US trade war impacts on Chinese confectionery market

The world’s second largest economy has long been held as having strong confectionery potential. Neill Barston reports on how it is navigating wider market turbulence

 

With China remaining entrenched in a trade tariff stand-off with America, few analysts have been surprised this has impacted on its economy.

As previously reported, many of the country’s industries have proved resilient in the face of such turbulence, yet confectionery has not been immune to such headwinds affecting investment and product development decisions.

Consequently, official figures have shown that in 2018, China’s economy had grown by 6.6 per cent, which represented the lowest rate for 28 years.

So far, the US has imposed $250 billion dollars on a raft of Chinese products, with Chinese imports from America having around $130 billion in additional taxes placed on them.

For 2017, there was a dip in the volume of consumption of chocolate in the country by two per cent, but buyers actually spent two per cent more on products with the sector (20.2 Chinese Yuan ($2.2 billion), pointing at a wider trend for more premium goods.

According to analysis from the Euromonitor Research group, the Chinese chocolate market is projected to increase to $3.9bn by 2021 from its present rate of $2.8bn achieved for 2018.

As far as the finished product market is concerned, much of the hopes for growth in this segment are coming from the recent influx of European products into the market – including Barry Callebaut’s ruby chocolate.
Consequently, the company has recently opened another chocolate academy in the city, as part of its wider global efforts to cement its standing in the international confectionery market.

In terms of major market players, Mondelez International, Mars, Hershey, Nestle and Pladis, have reportedly remained among the core businesses performing strongly within the region’s sector.

However, research from Mintel noted that there had been a trend for decline in the Chinese sugar confectionery segment, which began in 2015, with consumers showing greater interest in healthier snacking.

“Thanks to rising demand for convenient but healthy food products among Chinese consumers, mints remained the most dynamic sugar confectionery category in current value growth terms in 2018. Mints are generally perceived to contain less sugar than other types of sugar confectionery products, and have the added functional benefit of helping consumers to maintain fresh breath,” explains Loris Li, Mintel’s associate research director, on present trends.

Equipment and production facility boosts

While confectionery consumption may be affected by broader market challenges within international economies, it appears that a number of equipment and systems manufacturers are enjoying a sustained period of growth.

This includes packaging specialist Gerhard Schubert, which has recently launched its Chinese division at ProPak in Shanghai, to a positive industry reception.

A spokesperson says: “We announced the plan to establish a subsidiary in China, because we think the time is right for Schubert robotic packaging automation in the Chinese market. Increasing labour costs, new hygienic and health standards, and the initiative to support robotics and automation by the Chinese government will lead to automation in secondary packaging.

“By November 2018 we received the business license for Schubert Robotics (Shanghai), and have started operations with our team in an office in Changning District, located close to Hongqiao airport and high- speed train station and the new fairgrounds, where ProPak 2019 will be located,” explains the spokesperson who said there had been an especially favourable welcome from the sector in China.

He adds: “Based on the good reference of our first customer in China Jiangzhong, we are currently working on several projects which shall be finalised shortly. We will establish a technical support team in China with engineers from Germany and China to support our Chinese customers. This will also include a local spare parts inventory.”

For its part, Bühler has established a strong equipment and systems network within China, which it is continuing to develop.

Daniel Troxler, sales director at Bühler, reveals that ensuring consistency of quality around its global markets, including in China, is critical to the company’s equipment development strategy.

“Our customers around the globe face different requirements from their clients. Hence we also need to adapt our solutions in order to enable our customers to perform well in their individual markets,” says Troxler of the company’s policy.

He adds: “For China, we strongly believe that not cheap production but high quality solutions with adjustments to the local requirements is the formula.

“By this we mean creating a complete package, including application support in our technology centres and customer care along the whole lifecycle of our machines. If a company shies away from investing into the people and all services needed to become a long-term partner for local companies, failure is programmed.

“The achievement and growth of our China production sites proves us right. The key to the success is that we have only one Bühler quality worldwide and offer total support along the value chains.”

With cocoa processing segments, Italian-based business GSR, explained that Asia, and in particular the Chinese market holds considerable potential for the company.

He says: “The Asian chocolate market is a very dynamic industry: consumption has increased in the last few years, while consumers’ behaviour has evolved by preferring well-known brands produced by global confectionery firms. Unique, limited and fancy: those are the main characteristics a chocolate should embrace in the Asian scenario as consumers there value these aspects; just think to the success that is having Ruby chocolate (from Barry Callebaut) or KitKat with dedicated boutiques were so many flavours can be bought. The increase in consumption of chocolate brings consequently a greater demand for semi-finished materials such as cocoa butter and cocoa powder.

However, in Asia, production capacity is in deficit in respect to the prospect increase in the demand, so we, at GSR, expect many investments in the continent in the year to come. Generally speaking, the companies will have to try to fill this gap by increasing their production capacity at the local level.”

While market instability remains a concern to many observers, the fact that the country’s economy, even at its comparatively low rate of growth, is still more than many Western markets, has proved there is significant market potential.

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