Thornhill Capital LLC - consulting, financial, accounting, compliance, due diligence, risk management, translation and other services, B2B, USA, China.

Published on May 21, 2013 in Asia, China, News

Chocoholics Don’t Live in China

         The fairy godmother of chocolate is not Chinese. In fact, when waving her wand and distributing chocolate globally, she somehow overshot China and its 1.3 billion people. That’s because the average Chinese eats about 3.5 ounces, or 100 grams, of chocolate per year. That’s a rounding error when compared to global heavyweight Switzerland, which annually consumes about 10 kilograms per person, or the Japanese and Koreans, who each consume about 2 kilograms of chocolate.

China, with 25% of the world’s population, comprises just 2% of global chocolate consumption. In addition, most of the chocolate consumed in China is not eaten as individual pieces of candy. Instead, chocolate is primarily consumed as a desert ingredient used in cakes, biscuits, and coatings for ice cream. In fact, most Chinese prefer deserts that don’t contain chocolate. At the top of their list for something sweet are products made with red-bean paste, which Chinese generally prefer to sugar as a sweetener.

The four most popular deserts generally offered in a Chinese restaurant are red bean soup, almond paste soup, almond tofu/jelly with fruit, and mango pudding. Even though this doesn’t sound like an appetizing alternative to cheesecake, the Chinese have grown up with these tastes and it’s what they expect when they want something sweet. Therefore, foreign chocolate manufacturers are scrambling to find suitable variations that will appeal to the Chinese consumer’s taste, yet incorporate chocolate as its main ingredient. One of these companies is The Hershey Company. Hershey experienced an 84% growth rate in its China sales in 2012. Part of the key to this rapid increase in sales was the company’s emphasis on packaging and promotions that were synergistic with the Chinese marketplace. In addition, the company modified existing products to better suit the Chinese palate such as introducing green-tea flavored “kisses.” However, even with its tremendous progress in China, Hershey’s is not one of the big 3 foreign purveyors of chocolate in China. That honor goes to Dove (marketed by Mars), Nestle, and Ferrero which collectively represent 70% of the market share for imported chocolates. Foreign sales comprise half of the Chinese chocolate market.

gelato101chocolateChinese competitors, which control the other half of China’s chocolate market, employ a different strategy. They produce a cheaper and lower quality product to battle foreign competitors. The main reason for this is that Chinese consumers don’t expect domestic products to compete in quality with products produced outside of China. Chinese consumers, when basing their purchase decision on quality, almost always select the foreign product.  Chinese companies know this. Therefore, they use cheaper ingredients and try and compete on price. Since the Chinese consumer is not a chocolate aficionado, they often won’t perceive the taste difference as being worth the higher price of foreign chocolates.

Nevertheless, in spite of the price differential, foreign chocolate sales in China are growing and are expected to increase 10% annually through 2015. Most of this growth comes from young affluent Chinese between 15 and 24 years of age. This age group is substantially influenced by the Western lifestyle. The consumption and gift-giving of foreign chocolates is in keeping with this Western-style behavior. In fact, foreign chocolates are popular gifts on special occasions such as birthdays, Spring Festival, Valentine’s Day and Christmas.

Giving China a chocolate sweet tooth will take time. Until then, the red bean seems to trump the cocoa bean in the battle for China’s sweet tooth.

 

If you are currently not receiving our newsletters or blogs and would like to, please sign up at info@thornhillcapital.info, which will also give you access to past editions of our blog’s. We would also be pleased to answer any questions you may have by contacting us at info@thornhillcapital.net