene that promoted the
benefits of their range of sugar-free
chewing gum. Wrigley’s flagship sugarfree brand, Extra, now commands
nearly 60% of the local market and the
company holds over 90% of the
Australian chewing gum market.
The company has since launched
several new chewing gum products,
mints and premium ‘hard candy’
products. In 2004, the company
launched its Extra Drops range of
favoured sugarless gums that are also
designed to assist dental hygiene.
Already a big market in the US, the
introduction of sugarless candy grew
rapidly in Australia, helped by strong
media advertising. More recently, sales
have been driven by new products which
include, Extra Liquid Blast, Extra Fruit,
Extra Professional Mints, as well as
continual growth of the Eclipse brand of
mints that was launched in 2005. In
2007, Wrigley Australia also launched
Solano, a premium ‘hard candy’ product,
in order to reduce its reliance on the gum
and mints markets.
Mars Australia – financial performance
year
2005-06
revenue
($ million)
(% change)
NPAT
($ million)
(% change)
1,320.4
N/C
18.8
N/C
2006-07
1,302.8
-1.3
52.8
180.9
2007-08
1,272.2
-2.3
71.4
35.2
2008-09
1,331.2
4.6
121.0
69.5
2009-10
1,293.0
-2.9
79.1
-34.6
SOURCE: IBISWORLD
Major Companies
Other Companies
Ferrero Australia Pty Limited
Estimated market share: 4.5%
The Italian family-owned and operated
Ferrero S.p.A Company was founded in
1946 by Pietro and Giovanni Ferrero.
The Ferrero Group now employs
around 19,600 staff across 36
operating companies and 15
manufacturing sites worldwide.
Ferrero established operations in
Australia in the early 1970’s and became
an incorporated company in 1974.
Ferrero Australia Pty Ltd operates solely
in Australia. Its production facility is
located in the rural New South Wales
town of Lithgow. From here, Ferrero
Australia manufactures the sugar candy,
Tic Tacs, and the chocolate table spread,
Nutella. In addition, the facility repacks
specialty chocolates imported from Italy.
The Ferrero range of products are
marketed and sold within Australia to
different segments of the retail market.
For example, the premium Ferrero
Rocher brand of chocolate is marketed as
a luxury chocolate for special occasions,
while the Kinder Surprise line is
marketed towards parents and children
as a treat. Kinder Surprise is a
confectionery/toy product that was
released in the Australian market in the
early 1990s. Retail sales of Kinder
Surprise are estimated at $17 million.
Employing around 77 people in 2005,
the financial position of Ferrero has
experienced positive growth in recent
years, with the company generating
sales revenue of $106.1 million in 2005,
an increase of 15.5% from the previous
year. In 2006, revenue increased a
further 6.2% to $112.7 million, with the
number of employees growing to 134.
Stronger demand at the retail level is
likely to have been a key factor behind
the company’s increased sales volume.
As of 31 August 2007, company revenue
totalled $122.0 million, representing an
increase of 8.0%.
Darrell Lea Chocolate Shops Pty Ltd
Darrell Lea Chocolate Shops is a
proprietary company, and is the largest
Australian-owned confectionery
manufacturer/retailer. Darrell Lea
produces a range of boxed chocolates,
confectionery bars, liquorice, rocky road,
and other confectionery products. Based
in Kogarah, New South Wales, Darrell
Lea has approximately 400 retail outlets
throughout Australia, and employed
around 540 staff as at June 30, 2007.
Products are sold to over 1,100 retail
outlets worldwide, with Darrell Lea’s key
export markets being the UK, US,
Canada, South Africa and New Zealand.
In 2000-01 a number of products that
were producing minimal sales were
removed as a result of a new strategic
plan to lift sales, along with the plan to
increase export levels. By 2006-07 sales
revenue reached $97 million, an increase
of 10.2% from the previous year. The
company endeavours to grow more
substantially over the next two years,
with a factory upgrade planned to boost
its offshore expansion.
Aussie Sweets Pty Ltd
Based in Sydney, New South Wales,
Aussie Sweets Pty Ltd is a division of
Cumberland Industries Ltd, a not-forprofit disability employment service. The
company commenced operations in 1985,
manufacturing under five product
categories: caramels, fudges, nougats,
musk and fruit sticks. The product range
has since expanded to 30, and Aussie
Sweets provides vocational training and
employment to around 500 people with a
disability. Sales are predominantly
through national bulk confectionery
re-packers, private label products and, to
a lesser extent, branded products under
the Aussie Sweets label. Customers
include major supermarket chains.
Operating Conditions
Structural Risk Index | Investment Requirements | Technology & Systems
Industry Volatility | Regulation & Policy | Industry Assistance | Taxation Issues
Barriers to Entry
61.9
Score
Le
ve
ls o
f As
sistance
s
ort
Imp
IBISWorld has scored key elements of
industry structure on a scale of 1 to 9 –
the higher the figure, the greater the risks
to businesses operating in the industry.
Operating conditions in the Chocolate
and Confectionery Manufacturing
industry are less risky than in other
C
ge
Sta
ge
Sta
Le
ve
ls o
f As
sistance
ity
til
Expor
ts
Score
Life Cycle
52.4
Reve
nu
eV
ola
C
on
titi
pe
om
ity
til
Barriers to Entry
Expor
ts
Life Cycle
Industry Pressure Points
Imports
Levels of Assistance
Manufacturing
on
titi
pe
om
Industry Relax Points
Exports
Revenue Volatility
Manufacturing
Reve
nu
eV
ola
Structural Risk
Index
s
ort
Imp
industries in the Manufacturing division.
The industry structural risk index totals
52.4 points compared to 61.9 points for
the Manufacturing division as a whole
(100 points equates to extremely poor
operating conditions).
Investment
Requirements
Level
The level
of
investment required
is Medium
Manufacturing requires a medium level
of capital investment, as measured by the
capital to labour ratio. IBISWorld
estimates that the capital to labour ratio
in this industry is approximately 4.7:1.
This means that producers require $4.70
worth of labour for every $1 worth of
capital invested. Modern manufacturing
plants require high levels of capital
expenditure on sophisticated technology
and equipment that aim to increase
productivity without the need for
additional labour. However, this industry
requires more labour than related food
manufacturing industries due to more
complex product sorting and a greater
diversity in output.
The level of capital intensity also varies
greatly among industry players.
Capital intensity
Capital units per labour unit
0.50
0.40
0.30
0.20
0.10
0.00
Economy
Manufacturing
Dotted line shows a high
level of capital intensity
Chocolate and
confectionery
manufacturing
Unsurprisingly, the major producers
have invested substantial amounts of
capital relating to technology and
production over the last decade.
Investment
Requirements
continued
However, the relatively simple
technology necessary for most
confectionery production means that
there are still a large number of small
producers that heavily depend on labour
in the production process. However,
across the industry, the level of capital
intensity is generally rising. The
introduction of new technology and the
adoption of greater automation are
inevitably reducing the role of labour in
the production process. This is especially
true in the larger factories where high
speed production lines have dramatically
increased throughput, allowing
manufacturers to significantly raise
production without requiring
corresponding increases in labour.
Tools of the Trade: Growth Strategies for Success
Investment Economy
recreation, Personal Services,
Health and Education. Firms
benefit from personal wealth so
stable macroeconomic conditions
are imperative. Brand awareness
and niche labour skills are key to
product differentiation.
Information, Communications,
Mining, Finance and real
Estate. To increase revenue
firms need superior debt
management, a stable
macroeconomic environment
and a sound investment plan.
Confectionery
and Soft drink
wholesaling
Milk and
Cream
Processing
biscuit Manufacturing
Traditional Service Economy
wholesale and retail. Reliant
on labour rather than capital
to sell goods. Functions cannot
be outsourced therefore firms
must use new technology
or improve staff training to
increase revenue growth.
Sugar Manufacturing Old Economy
Cake and Pastry Manufacturing
Agriculture and Manufacturing.
Traded goods can be produced
using cheap labour abroad.
To expand firms must merge
or acquire others to exploit
economies of scale, or specialise
in niche, high-value products.
Change in Share of the Economy
Technology
& Systems
Level
The level
of
Technology Change
is Medium
Capital Intensive
Labour Intensive
New Age Economy
Overall, the industry employs worldstandard technology, which has gradually
improved over the past decade. The
dominant presence of foreign owned
firms in the industry has meant that all of
the intellectual capital (i.e. technology,
process, patents, recipes etc.) is owned by
European and American companies.
Except for the industry’s largest players,
Australian confectionery makers lack the
critical mass necessary to conduct basic
research in food science. In many cases,
limited funds make the
commercialisation of high-technology
products in Australia difficult. The
concentration of industry ownership also
means that most industry R&D is
maintained in-house, further restricting
the sharing of production innovations.
However, some public sector R&D still
occurs through government-funded
institutions like Food Science Australia.
Technology
& Systems
continued
However, this work typically focuses on
technical issues relating to inputs rather
than on confectionery research itself.
The basic principles of confectionery
manufacturing have altered little over
the past century. In chocolate
confectionery, cocoa beans are
transformed into cocoa butter through a
process of cleaning, roasting,
winnowing, milling and pressing. Other
ingredients like milk and sugar are then
added to the cocoa butter. After
conching, this mixture becomes milk
chocolate that can be used in the
production of chocolate bars, blocks,
Easter eggs etc. In the case of sugarbased confectionery, glucose, sugar,
starch, milk and fat are mixed (in
varying proportions according to the
specific products), then boiled.
Colourings and flavourings are added as
required and the mass is then cooled.
Once cooled, the product can may be
enrobed and/or cut and packed.
Whilst basic production processes
remain unchanged, new technology in
the industry is focusing on recipe
development and automation. Recently,
some Australian chocolate makers have
been changing their recipes and using
new production technology to produce
the flavour of top quality cocoa beans
from inferior inputs. Elsewhere in the
industry, the main technological
advances have been made in the areas of
computerisation. The introduction of
computer directed controls and computer
aided design has helped lift equipment to
precise calibration and tolerances.
Ultimately this has allowed greater
quality control in the confectionery
production process.
While the core methodology remains
unchanged, businesses continue to
refine production processes with the
introduction of new machinery and the
adoption of applied science. Generally,
the adoption of new technology for
chocolate production has improved
cost and operating efficiencies. Over
time, refining technology is becoming
more complex with the broadening of
the product range and increased
product differentiation.
In terms of marketing and distribution
systems, E-commerce has been providing
manufacturers with improved customer
and supplier arrangements, leading to cost
savings through better inventory and
production planning. In some cases,
e-commerce is also being utilised to track
exports. So far, the adoption of this tool
has been largely confined to major players.
Penetration into smaller and mid-sized
firms continues to be obstructed by cost
issues. Further, the uptake of best practice
programs is playing a key factor in
ensuring high product integrity in
chocolate manufacturing. The
introduction of quality assurance
programs like Hazard Analysis Critical
Control Point (HACCP) has helped the
industry improve food safety. High food
safety standards play a vital role in
preserving the industry’s reputation as a
clean and reliable food manufacturer.
Revenue Volatility
Industry volatility is a function of
fluctuations in the cost of raw materials,
energy and oil prices, weather
conditions, household incomes and
changes in downstream demand
conditions. Commodities like cocoa,
sugar, milk, flavourings, sweeteners and
oils represent primary inputs in the
production process and any changes in
their price impacts industry supply. In
the five years to 2010-11, prices of these
commodities have been subject to
dramatic fluctuations, which have
impacted production costs and thus,
profitability.
Chocolate and confectionery maybe
classified as a discretionary purchase,
implying that demand is non-essential
and therefore sensitive to changes in
price. Consumers purchase
Level
The level
of
Volatility is Medium
confectionery frequently and for a large
number of households, it forms an
integral part of their everyday lives.
However, due to the presence of a large
number of substitute products, demand
for a particular brand will still be
affected by price increases. The current
A higher level of revenue
volatility implies greater
industry risk. Volatility can
negatively affect long-term
strategic decisions, such as
the time frame for capital
investment.
When a firm makes poor
investment decisions it
may face underutilised
capacity if demand
suddenly falls, or capacity
constraints if it rises
quickly.
economic climate however, has seen an
increase in the consumption of
chocolate and confectionery products as
consumers choose to indulge
themselves as a means of nostalgia or
escapism without feeling guilty or
incurring high costs.
Volatility vs. growth
1000
revenue volatility* (%)
Revenue Volatility
continued
Hazardous
rollercoaster
100
10
1
0.1
Stagnant
–30
–10
Chocolate and
Confectionery
Manufacturing
10
30
blue chip
50
70
Five year annualised revenue growth (%)
* Axis is in logarithmic scale
Regulation & Policy
Level & Trend
he level of
T
Regulation is
Medium and the
trend is Steady
Chocolate and confectionery
manufacturers must adhere to stringent
food and health regulations. These are
aimed at maintaining high levels of food
hygiene and safeguarding the community
against health scares associated with
poor food safety. Currently, producers
are regulated by Food Standards
Australia New Zealand (FSANZ). This
regulatory agency is responsible for the
implementation of the Australia New
Zealand Joint Food Standards Code
(“The Code”). Released on December
2002, this code represents the complete
set of food regulations for both Australia
and New Zealand.
Under the new code, chocolate
products must contain at least 20%
cocoa and are not permitted to include
more than 5% of oils other than cocoa or
dairy fats. This replaces previous
requirements that placed heavy
specifications on the composition of
chocolate products. Although the
amendments offer greater flexibility to
manufacturers, some industry players
are unhappy. They fear that the
relaxation of composition requirements
will signal an increase in the use of
inferior ingredients, which to some
extent, has already begun. Industry
players have started to modify their
recipes and adopt new technology to
reproduce the flavour of cocoa beans.
The Code also places labelling
requirements on industry players.
Importantly, compliance with the Code
requires manufacturers to provide
information on the percentage share of
ingredients used as well as some
nutritional information. These
requirements have been widely criticized
for placing significant costs on the
industry. However, with consumer groups
intensifying their calls for more
nutritional information on food labels, the
industry has articulated their intention to
improve labelling. IBISWorld expects an
increasing number of confectionery
manufacturers to introduce front-of-pack,
%DI labelling over the next few years, as
the debate about the introduction of
Regulation & Policy
continued
traffic light labelling continues.
In addition to the above regulations,
the Australian government has also
recently introduced steps to monitor the
production of genetically modified food.
Since December 2001, all food
manufacturers (including confectionery
makers) have been required to take
reasonable steps to establish whether
their raw ingredients contain any
genetically modified food. Final food
products must be labelled accordingly to
provide consumers with adequate
information. This move by State Health
Ministers was aimed at addressing
perceived health and safety issues in the
community. Although welcomed by
consumers, future testing required for
compliance is likely to be costly for
manufacturers. Confectionery producers
are among those affected by this
requirement since they are users of fruit
and nuts, as well as dairy products.
On a broader scale, confectionery
manufacturers must abide with
regulations relating to employment and
the environment. There are various laws
governing wages and employee rights.
Today, most employees operate under
Enterprise Bargaining Agreements
although these must exceed minimum
state and federal wage floors. Like all
manufacturers, confectioners must also
ensure that they comply with
Occupational Health and Safety
Regulations. Manufacturers can face stiff
penalties for non-compliance. Finally,
Australian confectionery manufacturers
must comply with environmental
regulations set out by the Federal and
State governments. Generally these
regulations relate to odours, water usage,
wastewater generation and the treatment
of waste arising from production.
Failure to comply with regulations,
laws and other rules governing
confectionery manufacturing can subject
industry players to legal action,
administrative penalties, and possible
recalls of products. It can also result in
considerable negative publicity that can
damage the reputation and public image
of producers. Non-compliance can
therefore potentially have a material
effect on the earnings and competitive
position of firms operating in this
industry. It is worth noting that industry
sources believe that laws and regulations
relating to food production are becoming
more stringent, resulting in increasing
compliance costs for Australian
confectionery manufacturers.
Industry Assistance
Government assistance for Australian
confectionery manufacturers is limited.
Up until the late 1980s, the industry
received substantial assistance in the
form of tariff barriers. Since then, free
market trade policies adopted by
successive federal governments has
resulted in progressive lowering of tariffs.
Today, the general tariff on imported
confectionery is just 5%. Meanwhile,
imports sourced from nations classified
as developing countries are subject to a
special tariff of 4%.
In some respects, the Federal
Government’s low tariff policy has
resulted in reciprocal access for Australian
confectioners to overseas markets.
Australia’s free-trade agreement with the
United States (2005) is one such example.
In the future, a free trade agreement with
China has been tabled as a possibility.
Given rising disposable incomes and
expanding diets in the Asian Giant,
improved access for Australian exports
could signal significant opportunity for
industry expansion in the future.
To some extent, the industry is
protected from foreign competition by
natural barriers. Historically, Australia’s
small domestic market and its geographic
distance from Northern Hemisphere
competitors have discouraged large
volumes of imported confectionery. This
competitive advantage is however
disappearing as improvements in
transportation systems continue to
Level & Trend
he level of Industry
T
Assistance is Low
and the trend is
Decreasing
Industry Assistance
continued
Taxation Issues
Level
The level
of Tax
Burden is Medium
reduce importing costs.
Currently, there are no government
subsidies or grants targeting
confectionery manufacturers. In 1995-96,
the Industry Commission (now the
Productivity Commission) estimated that
confectionery makers received an
effective rate of assistance averaging 8%.
The current rate is likely to be smaller.
Ongoing reductions in tariffs and a
change in government policy toward the
privatisation of research are likely to
contribute to the decline.
Australian confectionery
manufacturers can also take advantage of
a range of assistance programs offered
across the manufacturing sector. In late
2002, leading player Cadbury Schweppes
took advantage of the Government’s new
Enhanced Project By-Laws Scheme
(EPBS). Under the scheme, capital
equipment that is either not made in
Australia or is technologically superior to
Australian-made equipment can be
imported duty-free. The EPBS scheme
aims to help local manufacturers remain
competitive in overseas markets.
At the state level, export driven
funding initiatives are also helping
confectioners in the export sector. In
Victoria, for example, the State
government unveiled an export plan
worth $11 million dollars in October
2004. Although aimed at the wider food
sector, the package includes financial and
other forms of assistance open to
confectionery manufacturers. The
Industry products are subject to the 10%
Goods and Services Tax (GST) which is
imposed on the supply of most goods and
services consumed within Australia. A
number of food items are exempt from
the GST, however the following
confectionery products are GST taxable;
chocolate and compound chocolate;
chewing gum; confectionery; and
crystallised or glace fruit.
GST is paid at each stage along the
Key tariffs
Goods
Sugar and other
confectionery
Singapore, Malaysia,
PNG, NZ &
developing countries
Low rate
High rate
5
5
4
4
SOURCE: CUSTOMS
program is primarily focused on
developing capacity in Victorian food
manufacturing to meet increasing
volume, quality and seasonal
requirements of major global buyers in
foreign markets.
Finally, confectionery manufacturers
continue to benefit from the lobbying
efforts and public relations work
conducted by peak industry associations.
Membership organizations like the
Confectionery Manufacturers of
Australasia (CMA) have played a
prominent role in promoting the
interests of the industry since its
inception in 1969. Today, CMA has more
than 200 member manufacturers.
Money raised through the membership
fees and government assistance is used
to fund policy initiatives and advisory
services. For example, in 2004, the
association received a $15,000 grant
from the government to explore
e-business opportunities for
confectionery manufacturers.
supply chain. Under the system, firms
are charged GST by upstream suppliers.
Similarly, they charge downstream
customers GST. At the end of each
quarter, firms registered for GST must
submit the money they have collected to
the Australian Taxation Office (ATO). As
a business, they receive tax credits for
GST incurred through the purchase of
raw materials and other business items.
Most items produced by this industry
Taxation Issues
continued
are subject to the GST since the
Australian Taxation Office has classified
confectionery as non-basic food. This
means that manufacturers must charge
GST on supplies to downstream retailers
and customers. However, industry
players are still entitled to claim input
tax credits for GST paid on purchases.
The introduction of the GST is
believed to have increased the tax
compliance costs of confectionery
manufacturers. So far, higher costs have
been associated with the greater
administration required for businesses
to track and claim GST credits in the
supply chain.
Key Statistics
Industry Data
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
Sector Rank
Economy Rank
Revenue
($m)
2,146.4
2,310.4
2,538.7
2,592.7
2,643.3
2,619.4
2,656.7
2,706.5
2,741.8
2,832.2
2,910.0
2,972.8
3,043.5
3,112.6
3,196.5
43/147
243/500
Annual Change
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
Sector Rank
Economy Rank
Revenue
(%)
7.6
9.9
2.1
2.0
-0.9
1.4
1.9
1.3
3.3
2.7
2.2
2.4
2.3
2.7
18/147
97/499
Industry
Value Added
($m)
903.5
893.6
1,009.9
1,043.9
1,071.9
1,065.5
1,073.3
1,087.5
1,081.0
1,102.5
1,075.1
1,110.0
1,119.0
1,140.0
1,165.0
26/147
200/500
Establishments
153.0
156.0
163.0
165.0
168.0
168.0
171.0
174.0
178.0
181.0
179.0
183.0
186.0
189.0
193.0
85/147
396/500
Enterprises
134.0
136.0
139.0
140.0
142.0
142.0
145.0
147.0
146.0
147.0
147.0
151.0
152.0
155.0
156.0
79/145
362/493
Employment
(People)
6,288.0
6,154.0
6,854.0
7,347.0
7,865.0
8,048.0
8,262.0
8,465.0
8,661.0
8,696.0
8,745.0
8,784.0
8,826.0
8,867.0
9,015.0
32/147
254/500
Exports
($m)
409.4
443.3
450.2
395.7
359.3
282.5
276.3
294.5
318.8
331.1
336.6
358.6
377.2
403.1
428.4
46/142
83/221
Imports
($m)
503.1
537.3
621.9
578.5
626.0
599.3
625.6
695.5
724.8
769.8
785.9
834.8
896.5
956.4
1,022.2
56/141
72/199
Wages
($m)
415.9
389.6
430.0
456.6
468.2
486.3
491.6
491.3
494.0
496.4
482.3
488.5
496.8
501.1
509.5
36/147
231/500
Domestic
Demand
($m)
2,240.1
2,404.4
2,710.4
2,775.5
2,910.0
2,936.2
3,006.0
3,107.5
3,147.8
3,270.9
3,359.3
3,449.0
3,562.8
3,665.9
3,790.3
43/140
70/197
Production
Volume
(Tonne)
159,836.3
160,878.3
162,092.5
162,859.5
163,861.3
166,494.3
167,245.0
163,709.0
164,032.2
164,266.8
164,347.9
166,977.5
169,649.1
172,363.5
174,949.0
N/A
N/A
Industry
Value Added
(%)
-1.1
13.0
3.4
2.7
-0.6
0.7
1.3
-0.6
2.0
-2.5
3.2
0.8
1.9
2.2
39/147
175/500
Establishments
(%)
2.0
4.5
1.2
1.8
0.0
1.8
1.8
2.3
1.7
-1.1
2.2
1.6
1.6
2.1
14/147
64/500
Enterprises Employment
(%)
(%)
1.5
-2.1
2.2
11.4
0.7
7.2
1.4
7.1
0.0
2.3
2.1
2.7
1.4
2.5
-0.7
2.3
0.7
0.4
0.0
0.6
2.7
0.4
0.7
0.5
2.0
0.5
0.6
1.7
20/145
36/147
101/493
192/500
Exports
(%)
8.3
1.6
-12.1
-9.2
-21.4
-2.2
6.6
8.3
3.9
1.7
6.5
5.2
6.9
6.3
38/142
50/221
Imports
(%)
6.8
15.7
-7.0
8.2
-4.3
4.4
11.2
4.2
6.2
2.1
6.2
7.4
6.7
6.9
27/141
38/199
Wages
(%)
-6.3
10.4
6.2
2.5
3.9
1.1
-0.1
0.5
0.5
-2.8
1.3
1.7
0.9
1.7
50/147
253/500
Domestic
Demand
(%)
7.3
12.7
2.4
4.8
0.9
2.4
3.4
1.3
3.9
2.7
2.7
3.3
2.9
3.4
21/140
37/197
Production
Volume
(%)
0.7
0.8
0.5
0.6
1.6
0.5
-2.1
0.2
0.1
0.0
1.6
1.6
1.6
1.5
N/A
N/A
Key Ratios
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
Sector Rank
Economy Rank
IVA/Revenue
(%)
42.09
38.68
39.78
40.26
40.55
40.68
40.40
40.18
39.43
38.93
36.95
37.34
36.77
36.63
36.45
17/147
174/500
Imports/Demand Exports/Revenue
(%)
(%)
22.46
19.07
22.35
19.19
22.94
17.73
20.84
15.26
21.51
13.59
20.41
10.78
20.81
10.40
22.38
10.88
23.03
11.63
23.53
11.69
23.39
11.57
24.20
12.06
25.16
12.39
26.09
12.95
26.97
13.40
78/140
61/142
88/197
91/221
Figures are inflation-adjusted 2011 dollars. Rank refers to 2011 data.
Revenue per
Employee
($’000)
341.35
375.43
370.40
352.89
336.08
325.47
321.56
319.73
316.57
325.69
332.76
338.43
344.83
351.03
354.58
77/147
223/500
Wages/Revenue
(%)
19.38
16.86
16.94
17.61
17.71
18.57
18.50
18.15
18.02
17.53
16.57
16.43
16.32
16.10
15.94
61/147
220/500
Employees
per Est.
41.10
39.45
42.05
44.53
46.82
47.90
48.32
48.65
48.66
48.04
48.85
48.00
47.45
46.92
46.71
23/147
69/500
Average Wage
($)
66,141.86
63,308.42
62,737.09
62,147.82
59,529.56
60,424.95
59,501.33
58,038.98
57,037.29
57,083.72
55,151.52
55,612.48
56,288.24
56,512.91
56,516.92
70/147
201/500
Share of the
Economy
(%)
0.10
0.09
0.10
0.10
0.10
0.10
0.09
0.09
0.09
0.09
0.09
0.08
0.08
0.08
0.08
26/147
200/500
Key Statistics
Historical
Performance
Manufacturing revenue increased by just
over 1.8% per annum between 1980-81
and 1989-90. However, the rate of
growth fluctuated from year to year,
declining in some years in the first half of
the 1980s. Growth was stronger in the
second half of the decade, where the
industry entered a small growth phase. In
part this growth was attributable to the
increased number of establishments in
the industry. It also resulted from
increased advertising, the introduction of
new products to supply niche markets,
increased exports and some import
replacement. These developments
enabled turnover to peak in 1990-91
before difficult market conditions
resulting from the recession, caused
turnover to decline slightly in the early
1990s, during when the industry entered
a mature phase.
Turnover increased by just 1.1% over
the five years to 1994-95, reflecting the
difficult market conditions. Prices
declined in 1992 and 1993 not because
product prices per item declined but due
to increased product volume in each
item; that is real price per gram declined.
In part this strategy was intended to
counter the adverse impact of
unfavourable economic conditions on
demand. During 1993 there was deep
price cutting for sugar products; this also
had an impact on the prices of chocolate
confectionery. Price discounting
continued throughout 1994-95.
By 1997-98, industry revenue
increased by 9.1%, as segments of the
market remained highly profitable. In
particular, chocolate bars as a proportion
of total sales continued to expand. It is
estimated that chocolate bars accounted
for $660 million of total chocolate sales
(1998 calendar year). In the same year,
sugar confectionery retail sales were
valued at $657 million, thus capturing
28% of the confectionery market. This
was partially offset by growth in a
number of snack food products
competing against confectionery for the
consumer dollar. Over the twelve months
to June 1998, the ABS reported a
staggering 22.5% rise in the value of
imported confectionery.
Australia’s confectionery industry
continued expansion into 1998-99. The
ABS revealed a marginal increase of
0.6% in industry revenue in real terms,
as domestic producers also faced
stronger competition from substitute
foods and confectionery imports.
Aggressive marketing campaigns,
particularly from salty snacks,
contributed to lower sales. Also, the
industry battled against imported
confectionery that was often cheaply
priced. However, during the year, the
industry was helped by the world price
of cocoa collapsing, dropping by more
than 32.6%. This lowered purchasing
costs for companies across the industry.
Finally, key industry players embarked
on high cost advertising strategies.
According to the industry association,
around $100 million was spent by the
industry on brand promotion.
In 1999-2000, the industry delivered a
modest rise in revenue of 2.7%. Healthy
growth in real household incomes helped
life discretionary spending in the local
market. Meanwhile, further falls in the
price of raw materials and a series of
depreciations in the Australian dollar
impacted favourably on the
competitiveness of local producers.
Abroad, the industry achieved a sharp
rise of 24.1% in export sales.
After two years of successive growth,
revenue among confectionery
manufacturers fell in 2000-01 by 7.9% to
$1.9 billion. The year witnessed a change
in business conditions facing
confectionary makers. As much of the
world went into a synchronised
slowdown, growth in Australia’s real GDP
was reduced to 1.8%. This rocked
consumer confidence thereby stemming
the consumption of discretionary items
like confectionery. On the bright side,
downstream demand was mildly affected
by a change in the taxation of
confectionery. In July 2000, the
Australian Federal Government replaced
the Wholesale Sales Tax with the Goods
and Services tax. This produced a minor
Key Statistics
Historical
Performance
continued
reduction in the retail price of
confectionery sales. Tax payable on
confectionery fell from 12% to 10%.
Estimates suggest that industry
revenue grew in 2001-02, 2002-03, and
2003-04. Moderate growth in economic
activity provided the foundation for
expansion in the confectionery industry
during these years. A subsequent rise in
household incomes, combined with
historically low interest rates, fanned
consumer spending. Conditions were
tougher in the global marketplace. There
was a strong increase in imports as a
result of the drought, partially offset by
low sugar prices.
Production increased by 3.4% per
annum during the 1980s, somewhat
faster than the increase in turnover. This
implies that average product prices were
declining. The production of chocolate
confectionery increased faster than sugar
confectionery. While domestic demand
grew fairly slowly, exports of
confectionery from Australia, although
small, grew significantly especially during
the latter half of the 1980s. Between early
1985 and 1988, devaluation of the
Australian dollar aided the development
of confectionery exports and made it less
profitable to import confectionery into
Australia. However, the production of
Jacobs Suchard products in Australia
ceased late in 1988 and thereafter these
products were supplied from Switzerland
(the product range was also extended), as
the company was acquired by Philip
Morris. Production increased strongly in
1990-91 as higher incomes meant higher
discretionary spending which favoured
the products of this ANZSIC Class.
Production subsequently slowed in
1991-92 as Australia entered recession,
but increased in 1994-95 before slowing
in 1995-96.
Value added increased much faster
than turnover during the 1980s, the
average increase being 3.7% annually.
This resulted from increased efficiency
associated with industry rationalisation
and the introduction of improved
technology. This was also reflected in
increased productivity. Value added
continued to increase in 1990-91 but
declined between 1991-92 and 1993-94
as the effects of the recession were felt.
Cocoa prices rose strongly in 1993
partly due to concerns about production
but also due to concerns about the
political stability of some of the major
suppliers. Value added declined on
average by 2.5% in real terms between
1989-90 and 1995-96.
Industry profitability appears to have
increased quite strongly during the
1980s. The profit ratio, that is the ratio of
the difference between value added and
labour costs to turnover, rose from
around 14% in the early 1980s to around
31% in the late 1980s. This was
favourable relative to other food
manufacturing activities. This also
fluctuated along a downward trend
during the early 1990s. The profit ratio
declined with the recession in the early
1990s. It fell from approximately 30% in
1992-93 to 17.4% in 1995-96. However, it
should be remembered that the profit
ratio has not had interest, depreciation
and tax netted out.
Overseas parent companies often
restricted export activity as potential
export markets for Australia were
supplied direct by the parent. For
example, the United Kingdom parent
company of Cadbury Schweppes gained
full ownership of the Australian company
in 1989. The aim of this move appears to
have been to integrate the Australian
business into the wider group and then to
use Australia as a base for expansion into
the Asia-Pacific region. Changes in export
policy by major companies were partly
responsible for the sharp increase in
exports in 1993-94. In 1994 a number of
small confectionery companies formed
Southern Gold Ltd primarily to facilitate
export to Asia.
Jargon & Glossary
Industry Jargon
ENHANCED PROJECT BY-LAWS SCHEME (EPBS)
Under the scheme, capital equipment that is either not
made in Australia or is technologically superior to
Australian-made equipment can be imported duty-free.
FOOD STANDARDS AUSTRALIA NEW ZEALAND
(FSANZ) Released on December 2002, this code
represents the complete set of food regulations for both
Australia and New Zealand.
IBISWorld Glossary
BARRIERS TO ENTRY Barriers to entry can be High,
Medium or Low. High means new companies struggle to
enter an industry, while Low means it is easy for a firm
to enter an industry.
CAPITAL/LABOUR INTENSITY An indicator of how
much capital is used in production as opposed to labour.
Level is stated as High, Medium or Low. High is a ratio of
less than $3 of wage costs for every $1 of depreciation;
Medium is $3-$8 of wage costs to $1 of depreciation;
Low is greater than $8 of wage costs for every $1 of
depreciation.
DOMESTIC DEMAND The use of goods and services
within Australia; the sum of imports and domestic
production minus exports.
EMPLOYMENT The number of working proprietors,
partners, permanent, part-time, temporary and casual
employees, and managerial and executive employees.
ENTERPRISE A division that is separately managed and
keeps management accounts. The most relevant
measure of the number of firms in an industry.
ESTABLISHMENT The smallest type of accounting unit
within an Enterprise; usually consists of one or more
locations in a state or territory of the country in which it
operates.
EXPORTS The total sales and transfers of goods
produced by an industry that are exported.
IMPORTS The value of goods and services imported
with the amount payable to non-residents.
INDUSTRY CONCENTRATION IBISWorld bases
concentration on the top four firms. Concentration is
identified as High, Medium or Low. High means the top
four players account for over 70% of revenue; Medium
is 40 –70% of revenue; Low is less than 40%.
HAZARD ANALYSIS CRITICAL CONTROL POINTS
(HACCP) Is a systematic preventative approach to food
safety that addresses physical, chemical and biological
hazards as a means of prevention rather than a means
of final product inspection.
INDUSTRY REVENUE The total sales revenue of the
industry, including sales (exclusive of excise and sales
tax) of goods and services; plus transfers to other firms
of the same business; plus subsidies on production; plus
all other operating income from outside the firm (such
as commission income, repair and service income, and
rent, leasing and hiring income); plus capital work done
by rental or lease. Receipts from interest royalties,
dividends and the sale of fixed tangible assets are
excluded.
INDUSTRY VALUE ADDED The market value of goods
and services produced by an industry minus the cost of
goods and services used in the production process,
which leaves the gross product of the industry (also
called its Value Added).
INTERNATIONAL TRADE The level is determined by:
Exports/Revenue: Low is 0-5%; Medium is 5-20%; High
is over 20%. Imports/Domestic Demand: Low is 0-5%;
Medium is 5-35%; and High is over 35%.
LIFE CYCLE All industries go through periods of Growth,
Maturity and Decline. An average life cycle lasts 70
years. Maturity is the longest stage at 40 years with
Growth and Decline at 15 years each.
NON-EMPLOYING ESTABLISHMENT Businesses with
no paid employment and payroll are known as
non-employing establishments. These are mostly set-up
by self employed individuals.
VOLATILITY The level of volatility is determined by the
percentage change in revenue over the past five years.
Volatility levels: Very High is greater than ±20%; High
Volatility is between ±10% and ±20%; Moderate
Volatility is between ±3% and ±10%; and Low Volatility
is less than ±3%.
WAGES The gross total wages and salaries of all
employees of the establishment.
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C2172 Chocolate and Confectionery Manufacturing in Australia

Transcription

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