From a retail opportunity standpoint, a category that has the potential to be a sales, profit and footfall driver has turned into a massive missed opportunity
In every chocolate/confectionery conference across the globe, the industry talk is about India and China being the next largest consumers. The debate is also about how the chocolate production would live up to this demand. However, maximum attention is being given to China over India, which has certainly not managed to paint a pretty picture for global chocolate brands yet. No chocolate brand has any doubt about the fast growing Indian consumption story. However, the Food Safety regulations, complexities and general modalities of doing business are keeping them at bay.
The Food Safety regulations in India have forced many imported chocolate brands to withdraw from the market and relook their India strategy. The impact of that is clearly seen on the retail chocolate shelf today. Every chocolate shelf of any so called premium or gourmet retail store across India has a similar set and limited assortment of imported/ gourmet chocolates on display!
Consumers are at the receiving end and have been restricted to shop for premium chocolates during their travels overseas. At this point, it is important to understand that the term premium has not yet been truly benchmarked in the context of chocolates in India and there is a need to establish the same. Generally speaking, a premium product should mean a product of superior quality resulting in a higher price.
A chocolate is considered premium if:
• The highest quality standards are adhered to during the process of manufacturing (whether in India or elsewhere)
• If good quality cocoa beans from suitable origins are used
• Only natural ingredients are used (cocoa butter is
not substituted with vegetable oil – Max of 5% is allowed even as per EU laws)
• Nutritional labels are in place along with manufacturing and expiry dates, batch details and
• Packaging is designed to protect and provide the best experience to the chocolate consumer.
Price plays no role in defining a chocolate as premium. And it should not. However, considering if the above criteria is to be met, a price has to be paid for it. All the numbers regarding the premium chocolate market opportunity in India (of many million of dollars in market size etc) are based on certain assumptions of premium-ness.
Some studies classify chocolates as premium depending on the price of the chocolate (wrongly assuming that the required quality is delivered in line with the price charged of the chocolate which is seldom the case in India). Currently, the chocolates category contributes anywhere between 2-3 per cent of total category sales for a premium/gourmet retailer. This includes all kinds of chocolates. The contribution of premium chocolates is below 1 per cent.
The way the import value chain works in India, even a standard supermarket chocolate bar becomes premium impacted by the costs added until it reaches the retail shelf in India. Starting from
the cost of temperature-controlled transportation (even though many chocolates are not transported in the correct temperature) to the cost of clearance (high and complex import duties included) and distribution/retail margins, an imported chocolate seldom justifies the price.
The cost structure puts pressure on the importers/brands to have a cost+ approach due to which even a regular super market
brand becomes unduly highly priced by the time they hit the retail shelves.
However, we are at a stage in India where the premium chocolate category is in the process of being defined and every chocolate company likes to call its offering as premium. The benchmark of premium chocolates in India has until now been set by the few chocolate brands who have had the first mover advantage. It is similar to how retailers have misled consumers by calling their offerings and stores as premium or gourmet. This has become a trend of sorts.
To an Indian consumer, premium chocolates most often mean only two things: Imported & Expensive. Ironically, quality is seldom a factor to determine the premium-ness of a chocolate in India.
Quality is sub consciously assumed to be directly proportional with price. In India, an imported chocolate brand sold in the modern trade channel at a higher than justifiable price is considered premium.
What aggravates the situation is that many Indian premium chocolate consumers still consider chocolates only as a substitute to sweets, use it to get their sugar fix or use it for gifting. Th is can be attributed to the lack of education of fine chocolates among Indian consumers. The understanding of premium chocolates (or the lack of it) extends to all the trade partners and the entire value chain as well. It is, therefore, fair to say that the chocolate industry in India is in a transition state where brands can get away with calling a product as premium and advertising it, even though it may not actually be premium.
From a retail opportunity standpoint, a category that has the potential to be a sales, profit and footfall driver has turned into a massive missed opportunity. The premium retailer in India does not pay attention towards qualifying the product as there is pressure on top/bottom lines always and margins become priority. Moreover, an imported product easily attracts the fancy slotting allowance and higher margins in comparison to their Indian counterparts!
This is where retailers fail in most cases to deliver value and forget that the reason for their existence is to serve as a platform of choice (of good quality products at a fair price) to the consumer. There are innumerable examples of overseas brands selling their chocolate on Indian retail shelves up to twice the retail price that they sell in their own country. And these very chocolates are considered premium in India! The story that a premium chocolate shelf in India tells a customer is similar to many other
Clearly the retailer needs to become more aware and act in the consumer interest to present him/her only the best choice. The advent of e-tailing has further enabled premium chocolate brands to offer their products exclusively online.
The need to adopt a consumer-centric strategy is non-debatable at least at this point when e-tailing has promised to give traditional retail a good reason to run for their money! Consumer centricity pays handsomely in the medium to long term. Premium retailers should soon recognise this fact and act upon it.
Given this current scenario, many premium European chocolate brands are waiting on the fence for the right time to test and enter the Indian market. Some brands have tested the market with importers and local partners in the past and have learnt that their closest attention is required directly in order to understand and succeed in the Indian market. The current Food Safety and
Import regulations have already started giving rise to local production of mass produced chocolates (which call themselves premium and shall find their way onto gourmet store shelves ironically). We see Schmitten, Hoppits and LuvIt among some recent entrants challenging the big and established mass
market players in the business.
The larger players like Cadburys and Nestle have already introduced their versions of premium chocolates, which mostly focus on the dark variants. There are other larger chocolate makers like Bliss Chocolates and Chokola who entice the audiences with their offerings (using imported base chocolates) via their own retail stores.
Some chocolate makers like Bliss Chocolates and Cacobean also produce private labels for retail chains with better quality guidelines than many other chocolate brands available on the shelf. Given that some global brands like Leonidas (Belgium), Royce (Japan) and Amelia Rope (UK) already sell their products through specialist retail stores in Delhi, Mumbai and Banglore and have tasted different degrees of success, many other brands will get attracted to the Indian opportunity and would be eager to join the chocolate growth story.
More importantly, there has been a slow but steady rise of home grown artisanal chocolatiers as well. Some bean to bar artisanal chocolatiers like Mason & Co, Earth Loaf and other handmade
chocolatiers who create magic with their infusions/flavours like Chokriti and Bean Therapy have just about started making their presence felt in premium retail shelves across the country. Most gourmet retailers cannot however, immediately afford to promote them on their shelves due to the limited margins/ slotting allowances that the handcrafted artisanal chocolate makers can offer.
We all agree that the future of the chocolate category holds a lot of promise in India. However, in my opinion, inspite of the bright outlook, the value chain has to acknowledge that good quality cocoa is not an unlimited resource in order to make this a performing category for them and for consumers to see more of the right chocolates on the shelf.
Like many other crops, cocoa is facing supply related pressures and while the industry is tackling that in various ways, the pricing pressure on chocolates is bound to go up. While many local/ regional chocolate makers and chocolatiers invest in increasing capacity to meet the demands of the gourmet/premium segment, retailers must play a role in this journey towards making only the best chocolates available. This means, fighting the price rise and accommodating the price increases by ensuring that this category gets its due.
Consumers, on the other hand, are bound to become more aware of the quality of chocolates being offered. Cocoatrait (the chocolate tasting club in India) is leading the revolution in this regard along with various global chocolate makers and offers education to consumers to help them differentiate good chocolates from bad.
In addition, traditional retailers will have a huge role to play in order to educate their customers about premium chocolates and enable them to pay a higher price. This high price does not necessarily mean higher margins for the retailer. Th is means that using chocolates as a footfall driver and supporting the value chain to promote better quality chocolates.
Brands will take direct interest in the market and collaborate with their local partners (if any) to work on the best strategy for India.
Interestingly, India will see a lot of bean to bar chocolate makers investing capacities in the country and manufacturing chocolates closer to the market. All in all, this means that consumers are in for a delight in the coming few years as far as availability of premium chocolates are concerned in India!
Many global chocolate brands have now fallen in line with the requirements of the Foods Safety authorities and have the correct information now relabeled on their products at source (this is one of
the top challenges for any food company entering India) and are looking at re-entering the Indian market. As a result, you can expect to see around 10 global chocolate brands (some of who had
disappeared from India) donning Indian chocolate shelves in the next 3-4 quarters.
In addition, there will be at least five chocolate makers that shall start making bean to bar chocolates in India. Most of these bean to bar chocolate makers would source beans from overseas which will enable them to have a differentiated offering. There are enough indications that the “Make in India” campaign by our current government is also encouraging chocolatiers in India (using imported base chocolates) to add local flavours to create chocolate delights and this trend will continue to grow exponentially.
Keeping in mind the developments, customer exposure and education towards chocolates, we can certainly expect a premium chocolate shelf in India to easily differentiate itself from a supermarket chocolate shelf. You can expect to see many popular international brands on the shelf and have variations of chocolates in bars/tablets, pralines, truffles and squares with flavours starting from raw, single origin, traditional and exotic international/local flavours and fillings, etc with a range of milk, white, dark, sweet dark, semi sweet dark, bittersweet dark, milk dark chocolates to choose from.
Though private labels off er better margins and increased choice to customers, I do not foresee premium retailers in India investing efforts into development of premium private label chocolates. With the high complexity in the production of chocolates and sourcing of good quality raw materials, retailers would rather leave the job of
producing and innovating chocolates to the chocolatiers.
Further, I see increased focus on artisanal / handmade, small batch produced chocolates, which is in line with most of their other category offerings. With all of this in place, there would a compelling story a retailer can say, and progressive retailers would use the chocolate category as an experience enhancer and footfall driver.
I certainly foresee that retailers will start taking the chocolates category more seriously and push to increase contribution of premium chocolates to more than 1 per cent of revenues. After all, premium/gourmet retailers are supposed to be committed to offering a platform of choice for a premium customer whose loyalty is very expensive to lose! Consumers can expect to rejoice on future visits to chocolate/gourmet shops in India.