Global Candy and Chocolate Manufacturing Industry - Essay Example

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However, increased health cognizance among North Americans and the Europeans has enabled the neglect of the sugar-rich candy despite the improved international economy. In addition,…
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Global Candy and Chocolate Manufacturing Industry College Current Performance The past five years marked the significant development of The Global Candy and Chocolate company. However, increased health cognizance among North Americans and the Europeans has enabled the neglect of the sugar-rich candy despite the improved international economy. In addition, the declining cocoa prices over past five years have reduced income despite the stable attractiveness of chocolate. Notwithstanding, there are opportunities for the operators. First, the products have a stable and an expanding market; this is enhanced by the snacking habit and the high incomes of the populations. Also, the established confectionery manufacturers address the health noted health concerns through the production of new products. Most notable include low caloric confectionery, candy and specialty production of chocolate. According to the prevailing circumstances, the industry estimates an annual growth of 0.5% to $127.6 billion until the end of 2015. 1It also entails an estimated increase of approximately 2.0% in 2015 because of the stable chocolate and cocoa prices.
Outlook of the industry
The future of Global Candy and Chocolate Manufacturing Company is poignant. It is anticipated the growth of the mature markets in Japan, United States, Australia and Europe shall remain slow through 2020. During the period, machinists will strive to shall promote product innovation to stimulate demand. On the contrary, newly industrialized nations such as Latin America, South East Asia, and Russia anticipate an increase in demand for the sugar and chocolate confectionery. Furthermore, the global market prices shall increase thus increasing the industry’s overall in this income. In this regard, the industry anticipates an annualized growth of 2.2% to $142.4 billion in the subsequent years until 2020.2
Industry Life Cycle
The firm operates in the mature stage of the life cycle. Its industry value added (IVA) is projected to lag behind the global GDP growth in the next ten years through to 2020. IVA quantifies a company’s contribution to the global economy. Thus, it designates maturity of the industry. In the same measure, IBIS World anticipates the business’s IVA shall rise to an annual level of 2.4% for the 10-year period. The growth is comparable to projected annual average growth of 3.5% for world GDP over the period. Even though the firm projects an increase in demand for candy and chocolate in developing countries, the declining demand for the product in mature markets shall hinder the overall expansion of the industry.
International market share
The Global Candy and Chocolate Manufacturing industry presence in the international market are moderate. However, the firm demonstrates a tremendous rise in the international market. According to the estimates by the IBIS World, the company has a total trade value including exports and imports valued at 14.5% of industry income in the year 2015. The figure is higher compared to the past five years of the firm’s existence. Imports equalize exports in a global industry because the sum of every participating republics exports is corresponding total value of all imports.
Equally, the increased demand for the products in developing nations such as Russia, China and India has increased trading in the last five years. Nonetheless, the global recession hampered consumer spending but consumers still bought their favorite chocolates and candy because they are cheap and temporary luxury during tough economic times. However, the improved economic status in both developing and developed nations promoted the emergence of new food trends. The changes reflect the increased demand for the confectionery across the globe. To date, Germany, United States, Canada, Brazil, and France constitute the prominent exports destinations of chocolate and sugar confectionery.
Location of the business
Europe constitutes the largest producer of chocolate and confectionery. Therefore, the continent accounts for approximately 42.8% of the total world production in 2015.3 Germany is expected to lead, followed United Kingdom, Italy, France, Switzerland, Poland, and Belgium closely.
North America
North America is the second largest region. Hence, it is estimated to produce an average of 30.3% of total production. The sweetmeat and chocolate firms in America occupy the Southeast and Western, Great Lakes and Mid-Atlantic areas.
South America
The region forms the third largest sweet and chocolate production. Thus, it stands to account for 15.0% of total output in 2015. Out of this, Brazil produces more than two-thirds. It equates to approximately 510,000 tons of candy and 710,000 tons of chocolate annually.
Market concentration
The firm exhibits a high degree of market concentration. Several small and medium operators also characterize the industry. However, the major operators drive and generate most of the income. The concentration ratios present challenges including foreign production, the elasticity of demand, ease of entry and imprecise definitions. It results from the acquisitions, organic expansion of the principal producers who possess brand loyalty, aggressive marketing strategies, and innovations.4
Fundamentals of Competition
The business’s approach to trade is extremely competitive. Most corporations in this industry have significant resources and international processes. Therefore, the competitive nature of the industry characterized by the capturing or safeguarding of the prevailing market share is highly competitive. The conditions push firms to increase expenditures for advertising and product promotions, introduction, and the establishment of new products. The natural risks in the marketplace that relate to the introduction of new goods and advertising lower the profits. They include uncertainties about consumer and product acceptance.5 Hence, the high expenses may not facilitate the maintenance or enhancement of the market share. Instead, it may lead to reduced sales and profits. Competition in the industry mainly results from price, innovation and differentiation, quality, relationship with the main suppliers, branding, and promotion.
The firm established in 1922 and with headquarters in America is the leading manufacturer of beverages and food globally. It has services spread across 73 nations and five continents. Its main segments include the Wrigley, petcare, synbio science, food, and Mars. The most famous brands comprise of M&Ms, Milky Way, Skittles, Twix, Snickers, and Mars.
Mars company has expanded production in the recent years accommodate the increasing demand for chocolates in the emerging markets. It established a branch in Saudi Arabia at a cost of $60.0 in 2012. The new company produces Galaxy and Galaxy Jewels chocolate candy for the Saudi market. In 2013, the firm established another firm in Egypt at a cost of $83.0 million.6 In this, it aimed produce Twix for the African and Middle East markets.
Mondelez International Inc. based Deerfield, IL was established in 1923 produces food and beverages. It separated from Kraft Foods Inc. in 2012. Mondelez includes global food brands and snacking of the former Kraft. The company employs about 100,000 throughout the global stores and manufactures 57beverage and food brands. Given the variety, the firm acquires an annual income of about $1.0 billion. The revenue includes Nabisco, Oreo, and Trident. In 2014, Mendelez earned about $34.9 billion in combined revenue. 7
Nestle SA is a multinational based in Switzerland. The firm consists of the leading producers of packaged foods. The products include chocolates, beverages, pet food, confectionery, and dairy products in over 61 countries in the different continents. Also, Nestle has approximately 333,000 staff across the 150 countries. It also operates 461 production branches in the 83 countries. The firm has a unique organization according to the geographic zones namely Europe; the Americas, Oceania and Africa and Asia. It generated an accumulated income of about $96.5 billion in 2014.
Overview of the Industry
The growth of the Global Candy and Chocolate Manufacturing industry over the past five years was slow. The annual revenue growth rate averaged about 0.4% over the years leading to 2015. The period also encompassed increased consciousness of sugar consumption among the consumers. Thus, it caused a decline in the consumption of the non-chocolate candy. Even though chocolate candy is a famous product across the globe, the reducing cocoa prices forced the actors to sell at lower prices. In turn, it minimized the amount of revenue from the sale of chocolates.
Nonetheless, IBISWorld projects a growth of 2.0% in 2015 to $127.6 billion. The projection emphasizes that prices of cocoa shall improve, and the sellers shall progressively promote product innovations. Mature markets produce and consumer most chocolates and candy. In particular, Europe’s estimated production is about 42.8% of the total world production. It also has biggest market for the commodity. Other notable producers include Italy, Germany, and Switzerland. North America production accounts for 30.3%. in Latin America, Brazil produces about 15.0% of total annual production. Given the figures, the industry’s annualized growth shall reach 2.2% to $142.4 billion until 2020.8
Capital Intensity
The firms overall performance shows a mixture of a reasonable to high-level capital intensity. It used wages as a substitute for labor and devaluation as an alternative to capital. The IBISWorld projects that the industry shall spend $0.32 for every dollar spent on labor in the industry in 2015. The figure shows a decline from the previous five years. The change results from the sophisticated technology, commending depreciation costs and stable labor market, particularly in the developing nations.
Technology and Systems
The production procedure for chocolates and sugar confectionery is standard. Nonetheless, innovations into new technologies have facilitated automation and enhanced product quality. Computerized production also eases work and monitoring of the process.
Chocolate processing technology
The processing of chocolates entails technologies that exact methodical meticulousness tools to regulate temperatures and stabilize humidity. The approach controls time interludes of each production run. However, the growing demand and emerging markets has facilitated the mechanization of the production process. Also, it enables producers to limit the reliance on manual labor. Machines output is attractive. They fill, wrap, and pack the products. Hence, machines are more efficient than the human labor. Machines also improve sanitation and hygiene of the production process.9
Sugar confectionery processing technology
The production process is unchanged despite the increased technological investments. The originality stills show in planning invented in the 17 the century in France still applies in the manufacturing of jellybean. Even though the process is highly automated in the current industries, it is the same technology used for over 300 years.
As a show of improvement, some manufacturers use the EFS Network. AEFS is a non-aligned network that offers internet based supply-chain managing of inventories. The technology is widely used by leading service companies including Sysco and McDonalds Corporation,
Revenue Volatility of the corporation
Over the past five years, the firm evidenced moderate revenue volatility. It is a function of variations in the cost of raw materials, oil prices, and energy and oil prices. The climatic conditions, consumption trends, and purchaser spending also influence revenues. Nevertheless, contemporary fluctuation resulted from alterations in prices of raw materials and conforming sale price. Global cocoa and sugar prices increased in 2011; this pushed operators to increase the market prices of the commodities. The high selling cost and improved disposable income boosted operator revenue. The income is a calculated based on the sold quantity and the sale price. The period between 2012 and 2013 characterized a drop in both cocoas and sugar prices diminishing selling amounts and income development.
Regulation & Policy
The company observes most regulations and practices ethical business. Quality and safety of the products form the enterprise’s policy. Hence, it practices a just and honest product labeling and packaging. The violations of any regulation make a manufacturer vulnerable to fines and lawsuits. Hence, most producers establish mechanisms for self-regulations through standards and comprehensive policies.
Correct labeling helps consumers in product selection and packaging. Therefore, each state emphasized with clarity and bolded of the labels. For instance, the Chinese business culture ensures the labeling of dark and white chocolates about the quantity of cocoa and milk contained. The European Union also introduced a law in 2003 that ensures specification of the amount of cocoa in the chocolate varieties for example milk, dark, and white types.
Industry Assistance
The American process for Chocolate preparations for cocoa beans, cocoa fat, and emulsifying agents. Others are encompassing less than 32.0% of butterfat or other milk solids and less than 60.0% sugar, incur 5.0% tariff import. The states offer low import safety for confectionery products. Candied nuts are taxed about 4.5% per kilogram. Confections acquire a tariff of 5.6% per kilogram.10 Conversely, products such as cough syrups are duty-free.
Cocoa powders, with added sugar or sweetening proxies containing 65.0% or more of the dry weight of sugar, are taxed 10.0%. The United Kingdom taxes 3.0% for imported cocoa beans and 16.0% for imported chocolates. The tariffs promote the producing nations such as Brazil and Ghana. Thus, they export raw materials instead of processing the products. In this instance, the tariffs significantly benefit European companies to gain market share. In addition, the European Union gets subsidiary assistance from associations like Biscuit and Confectionery Industries of the EU and Association of the Chocolate. The Australian government provides limited assistance for confectionery manufacturers.
The industry received significant help until 1980s. The government then adopted free market trade policies that resulted in the low tariff rates for the imports. Currently, the nation charges tariffs of 5.0% for the imported confectionery. However, imports from developing nations attract a particular fee of 4.0%. Japan have no tariffs for imported cocoa. However, the country imposes up to 29.8% on imports food with cocoa ingredients and chocolate.
The Global Candy and Chocolate Manufacturing industry is a lucrative industry that has several opportunities for economic growth. The highlighted facts demonstrate the sustainability of the industry to withstand the economic recession. Also, the industry creatively addresses the health concerns regarding sugar intake and offer immense benefits to both small and established operators. Therefore, globalization and rapid population growth provides opportunities for further development of the business. The investors in this industry stand to benefit from new markets, product innovation, aggressive promotional initiatives and rising middle-class population with high purchasing power. The significant growth over the past five years are signs of market stability. Therefore, they should serve as motivations for the future prospects of the industry. The prevailing market conditions, particularly in the developing nations, also trigger the demand for the products that in turn raise the income for the entrepreneurs. Investment into innovative products that meet the customer demand in terms of cost and safety shall stamp the products dominance and support the growth.
The potential makes the industry an attractive venture for investors. Chocolate products are becoming popular among the world populations. They are used in social events such as giving gifts during wedding and birthdays. The evolution of cooking recipes also incorporates chocolates. Hence, apart from the normal direct consumption, the product have varied uses. The varied uses, consumer tastes and increasing sales show that consumers love the chocolate and confectionery products. Hence, an investment in the industry is undoubtedly a lifetime business experience.
Nonetheless, success depends on the ability of the business to establish comprehensive policies that guide ethical business. Besides, an adequate response to the changing customer demands shall give an investor a competitive advantage.
Dyck, Bruno, and Mitchell J. Neubert. 2010. Management: current practices and new directions. Boston, MA: Houghton Mifflin.
"Research and Markets: China Candy, Chocolate Manufacturing Industry, 2011 Provides Detailed Insight into the Candy, Chocolate Manufacturing Industry and Market Drivers." 2011.Business Wire, Feb 07.
Global Candy & Chocolate Manufacturing Market: New Market Research Published 2014. Chatham: Newstex.
"Chocolate Confectionery Industry Profile." Chocolate Confectionery Industry Profile: Global (September 2014): 1-35. Business Source Complete, EBSCOhost (accessed May 21, 2015). Read More
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