Confectionery The Global Market Perspective Euromonitor International Brian

Confectionery: The Global Market Perspective Euromonitor International Brian Morgan, Senior Research Analyst

Outline Key Market Figures A brief introduction to market sizes and shares during the 1998 -2007 period. Global Market Trends highlights grouped by theme: Health, Organic, Premiumisation, Segmentation and Innovation. Market Prospects A brief introduction to market performance forecasted by Euromonitor during the 2007 -2012 period. Market Opportunities A glimpse into ‘hot opportunities’ identified by Euromonitor in the Confectionery market. Forecasts and a Word of Advice Euromonitor advises on strategies to be undertaken in order to maximise growth potential.

Global Value - Confectionery Global retail sales of confectionery totalled US$20 billion in 2007. Up 4% on 2006

Confectionery retail volume sales – Growth by region • Economic growth drives growth of premium categories of Chocolate and Gum in Asia Pacific/Eastern Europe • Premium Chocolate - driving force in growth in North America • Maturing consumer demand/private label expansion constrain value growth in Western Europe. • Eastern Europe, Asia Pacific and Africa and Middle East lead sales growth

Global Retail Sales by Sector Chocolate confectionery US$77 billion in 2007, up 4% on 2006 Sugar confectionery totalled US$44. 3 billion in 2007, up 2% on 2006 Gum totalled US$77 billion in 2007, up 4% on 2006

Global Chocolate confectionery retail sales – Growth by region Eastern Europe, Latin America and Asia Pacific show strongest growth

Global sugar confectionery retail value sales – Growth by category Toffees, caramels and nougat, Pastilles, gums, jellies and chews and Lollipops growing strongly

Global Gum retail value sales – Growth by category Sugar-free and Functional Gum lead growth

Organic Health CONFECTIONERY MARKET TRENDS Innovation Premiumisation Segmentation

Global Market Trends: Health § Anti-oxidant properties § New research on chocolate’s antioxidant and heart-healthy properties had a positive impact on consumer perception § Manufacturers tap into the health trend by introducing ‘semi-OTC’ flavonolenriched lines

Global Market Trends: Health § Withdrawal symptoms relief § Chupa Chups Relax – Spain – Launched early 2006 in the wake of Spain’s public smoking ban § Features herbal ingredients intended to calm consumers suffering from smoker withdrawal symptoms § Packaging reminiscent of cigarette packet

Global Market Trends: Health § Energy boost § Sport Beans by Jelly Belly Candy Co – US – Launched early 2007. § Formulated with carbohydrates, electrolytes and vitamins C and E. § Marketed towards athletes, ‘weekend warriors’ and sports enthusiasts of all types.

Global Market Trends: Premiumisation trend in Western Europe and North America increases differentiation from private label § Mainstream manufacturers focusing on the introduction of premium highcocoa (>70%) dark chocolate lines, offering richer flavours and higher flavonol content § Sourcing chocolate by cocoa bean origin - targeting the “connoisseur consumer” § Retailers such as Tesco in UK, El Corte Ingles in Spain and Carrefour in France are set to expand shelf space and offerings for high cocoa dark chocolate.

Global Market Trends: Organic § Branded Organic Chocolate is positioned as a premium product. § Global retail sales for Organic Chocolate Confectionery reached US$401 million in 2006, up 17% up on 2005. § Strong demand for organic chocolate – Mergers & Acquisitions § § § Cadbury Schweppes acquired Green & Blacks in May 2005. Hershey took over leading US organic manufacturer Dagoba Organic Chocolate Co in November 2006. Sugar confectionery: Organic lines remain relatively unexplored; but are of increasing interest within the industry

Global Market Trends: Segmentation n Halal Sugar confectionery is gaining popularity in countries with growing Muslim communities, particularly the UK, Spain and Germany. n In early 2007, Mederer Süsswarenvertriebs Gmb. H’s extended its Halal jelly range through the addition of two new fruit flavours: Valensina Orange Pur and Citrus Pur. n Ummah Foods (March 2007) introduces caramel and orange Halal countlines through the Wm Morrison Supermarket network in UK.

Innovation Developed markets: Semi-OTC properties Experimenting with sensations Natural Ingredients and hybrid products Convenience through packaging Developing markets: Oral health New flavors and fillings

Global Market Trends: Innovation in Developed Markets Semi-OTC Properties Slimming properties Combination of liquid and solid flavours Energy boost Odour sensations

Global Market Trends: Innovation in Developed Markets Convenience through… Larger formats Slimmer formats Introduction of… Hybrid products Natural ingredients

Global Market Trends: Innovation in Developing Markets Unique Flavours, Fillings and Oral health Fruit Juice fillings Yoghurt flavours Oral care and breath refreshing properties

Key Learnings From Success ORBIT – WRIGLEYJR, WILLIAM – RUSSIAN MARKET n Wrigley’s global sales have benefited from a proactive approach to emerging markets, not only tapping into the current growth of the gum category but also actively driving up demand. n The Russian market is a valid example of this. Retail sugar-free gum sales in this country grew by 15% in local value during 2006. The growth was stimulated by increasing health-consciousness among Russian consumers and the increasing purchase-power of middle class Russians in urban areas. n Wrigley took full advantage of this trend, and invested heavily during 2006 in expanding its distribution network while advertising the health benefits of sugar-free gum. Furthermore, it expanded its sugar-free gum range by introducing juicy watermelon, cinnamon and strawberry flavours. As a result, Wrigley’s sugar-free gum sales grew by 17% in local value in 2006.

The Future of Confectionery

Confectionery - Retail volume growth at world level Confectionery forecast to grow at an average rate of 2. 3% in retail volume

Global forecast retail volume by sector

Chocolate confectionery retail volume sales – Growth by category Tablets, Bagged Selflines/softlines and Boxed assortments expected to see strong market performance from 2007 to 2012

Sugar confectionery - Retail volume growth by category Pastilles, gums, jellies and chews, Mints and Toffees, caramels and nougat expected to see strong market performance from 2007 to 2012

Gum retail forecast volume growth by category Sugar-free gum and Functional gum expected to see the strongest market performance from 2007 to 2012

‘semi-OTC’ properties in chocolate confectionery Emerging markets for sugar confectionery Convenience & environmental awareness: Gum Packaging Market Opportunities Expansion into fast growing impulse food categories Distribution Differentiation

Market Opportunities Semi-OTC properties n Development of semi-OTC products – remains relatively unexplored in chocolate tablets and boxed assortments. Addition of chocolate in Ice cream, Snack bars and Breakfast cereals n This trend offers the opportunity for global chocolate manufacturers to expand into fast growing impulse food categories, while tapping into their brands’ well-established reputations. Economic Growth in Developing Markets n Sustained economic growth in developing markets provides international manufacturers with a golden opportunity to step up investment on premium, sugar-free, functional novelties Environment concerns n Increasing concerns over environmental issues and CO 2 emissions will play an increasing role in consumer purchasing decisions, particularly in developed markets

Market Opportunities Distribution § The introduction of vending machines in fast food restaurants and near independent food § stores Investment in expanding the number of these outlets might prove successful in other developing countries – such as Morocco and Egypt. Differentiation by… § Gender: Chocolate Confectionery § Ethnic groups: Gum lines Packaging: § Larger formats adaptable to spaces § Convenience – for low energy consumption § Getting across the message: Chupa Chups

A Word of Advice…Developed Markets Sluggish growth in Bubble Gum - Innovation is key Gum and Snack bars - Potential for synergies n Continued desire among consumers for healthier products n Potential for growth in emerging categories n Positioning – capture consumers’ attention

A Word of Advice…Developing Markets § § § Domestic and International players - An alliance for growth § § Developing hybrid sugar confectionery lines Education - The way forward in Functional gum should draw inspiration from other successful developments in impulse food products Gum and Sugar confectionery combinations

THANK YOU! Brian Morgan Brian. morgan@euromonitorintl. com