SWEETS GAIN MARKET SHARE IN CURRENT DOWNTURN

By Generation Research, 3 September 2009

The results of the international panel of retailers reporting to Generation DataBank indicate that the global duty free and travel retail confectionery market fell -9.3% in the first quarter of 2009 as compared to the same quarter in 2008.

Results over the past 12 months show that confectionery sales as per the close of 1Q 2009 still stand at a healthy +9.3% pace of growth, despite the heavy decline in 1Q 2009.

"The decline in confectionery sales in 1Q 2009 is still better than expected given that the value of shipments to the retailers fell no less than -24.1% in the first quarter", says Yngve Bia, President Generation Research. "We have seen heavy de-stocking practises among the retailers. Instead of keeping stocks covering some 5-6 weeks of retail sales, many reduced stock level coverage to 3-4 weeks in an effort to save capital costs in these troubled times".

In addition to adjusting stock levels, with the consumer in mind, retailers have also re-focused and adapted to the new trading environment and trading conditions. Christian Sültemeyer, Senior Key Account Manager and Manager Category Management Duty Free, Fraport AG, comments: "We reacted quite quickly with Gebr. Heinemann in re-organising the duty free offer and, as well, putting more special offers in the shelves. During the crisis we saw a strong trend away from the premium-priced products to price-aggressive products.

"So after all these months of 'super-premiumisation' in almost every category we are now experiencing the opposite. Price became a major issue when the crisis arrived in travel retail. Some products did not turn at all. That is the time when you need a quick and flexible retailer to work with".

Results show that the global market contracted -14.2% on average in 1Q 2009 vs 1Q 2008. The least affected category was confectionery (-9.3%) followed by beauty (-13.0%), liquor (-16.6%) and tobacco (-19.3%). The very mixed category of "Other Goods" – including electronics, sunglasses, watches, jewellery, toys, clothes, accessories, pens, leather goods, etc – saw a decline of -14.1%.

Some traders suggest that the market is currently to some extent driven by travellers buying gifts for friends and relatives rather than products for themselves. Steve Brock, General Manager ITR Cadbury, comments: "Whereas a watch is a high-end purchase for your self – self treat that is – this category has been highly affected negatively. I would say that buying a beauty product is a fifty-fifty split between self treat and gifting, thus also this category is somewhat affected. Confectionery products, on the other hand, are mostly [to a level of about 75%, Ed's note] bought as gifts, and at lower price points, and is therefore the category that has benefited the most from the current downturn in the overall business".

An important milestone was reached in 2008 when the confectionery (excluding 'Fine Food') category became a bigger and more important category than cigarettes. At the end of 2008 confectionery’s market share of the global duty free and travel retail market stood at 7.2%, whilst that of cigarettes equalled 6.9%.

Thus travellers today, for the first time in some 60 years of duty free and travel retail trade, prefer to buy more sweets than cigarettes. The gap has further widened in 1Q 2009. "In the first quarter of 2009 confectionery sales reached approximately US$ 782 million at a retail level that now corresponds to a share of the overall market of 8.4%. Cigarette sales reached about US$ 616 million, equalling a market share of 6.6%", says Bia.

Back in 2008 confectionery was one of the best-performing categories with sales advancing +16.5% in value. In volume the growth ended at a much more modest +1.2%.

"We must remember that the significant growth in confectionery sales in 2008 was largely driven by price increases, not volume growth", says Bia. "In the early parts of 2008 suppliers as well as retailers were forced to increase their prices by about 10-15% due to the rising costs of commodities essential for chocolate manufacturing. It is doubtful whether this way of boosting value sales can be repeated in 2009".

In terms of pricing, the average retail price (RSP) per kilo of confectionery products has had the evolution as shown in the chart below.

Source: TRIQ Confectionery / Generation DataBank, Sweden

In 2008 the average retail price per kilo rose by +15.8% as compared to the 2007 average. Thus it can be firmly concluded that the +16.5% value growth in 2008 was greatly fuelled by price increases and not by growth in volume sales (cf. the volume sales grew +1.2% in 2008 vs 2007). Since 2002 the average confectionery price per kilo has nearly doubled (+79.8%).

The retail price offers range from Godiva at the top with an average retail price per kilo of about US$ 98.00 to Cadbury – with a large portfolio of lower-priced sugar confectionery including brands such as Bassett and Adams – at the lower end with an average retail price of about US$ 17.50 per kilo.

The global duty free and travel retail confectionery market is supplied by 292 different companies. No less than 341 brands and 4,899 products in total compete for the travelling consumer's attention and spending in the world's duty free and travel retail shops.

Source to above data: TRIQ Confectionery and TRAQ Confectionery & Fine Food; Generation Research, Sweden