Despite an apparent slowdown in the Chinese market, it still appears to be the Holy Grail of sales growth for nearly every company in the confectionery world, with the notable exception of Lindt. Indeed, Mondelez is continuing its relentless effort to expand into Asia Pacific, where it acquired Vietnamese biscuit manufacturer Kinh Do in 2014. It has announced plans to adopt this acquisition strategy in several other countries in the region and, in May 2015, announced plans to launch its global gum brand Trident into China, despite already achieving some success in the country with its Stride range. The reasons for the move appear to be rooted in the gum world’s sclerotic growth.
Gum falling out of fashion in developed markets
On the surface, Mondelez’s gum sales appear solid; globally, the company added US$1 billion in sales between 2009 and 2014, equating to a 3% CAGR. However, this hides the fact that sales underperformed in North America and Western Europe, with the company’s combined sales declining by US$330 million. While gum sales have declined in both markets, Mondelez’s poor performance accounts for over 40% of the US$800 million combined sales decline of these gum markets. The decline is due to gum becoming socially stigmatised – it is viewed as being both anti-social and a public nuisance in that it contributes to littering.
Gum sales are also affected by the reduced prevalence of smoking within these markets, as smoking becomes less fashionable and more regulation comes into place. In the US, smoking prevalence has decreased by 13% in males and 18% in females since 2009. This is important because one of the main attractions of using gum is to gain fresh breath after smoking. Hence, one of the main reasons for purchasing gum is being removed. Gum sales are expected to decline further over the forecast period, with per capita expenditure falling flat in Western Europe and declining by 14% in North America.
While gum is becoming unpopular in developed markets, Asia Pacific represents a land of opportunity, having added US$1.5 billion in sales since 2009, the vast majority of which has stemmed from China. Within China, nearly half the adult male population smokes – more than twice the percentage in the US. There is less social stigma attached both to smoking and chewing gum, and so it provides a fertile market for growth.
Does Mondelez have an eye on usurping Mars’s supremacy?
Mondelez already has a presence within China’s gum market, having launched its Stride brand in 2012. Since then, the brand has achieved significant growth, obtaining an 8% market share and sales of US$1.4 billion. At its current rate of growth, it should overtake Orion to become the second largest gum brand in 2015. Given the presence of Stride, there is a risk that launching Trident could cannibalise sales.
Chart 1. Leading Gum Companies by % Market Share 2014
Source: Euromonitor International
However, Stride is aimed more at the “breath freshening” market, while China’s most popular gum flavour is fruit based. Trident aims more at this market, with flavours including orange, strawberry and blueberry. The company therefore appears to be wisely using local knowledge to gain advantage in the country. If it can effectively create a distinction between these two brands, Mondelez should avoid creating zero-sum sales growth.
Both the Chinese and world gum markets continue to be led by Mars’s Wrigley’s brand, which achieved 34% of global gum value sales in 2014. Wrigley’s has an impressive 45% share of China’s gum market, though this has decreased by six percentage points since 2009, largely due to the growth of Stride, which has made impressive progress that Stride has made.
Although achieving first place in the Chinese market seems almost impossible in the short term, launching Trident should result in the Wrigley’s brand continuing to see a slump in share, although sales will continue to grow. Mondelez has extensive distribution networks in the country and, given the size of the company’s financial resources, it should be able to achieve a strong market share within the space of a few years. This provides Mondelez with a realistic opportunity to become the leading gum manufacturer in the world, as it is currently only five percentage points behind Mars. Once again, therefore, Mondelez’s strategic shift to Asia Pacific could create waves in confectionery’s competitive landscape.