The UK Chocolate Market
Introduction
The United Kingdom is the heart of the chocolate industry and market. It boasts of the biggest chocolate market in the European Union amounting to over 3.5 billion Euros in sales per year, with the adult population being the biggest consumers. This market also has the biggest share of the European Union; over thirty five percent. Some of the largest companies in operation in this region include Cadbury, Kraft foods, Nestle, Ferrero and Master foods among others producing and distributing chocolates such as Cadburys dairy milk, mars, milky bar and snickers. This paper explores the chocolate market in the region under subheadings such as the structure of the market, the companies involved, trends in sales, competition and the effect of the 2008/2009 recession on business among others.
Summary
The chocolate market in the United Kingdom although being the largest in Europe, has also had its own ups and downs just like any other businesses. The market has the biggest names in the world as its suppliers including Cadburys, Kraft and Nestle among others. These companies have had a huge impact on the production and supply of the best confectioneries the world over. The United Kingdom is the biggest market for these companies within the European Union and accounts for over 3 billion Euros in average sales in a year.
Market trends in this region have a huge role to play in the success of the companies. Such things as seasonality, failure of new brands, barriers to entry, changes in the price of raw materials, potential partnerships and the emergence of luxury segments have impacted in one way or the other in the development of business in the region. Of higher interest is the weakening of the sterling pound against the dollar which affected to a great extent production and buying of cocoa and other raw materials. The recession that hit Europe in 2008 and 2009 also did impact on the business, its clients, production and distribution.
Competition and the threat of possible partnerships and acquisitions as a way of increasing business profitability through minimizing costs adversely affected business in the region. The possibility of a merger between Cadburys and Kraft foods brought mixed reactions affecting business as a whole. On overall, the confectionery business is one to be envied and replicated. The structure of business in this region is one that replicates a possibility for a great future. Massive expansions and rebranding of old brands of chocolates has worked well to increase business. Chocolate lovers have loyalty to certain brands and as such a certainty for continuity and future success.
- The Recession (2008-2009)
The recession was caused by the rating companies Moody’s, Standard and Poor’s among others. Their work is basically to rate securities from any point beginning from the greatest investment grade to the jumbled form. These rating companies rated the CDOs as investment grade securities with no knowledge of what was composed in each piece. The rating companies paid the banks whose securities they rated hence the reason as to why they rated them greatly.
Insurance companies like AIG with the sub-prime mortgage company was about to take place, it went ahead and bought credit defaults swaps. This was a method of shorting the mortgage. The company acquired the premiums on the credit swaps and later sold them. With the high foreclosures it was definite that there was something wrong, the insurance companies went on to sell swaps in place of the premiums. When it got to 2008, AIG started to lose a lot of money daily.
In 2008 it was vivid that there was something wrong, the banks began to have capital and liquidity issues as price fell. The banks were at risk of becoming with low cash and people started to take their money out and tried to get use them prior to getting bankrupt.
Impact of the Recession
We will use SWOT analysis will assess the impact of the recession
Strength: through the rigid infrastructure to back the poor case.
Weaknesses: slow government steps to manage the situation and wrong readings that affected remedial steps
Opportunities: poor client spending that hinder the costs to increase and slow and beneficial employment may help UK economy to cope with the recession.
Threats: currency decline may increase costs hence inflation and there is high redundancy in UK.
The current economic recession brought the UK economy to a bad poor state. It brought about high level of unemployment as well as the rise in cost of products. Companies made effort to try and ease the problems brought about by the recession through relieving some employees and bringing down the cost of goods (Times online, 2009). However, according to the Philips Curve theory based on wages and unemployment levels, he acquired a connection between wages and unemployment. He stated that efforts applied to bring about employment would result to high inflation. This is since both cannot be reduced concurrently a choice needs to be made.
Chocolate Making
The cocoa prices have been increasing for some time, with a high form of volatility. The prices have dropped, though chocolate lovers keen on what is taking place. The product may become a luxury product. What has basically been controlling the chocolate prices has been the rigid income elasticity of demand: the demand of the product has been high even with increase in prices.
- Future of UK chocolate Companies
The future for the chocolate firms in the UK fore sees a growth in a number of areas starting with sustainability, eventing, innovation and health (KPMG 2012). These aspects are vital in noting the chocolate market and the chances that they bring about in the future.
Sustainability
Food is vital controller for clients buying choices in markets that are well developed, more so at high-end retailers. The use of cocoa has grown fast in the past years and smart phone users are now able to download the apps from the internet.
Every major manufacturer has acknowledged Fairtrade to some extent. Kraft’s Cadbury has improved its applications and the Cadbury’s Dairy Milk, the best bought bar in UK is accredited by the Fairtrade.
Innovation
As clients get to become more and more demanding, innovation is vital to the share in the markets. Personalization is probable to be the upcoming client-controlled change in the industry (KPMG 2012). The companies in the chocolate market allow the clients to form personalized taster packs with regard to their preferences. Other companies like the Spanish chocolate firm have offered its clients the ability to form their own collections. The other aspect that is vital for the clients is to make chocolate bars that meet the special palate, though the maker has to acquire the production task.
Health
Considering that a number of clients see chocolate as a time to time treat, they do not get to be over controlled by its impact. This is an aspect that is considered by the producers. The renowned ‘fat taxes’ are at risk in several big economies like the UK, while other countries bring about heavy taxes on foods that are not healthy.
Health has been given focus as being vital for governments that are impacted by high costs in healthcare, like in the UK which is a big economy that is struggling with obesity for the young children. This has affected the start of goods that keen on children (KPMG 2012). A number of families have since reverted to going for products that are healthier and hence brought about low brand recognition.
To manage this, the chocolate companies in the UK have looked into the advantages health wise for the children; putting away the antioxidants impact on dark chocolate or assessing the energy impact of the bars with nuts or fruits. Some bars have been capped with 250 calories in UK from Mars and other companies are bound to follow suit so as to bring about consciousness of the sizes.
Eventing
In a number of states the chocolate is a vital part of the religious happenings, the Easter occasion is vital. UK has shown its benefit for manufacturers with a time to time activity (KPMG 2012). Clients are also selecting to purchase high-margin, luxury products that are keen on value. Chocolate buying has seen a growth at such times of the year where they are bought as a gift to friends and families.
Bibliography
KPMG 2012. Consumer Markets: The Chocolate of tomorrow. Acquired from: http://www.kpmg.com/UK/en/IssuesAndInsights/ArticlesPublications/Documents/PDF/Market%20Sector/Retail_and_Consumer_Goods/chocolate-of-tomorrow.pdf
Times Online 2009. UK recession deepens as manufacturing wilts. Acquired from: http://business.timesonline.co.uk: http://business.timesonline.co.uk/tol/business/economics/article5801174.ece
