Australia’s sweet tooth resilient

jellybellypile-250IBISWorld estimates that the chocolate and confectionery manufacturing industry will grow by 1.1% in the five years to 2009-10. This industry has had to endure a recessive economy, falling disposable incomes, volatile commodity prices and increasing import competition. Despite these challenges, the industry has remained resilient, adapting to changing consumer tastes and health trends.


The performance period began with rising input prices and waning demand, though the drop in sugar prices and introduction of more health-conscious products helped rectify these issues. Cocoa has been sold at a premium throughout the period, though recently the price has become more moderate. As the economy declines, IBISWorld expects sustained consumption of chocolate and confectionery as consumers choose to indulge themselves in inexpensive treats to offset anxiety over loan repayments.


Profitability for this industry has been high, due to a high level of value addition during the production process, combined with a highly concentrated market. Large margins have also resulted from increasing levels of capital intensity which have reduced labour costs.

Industry participation has increased, with establishment numbers growing moderately. Employment growth has exceeded establishment growth, despite major players investing in technology and equipment to aid production efficiencies through automation.

Imports outgrew exports during this period, sourced largely from European countries that have benefited from export subsidies. Australia’s exports have mainly been to New Zealand, Japan and Singapore.


IBISWorld forecasts that the industry will grow by 2.0% in the five years to 2014-15. This growth will be driven by moderating commodity prices, health and dietary changes, product innovation, and advancements in technology and production.


Regulation of this industry will increase, with label requirements and serving size restrictions. Major players will integrate these changes successfully, whereas anecdotal evidence shows that costs for implementing legislative requirements can disproportionately affect small manufacturers.

Changing demographics over the outlook period may affect the industry, as Australia’s ageing population will increasingly prefer savoury items. Firms will be forced to innovate low-sugar items to cater to health conscious consumers, and also source organic materials to produce more ethical chocolate products.

Profitability will remain healthy, though competitive pressures will force some smaller enterprises out of the industry. Among the larger players there will be rationalisation of facilities, leading to modernisation, reduced duplication and economies of scale in production. This will encourage the manufacture of higher margin products, such as premium chocolate and high grade confectionery.

Sugar prices will rise, though a large decline in the price of coca will help offset this. Cost increases of post-production expenses such as advertising will adversely affect profitability, as high levels of competition require constant marketing campaigns. Employment will marginally increase, with wages also growing. Both imports and exports are expected to increase strongly.

Key success factors for operators in the industry:

  • Marketing of differentiated products: Branding is extremely important within certain market segments like chocolate. Effective marketing helps manufacturers capture maximum market share. Moreover, appropriate marketing of differentiated products avoids over-reliance on core products.
  • Economies of scope: Scope economies achieved by producing a range of confectionery and related products. Economies of scope enable a company to modify its production output in response to changing conditions in various market segments. This can reduce volatility in sales.
  • Economies of scale: Strong price competition means that economies of scale are particularly important for those participants not involved in the production of niche products.
  • Ability to pass on cost increases: The ability to raise product prices in response to cost increases is limited by high price elasticity.
  • Establishment of export markets: The importance of export markets reflects the saturated nature of the domestic market.
  • Guaranteed supply of key inputs: The price of raw inputs like sugar and cocoa can be highly volatile and is subject to market vagaries. Contracts with suppliers of raw materials such as sugar, milk powder and cocoa reduce supply volatility.

Robert Bryant is the general manager of business information firm IBISWorld.


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