Chocolate Industry

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The Chocolate industry in the UK has been facing many challenges in recent times. The escalation of prices of the main ingrediants such as cocoa, milk and sugar has forced companies to increase prices. Customers showed resistance to higher prices which prompted brands such as Cadbury & Masterfoods (Galaxy) to reduce packaging sizes. Concerns among the public regarding obesity has also led chocolate companies to bring out smaller sizes of chocolate. A big issue facing the industry are cocoa prices hitting a 33% high in 2010 due to growing demands from the chocolate industry and a disappointing crop in the Ivory Coast, an important grower of cocoa. As per Euromonitor reports the total value of the chocolate market has grown by 3% to 5.4 million from 2009. The main players in the market in UK are Cadbury (owned by Kraft Foods), Mars & Nestle. Cadbury as of 2010 accounts for 31% value share in the market. In 2010 acquired Cadbury Plc in January 2010 for £11.5 billion. Cadbury Trebor Bassett (CTB) is the confectionery division of the company, which holds a large stake in the three key confectionery areas – sugar, gum and chocolate. CTB’s key brand in the chocolate market is Dairy Milk. This acquisition has helped Cadbury as well as Kraft Foods by increasing their economies of scale as well as bring out more options to customers. Cadbury Ltd operates in both the chocolate and sugar confectionery markets. It manufactures branded confectionery and beverages, including the internationally-successful Cadbury chocolate brand. The company also manufactures dark chocolate under the Bourneville name, as well as supplying Maynards, Trebor and Basset sugar confectionery. The company owns the chewing gum brand Trident and manufactures the medicated sweet, Halls Soothers.Cadbury chocolate brands in the UK include: Dairy Milk, Wispa, Twirl, Twisted, Freddo, Crunchie, Chomp, Bournville, Decker, Boost, Flake, Dream, Time Out, Star Bar, Picnic, Fudge, Snack, Brunch, Curly Wurly, Roses, Creme Egg, Variety and its standalone organic chocolate brand Green & Black’s. Cadbury also produces several other items of confectionary however the focus in this project is chocolate. In this project we will look at the competitive pressures facing Cadbury and how it remains the market share leader.

Cadbury Ltd registered a turnover of £5.98bn in the year ending 31st December 2009, up from £5.38bn in 2008. In 2009, pre-tax profit stood at £378m, after falling by 5.5% from £400m in 2008.

Below is a graph showing positions of all key market players

Michael E Porter devised ‘Porter’s Five Forces tool’ as a way for companies to ascertain market attractiveness and competition with other companies. This tool is not just used by commercial organizations but also by public organizations and not for profit companies to understand their customers and suppliers. In the chocolate industry there is heavy rivalry due to the presence of several large scale and world renowned market players such as Nestle, Cadbury and Mars. Cadbury among others produces countlines, boxed chocolates and sharing bags as well as blocks and moulded bars.

Existing rivalry among market players in an industry is an important part of judging market attractiveness and competition. Cadbury in UK faces competition mainly from Mars and Nestle. These three brands command equal market shares in UK and an extra percentage of market share creates big marketing spends, strong pricing and new launches of products within the company. In March 2008, Mars acquired the sugar confectionery company Wrigley US, while, in 2010, Kraft Foods completed its acquisition of Cadbury. As per Keynote reports Nestle is expected to buy out US Hershey brand. Nestle is left with reduced market share after acquisitions of Mars & Cadbury.

Periods of low market growth according to Porter (1980)...
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