Is chocolate recession proof?

Posted by Daniel Palmer on 29th June 2009

Eating chocolate has a ‘feel good factor’ and is considered an affordable luxury in some countries. However, during the financial downturn, luxury chocolate shops in airports and duty-free gift purchases are likely to suffer a significant drop in chocolate sales. Rabobank sees a sales dip in premium brand chocolates as one of many risks to producers in the new report ‘Is Chocolate Recession Proof?

chocolate swirl - Cadbury

From the late 1990s until early 2008, the ‘premiumisation’ trend took off with consumers trading up to more ‘luxury’ food products. Chocolate companies developed new strategies to supply the chocolate loving community with indulgences in higher priced products and premium brands.

Trading down
Unfortunately for those cashing in on the trading up trend, historic evidence suggests that chocolate is not completely immune to recession. As a result, a reverse trend of consumers trading down in the chocolate market is expected, according to report author and Rabobank chocolate analyst Maria Castroviejo.

In 2009, Rabobank expects the global chocolate volume to decline moderately, and to shrink more so than in previous financial crises.

“Given the trading up that took place over the last few years, there is greater room for trading down in value during this economic crisis than during previous ones,” Ms Castroviejo explained.

Benefitting from the current market conditions
Not all the chocolate manufacturers are likely to suffer, however.

“Some companies may clearly benefit from the current environment as the market consolidates at the expense of the less differentiated players, and those who already had a weaker financial position before the downturn started,” Ms Castroviejo advised.

For some chocolate makers, the new market conditions may represent an extra chance for growth which was not present before the financial crisis. Private labels or supermarket brands are gaining share in many fast-moving consumer goods categories and certain chocolate segments, such as tablets or seasonal chocolates.

“Some companies who were criticised for not having luxury products in their portfolios, are now doing better during the financial crisis because they have lower priced options for the current market trend on trading down,” the analyst added.

“Leading brands and strong private label suppliers are likely to come out of the current downturn in a stronger position than before.”

Global chocolate market
In 2008, 7.4 million tonnes of chocolate were consumed globally, with Rabobank estimating that global chocolate consumption had a retail value of around EUR 73 billion (A$127b).