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Wednesday, September 2, 2015, 11:06

Chocolate companies see sales melt away

By Shi Jing In Shanghai

China's slowing economy, the government's anti-corruption drive and a change in consumer habits have been blamed for poor results Global confectionary companies were once surrounded by the sweet smell of success. But times are changing as major brands report crumbling sales and tumbling profits.

For the second quarter of this year, Mondelez International Inc, which owns Cadbury chocolate products and Oreo cookies, announced a 9.2 percent drop in profit to US$7.7 billion compared to the same period in 2014. Demand in the Asia-Pacific region, which includes China, fell by 5.5 percent to US$1.02 billion.

In a move to cut costs, the multinational confectionery, food and beverage conglomerate, based in the United States, has started trimming staff in Nanjing and Shanghai as well as moving its Beijing office to one of its factories in the capital.

Chocolate companies see sales melt away
Dove chocolates, part of the Mars Inc, on sale at a supermarket in Nanchang, captial of East China's Jiangxi province. (Provided To China Daily)

It is also planning to close a Shanghai plant, which employs 400 workers, which will leave Mondelez with six factories in China and a work force of around 5,500 people.

"Consumption of chocolates has declined significantly in the past 12 months," Jason Yu, general manager of consumer market research company Kantar Worldpanel China, said.

"High-end chocolates with glossy packaging, which were excellent gifts, have seen a significant drop in sales due to the Chinese government's anti-corruption crackdown. Also, ordinary consumers now have more choices when it comes to snacks."

Mondelez is not the only major player suffering. Mars Inc, the world's largest confectionery maker with brands such as Dove, M&M and Snickers, has felt the chill of slowing sales.

Data from Euromonitor International Ltd, the privately owned market intelligence firm based in the United Kingdom, showed that Mars' market share dropped for the first time in China last year to 39.4 percent from 39.6 percent in 2013. Euromonitor has predicted it will shrink to 38.8 percent this year.

Hershey Co, an iconic brand in the US, saw its chocolate sales in China fall to US$35 million in the second quarter of this year. As a result, Hershey globally reported a net loss of US$99.9 million, while it made a net income of US$168.2 million a year ago. "We have been disappointed with our performance in China so far," Steven Schiller, president of Hershey China and Asia, said.

A slowing economy, the government's anti-corruption drive and a change in consumer habits have been blamed for melting chocolate sales.

Still, China is expected to consume 220,700 metric tons of chocolate this year, or an increase of 6.3 percent on 2014, according to Euromonitor. That is on a par with recent annual growth rates, but there are concerns those figures are unsustainable in the future. Just like Mars, Mondelez and Hershey, Nestle SA also faces a "difficult" economic climate.

"Past growth was built partly on expanding sales to new consumers in second-and third-tier cities in China, but now those places are saturated and chocolate makers must convince Chinese consumers simply to eat more," Xu Ruyi, head of research at Mintel China, a leading research firm, told Reuters news agency.

Sales in hypermarkets and supermarkets in the first-tier cities, such as Beijing and Shanghai, have declined in the past few months, which is one of the reasons for Hershey's stagnant performance in the market.

"As the country moves to the new normal, which is more consumer-led, we are seeing a good shift, but it will not come easily," Schiller said. "The falling stock market has dented consumer sentiment and China's middle classes are saving more and spending less."

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