The United States Chocolate Industry Market - Research Paper Example

United s Chocolate Industry Market Introduction Chocolate, over the past fifty years, has become the most popular type of flavors and food types around the world and, especially, in the United States. In the US and North America, chocolate chip cookies are now very popular and common (Drowne & Patrick 22). Chocolate gifts molded into various shapes are now a traditional offering on particular holidays like valentines. It is also used to flavor various hot and cold beverages in the production of hot chocolate and chocolate milk. Cocoa mass originated in Mesoamerica as a beverage, as well as an ingredient in various foods. It played an essential role in the Aztec and Maya religious and royal events. Cocoa seeds in native America were used as an offering to deities, as well as serving chocolate drinks in sacred occasions. The American settlers from Europe fattened and sweetened it through the addition of milk and refined sugar, two ingredients that were not known to the Native Americans. In contrast, they did not infuse it into their diet, although, later, it was integrated into their desserts and sweets (Drowne & Patrick 27). It was in the 18th century that John Cadbury came up with the process of emulsification to create solid chocolate, which was the beginning of the modern chocolate bar. While cocoa was, originally from the Americas, West Africa, today, produces more than 65% of the cocoa in the world, half of which is planted in Cote divorce. The chocolate industry in the United States forms part of the largest food and beverage companies. They are in charge of the manufacture of cacao beans, the sale of raw chocolate, and the manufacture of other chocolate related products (Allen 67). The chocolate industry has undergone numerous changes in both production and market trends over the years, which affect the industry in either a positive and negative manner. Production Based on the cocoa grinding reports released for cocoa traders, which was produced by the NCA in cooperation with the New York Board of trade, the grinding in the first quarter amounted to 119,022 metric tons - a decrease of 4.04 percent (5,006 mt) over 2011. The Unites States market on chocolate or candy stands in a shaky position. In North America, there has been a 2% decrease since quarter 3 in 2011 (124,621 metric tons) (Taylor & Akila 43). There is a rather decreased demand for chocolate in the market currently which means the producers need to correct where the problem lies. Cocoa, which originated in South America, was first planted in the US state of Hawaii by William Hillenbrand, a German physician, in 1850. While cocoa was long considered, as a crop to be grown in the plantations, the biggest challenge in the American market has been making money from it (Taylor & Akila 50). The plant is suited to the climate in Hawaii, although it is tricky to grow, requiring a lot of expertise in chocolate processing. Competition with low-cost producers in South America, Africa, and other countries is not easy because Hawaii has high costs of labor and land. However, Hawaii cocoa has been proven as a gourmet product for which a buyer can pay premium prices. Local cocoa farmers can also gain added value through the creation of farm tours around the popularly romanticized product (Taylor & Akila 50). Currently, dried cocoa seed sales, also referred to as cocoa beans, is estimated at a cost of $200,000 every year based on production per acre estimated for fifty acres, as well as a price of $2.47 dry bean price a pound (Taylor & Akila 52). Much higher sales can be derived by those planters who process their product into chocolate at prices of approximately $40 a pound for retail. Industry growth, in the absence of expansion on a plantation scale, over the last few years, has been from small farms with a few of these farms having processing plants for their cocoa. Advances over the last ten years have increased the economic sense in the processing of chocolate from cocoa on a small scale sans specialized equipment (Taylor & Akila 52). It is also fuelled by the growth of cocoa farming in Hawaii as a cottage industry. Seneca Klassen, who partly owns some chocolate cafes in and around the San Francisco area, last year finished the planting of approximately fourteen acres of cocoa seedlings in the Waialua region. Their plans for the maturity of the plants in approximately three to four years aims at the supply of cafes with chocolate, as well as operation of farm tours, as well as retail sales, under the name of Kokoleka O Ka Aina (Taylor & Akila 61). These American farmers began production of chocolate five years ago before moving on to harvesting their plants three years later. Their company, Garden Island Chocolate, sells their chocolate for $9 per bar of 2 ounces. The problem that faces chocolate production in the United States has to do with finding land for lease in the expansion of farming land. The availability of land that is suitable for the production of chocolate cocoa is a bigger obstacle to the chocolate industry compared to the production of higher yield plants. For the expansion of their project, Kahili has been encouraging farmers to plant and process cocoa while he provides them with the seedlings (Taylor & Akila 63). By offering to process the cocoa beans for the farmers, Kahili and other players in the industry trade them for chocolate. The Big Island Coopers also do a similar thing by offering to supply the farmers with cocoa seedlings and make an agreement to buy back the cocoa beans. The Big Island Coopers buy their cocoa beans from fifteen farmers in total. However, managing to convince people to produce coca beans for chocolate production is tough, especially without farm experience. Sales The chocolate industry gives a wide array of opportunities for the owners of small business so as to weather financial and economic recession. The sale of chocolate in the United States is growing in spite of increased calorie counting and health consciousness (Blythe 37). Sales growth will be driven by growth of population, coupled to expansion into other markets, rising levels of disposable income, and product innovation, which leads to increased to greater premium offering purchasing. Chocolate has become very popular for consumption by individuals in cooking and gift giving. Because of large scale production dynasty dominance, small businesses and franchises tend to focus on specialty and unique services and items. Unique chocolates can come from regions that are famous for a specific technique, site baked, or offering different traditional takes. Specialty services also tend to be focused on delivery or gift packaging (Blythe 38). According to the NCA, the estimates from the US census Bureau show that the total sales for chocolate attained $18 billion in the year 2010. It was predicted that the sales would improve further by the year 2011 due to increased demand for black chocolate based on its health benefits (Blythe 45). However, this has not been the case since there has been a general decrease in the sales of chocolate from 2011 to the present time. The chocolate market in the United States is a differentiated, mature, and exacting market that makes distinguishing oneself a challenge for most chocolate products marketers. Today, chocolate marketers have been drawing inspiration from various other segments in the beverage and food industry in their efforts to boost their sales (Blythe 51). This can be seen by chocolates that feature ethnic flavors, savory touches, functional ingredients, and super fruits. Chocolate product trends in the United States that were in the past, single sources like high content of cocoa may now not be an effective technique for future driving of sales. The premium chocolate market now has several active trends. Craft making of chocolates has various names like micro-batch chocolate, bean to bar, and craft. In a sense, the trend follows various precedents that are established in the gourmet food world, where specialty coffees and craft beers helped to cause a jolt in commoditized product to a new dimension of differentiation. Another one is savory inspired flavor, which are a cross over from culinary sectors, which began appearing several years ago in the sales of chocolate (Blythe 51). Presently, chocolatiers have been experimenting with the addition of kitchen ingredients like chipotle, curry, cheese, bacon, and olive oil into truffles and bonbons. Finally, there are exotic flavors where premium chocolatiers have begun culinary adventures via the discovery of new layers of texture and flavor. Some have been experimenting using umami flavors while others have been developing products that match the mood of consumers. Chocolate is sold through many venues from peddlers pushing their carts around attraction sites for tourists, as well as to such exclusive markets as Madison Avenue boutiques. Unsurprisingly, traditional FDM channels tracked by IRI accounts for approximately 30% of sales through retail channels. Almost 43% sales of chocolate now occur through non-traditional channels, with the largest component being specialty chocolatiers like Sees and Godiva, according to estimates by NCA’s former vice president for Trade Relations James Corcoran (Blythe 55). The next biggest components are cash and carry vendors like fund raisers, wholesalers, and bodegas. It is also merchandised on the internet, as well as at military PXs. The recession resilience could be as a result of what is stated to as the “lipstick factor”. It has been noted by economists that lipstick sales tend to increase during recession periods. As the relatively inexpensive buys goes some way in increasing the moods of women. Eating of chocolate may also have a similar effect. When economic hardships bite and budgets in the household become frugal, spending part of this budget on chocolate bars becomes a good way to leverage indulgence (Blythe 55). It has been forecasted by the NCA that the chocolate market in the United States will probably increase by an average of 3.0% every year through to the year 2015. Sales are expected to top $19 billion, which is a rise of 10.4% from the $17.3 billion in the year 2009. However, below the surface, these sales are expected to favor several categories at the expense of others (Blythe 56). Room for growth The confectionary, candy, and chocolate industry has remained strong even through the recent economic recession with the chocolate sector, in particular, having powerful sales despite the belt tightening seen in other markets (Watson et al 70). Chocolate, considered as a luxury, has surprised most industry observers with continued strength of sales over the coming years. Although, majority of consumers in the United States have spent relatively less on items like vacations that are big ticket items, most chocolate consumers have refused to part with their confectionary habits with chocolate referred to as an affordable luxury in the United States. Growth in the chocolate industry has been supported by various trends, as well as product innovation in 2011 bringing a 16% increase in the new product category over 2009. An increase in disposable incomes, coupled to changing sentiments by the public concerning health, as well as the global community driving the innovative growth (Watson et al 70). Specialty and premium products are the chocolate products that have been showing strong growth promise over the long term. The recession caused a shift away from chocolate items in the chocolate premium category. However, as the economic situation has continued to improve, sales in the premium category have again taken off. High end chocolate varieties can be made on the sales premise, have a secret recipe, or come from a region that is renown (Watson et al 75). Boxed and seasonal assortment of chocolates nave seen fast growth, as well as, sales are expected to grow by 13% from 2010 to the year 2015. Retirement parties, birthdays, holidays, and more have chocolate as versatile gifts. The last ten years, has seen an improved understanding of the aspects that constitute a diet that is healthy with a dramatic increase in the sale of chocolate with a reduced calorie offering, reduced fat, and sugar free assortment (Watson et al 76). Dark chocolate is also having a resurgence with studies showing that it is good for the heart, lowering cholesterol, and blood pressure, in addition to having eight times, the number of antioxidants in a strawberry. A survey conducted recently has found that 35% of the respondents are of the belief that dark chocolate is healthier with sales growing by a steady 9% in the year 2012 as compared to 3.6% for the entire chocolate industry as a whole (Watson et al 77). Chocolate that is fair trade certified accounts for another segment in the chocolate industry, which is expected to see growth with consumers paying premium prices to make sure that the cocoa beans are produced using ethical means. As the global community becomes more integrated with the revolution in the communication industry, it has become increasingly obvious that products from the developing world are often produced under terrible conditions of labor or even controlled by dominant participants in the industry. Fair trade has become a social movement that seeks to promote improved sustainability in the developing world. This, generally, requires, an increased price, although it is in conformation to higher environmental and social standards. The director of Mintel foods and drinks to confectionery news.com said that the almost 3% decrease in cocoa grindings is not encouraging signs for the chocolate industry. According to the Euro monitor report, Mars dictates 29% of the candy market in North America followed by Hershey at 23% then Mondelez international at 8% (Watson et al 79). This is very little based on the fact that it was Halloween period when these statistics were taken. The United States industry should also focus on other emerging markets such as china in order to ensure growth of the candy market. From the above curve, it is observed that the demand and supply of chocolate for the past 40 years has been commanded by the home consumers. Most of the cocoa is used at home rather than industrial or for other uses. The average expenditure of cocoa per household stands from $3 to $5. Therefore, producers should increase focus, on home consumes, to come up with more flavors that will increase their sales (Drawn 77). Conclusion The chocolate market in the United States of America is very important. It is as well undergoing very drastic changes due to the reduced production and demand of the product. It is pertinent that the production and market trends focus on exploring other markets in order to improve their income. It was predicted that the sales would improve further by the year 2011 due to increased demand for black chocolate on the basis of health improvement. The improvement of the economic recession to some extent will impact on future growth of the industry, especially in the premium markets. Work cited Allen, Lawrence. Chocolate Fortunes: The Battle for the Hearts, Minds, and Wallets of China's Consumers. New York: American Management Association, 2010. Print. Blythe, Jim. Consumer Behavior. London: Thomson Learning, 2008. Print. Drowne, Kathleen. & Patrick, Huber. The 1920s. Westport, Conn. [u.a.: Greenwood Press, 2004. Print. Taylor, John. & Akila, Weerapana. Principles of Microeconomics. Mason, OH: Cengage Learning, 2009. Print. Watson, Ronald, Victor Preedy, & Sherma, Zibadi. Chocolate in Health and Nutrition. New York: Humana Press, 2013. Internet resource. Read More