Market Information
Southeast Asia

Sugar Confectionery: Keeping Its Sweet Disposition ⁽¹⁾

Ana Cecilia S. Palma
Researcher
Center for Food and Agri Business
University of Asia and the Pacific

The confectionery industry can be divided into three categories: chocolate, sugar confectionery, and chewing gum.

Sugar confectionery includes fruits, drained and glazed or crystallized candies, nut mixed with sugar and honey. It was introduced in Britain during the Middle Ages. It consists of candies and other sweet treats that are sugar-based.

Candies are categorized as hard or soft. Hard candies include butterballs, lemon drops and the like while soft candies consist of orange, jelly, marshmallow, among others.

Chocolate is a much younger product than sugar confectionery. The very first chocolate house opened in London in 1657. Chocolates are made from ground roasted cocoa beans, and one of the most popular foods in the world.

Meanwhile, chewing gums are sweetened and flavored insoluble plastic materials (as a preparation of chicle1 ) used for chewing.

This article seeks to provide an overview of the industry with emphasis on sugar confectionery and chewing gum.

Performance

Total household spending on chocolates and candies reached P3.01 billion (B) (National Statistics Office-Family Income and Expenditure Survey, 2000). The purchases usually expand during special occasions like Christmas and Valentine's Day. The National Capital Region is the leading consuming region, contributing 31% of household spending on chocolates and candies, followed by Southern Tagalog (15%) and Central Luzon (13%).

On the other hand, according to industry estimates, the retail market for whole confectionery industry (chocolate, candies, chewing gums, etc.) is worth P17B in 1999 and is projected to reach P20B by 2004. On the average, volume growth was around 42% from 1995 to 2000, brought about by rapid urbanization and growth of young population.

Local producers supply about 65% of domestic demand. Their products are priced relatively lower than imported confectionery products. The latter, however, is slowly increasing its market share.

Sugar confectionery products dominate especially in the rural areas. This is because candies are classified as impulse products in retail outlets such as grocery stores and supermarkets. Imported candies are not as popular as imported chocolates.

Meanwhile, according to Sweetsexpo 2001, the demand for confectionery in the Pacific Rim has risen a little over 11% since 1993. There was an estimated 900,000 tons of confectionery sold in the region in 1999. The industry is rapidly expanding in this area and taking up a prominent fixture in the processed food category.

Source: Sweetsexpo 2001

Trade

Imports. Shipments of sugar confectionery (soft and hard candies and chewing gum) fluctuated during 1996 to 2001, peaking at 11,870 tons in 2001 and lowest at 2,268 tons in 1998. In 2001, the country imported US$1.2 million (M) worth of chewing gums and $13 M worth of hard and soft candies.

Imports of hard and soft candies generally increased over the period. Shipments reached 10,300 tons in 2001 from 2,500 tons in 1996 with hard candies accounting for an average of 80% yearly.

*includes coffee, butterballs, lemon drops, etc.
Source: National Statistics Office

*includes orange, jelly, marshmallows, etc.
Source: National Statistics Office

Source: National Statistics Office

In 2001, Indonesia was the leading source of hard candies with a 43% share in terms of import value, followed by Thailand (29%). For soft candies, Indonesia (41% by value) and China (27%) dominated. Meanwhile, Thailand (39%) and China (23%) were the leading sources of chewing gum in 2001.

Exports. The country is an exporter of candies and chewing gum. Candy exports inched up by an average of 14% annually from 1,200 tons in 1996 to 2,100 tons in 2001. The leading buyers were Hong Kong (15% of export value) and Malaysia (13%) for hard candies and Canada (26%) and Hong Kong (19%) for soft candies.

Meanwhile, chewing gums grew by an average of 5% yearly to 5,000 tons in 2001 from 4,000 tons in 1996. In 2001, the leading buyers of chewing gums were Vietnam (29% of export value) and Malaysia (20%).

Key Players

There are big companies and multi nationals present in the local sugar confectionery industry. The major players include Universal Robina Corporation, Storck Products, Inc. and Candyman. These companies have long established their presence in the market.

Source: CFA Databank

Government Policies

The local confectionery manufacturers adhere to the regulations set by the Bureau of Food and Drugs on food additives, contaminants, food hygiene and labeling. Under food additives, standards are defined for the following parameters: alkalizing and neutralizing agents, emulsifiers, and flavors. For contaminants, limits for arsenic, copper and lead contents are prescribed.

Tariffs on sugar confectionery (including chewing gum) not containing cocoa are pegged at 10% in 2002, 7% in 2003 and down to 5% in 2004. Meanwhile, white chocolate is subject to import tariffs of 7% in 2002 and 5% in 2003 and 2004.

Incentives/Impediments to Growth

Local candies and chewing gums are generally cheaper than imports in the domestic market. There have been developments in terms of computer-aided design and manufacturing processes, including bar coding, thus, increasing the productivity of the industry. Also, a study indicated that almost 70% of confectionery products are bought on impulse; this makes the products maintain one of the widest distribution bases of any consumer product. It is available in the neighborhood sari-sari stores, convenience stores, grocery stores and huge supermarkets, not to mention street peddlers, selling candies to traveling consumers inside public transports.

Meanwhile, the impediments to growth include gaps in supporting and related services and high input costs, particularly sugar. The high cost of sugar, which is mostly imported, is one of the major concerns. It is affecting hard candies where sugar content is high. Imports have surged for confectionery products during 1996 to 2001. The weak linkage of the two sectors hinders the industry's development. Further, the influx and preference for imported confectionery are a challenge to the local industry.

Prospects

How will the industry keep its sweet disposition?

One of the competitive edges of the local manufacturers is their ability to cater to the large low-income segment with low-priced retail packs.

The expanding and diverse product lines of candies and chewing gums, better distribution networks, increasing young population, and strong marketing are also key factors that will drive demand over the next few years. However, growth could be moderate (4 to 5% annually2 ) in the next five years due to weak purchasing power. Industry competition will continue to be intense.

New product innovations will include low fat products, sugarless sweets, and functional sugar confectionery (i.e. fortified with vitamins) as well as new brand introductions that can sell in the domestic and export markets.

In addition, manufacturers will seek to further widen the distribution networks to include the hotel, restaurant and institutional (HRI) sector, hardware shops and other high traffic places, where impulse buying opportunities can be present.

Meanwhile, the penetration of high quality imported confectionery products pose as a threat to the local industry. The manufacturers should take a stronger role to assure the quality of their products and to keep prices at affordable levels. They should improve on product quality through new investments in food manufacturing equipment, product and packaging innovations, enhancement of production efficiency through economies of scale and demonstrable value for money.

1. * This industry brief was published by the Manila-based University of Asia & the Pacific, Center for Food & Agribusiness in the July 2002 issue of the Food & Agribusiness Monitor, primarily for a Philippine audience. This industry brief is being made available to Canadian businesspeople in order to provide basic market information should there be export interest in relevant agrifood commodities.