High inflation and poor economic prospects constrain confectionery in Middle East and Africa

Adverse economic conditions slowed volume growth for confectionery products in Middle East and Africa as consumers turned to more affordable food staples. Interestingly, the health trend continued to drive demand in urban areas and pushed the growth of sugar-free gum sales at regional level.

A growth tainted by high inflation

Retail value sales of confectionery reached US$6.6 billion in 2009 in the Middle East and Africa. This represents an increase of 10% (US$ fixed exchange rates) on the previous year, according to Euromonitor International estimates. This relatively robust growth, however, should be analysed in the context of high inflation levels in the region. Interestingly, retail volume sales only managed to grow by 3% in 2009, down from the 4% achieved in 2008.

Research shows that the current economic recession had a negative impact on demand for more premium confectionery categories, such as chocolate, in the region. Chocolate confectionery saw retail volume sales grow by 3% in 2009, down from the 5% achieved the previous year. In 2009, three countries – South Africa, Iran and Saudi Arabia – accounted for around 50% of total confectionery retail value in the Middle East and Africa.

Demand for chocolate slows in Iran

In Iran, retail volume sales of chocolate confectionery declined by 0.1% in 2009, according to Euromonitor International’s estimates. The decline in volume sales was primarily due to higher unit prices, which rose in all categories of chocolate confectionery as a result of rising inflation. Inflation surged above 25% and 13% in 2008 and 2009, respectively, denting purchasing power among low and middle-class consumers.

This, alongside GDP growth estimated in real terms of a mere 1.5% in 2009 (compared to 2.5% in 2008), pushed Iranian consumers to focus their spending on more necessary food staples, including bread and milk. Demand for premium chocolate, perceived as a luxury, slowed among less affluent consumers in light of the worsening economic conditions.

There are various snack categories that compete with chocolate confectionery in Iran, the largest of which is fruit, a staple in the Iranian diet. The orchards and vineyards of Iran produce an abundance of fruit, which is not only enjoyed fresh as a dessert, but is also imaginatively combined with meat, and as an accompaniment to main dishes.

When fresh fruit is not available, dried fruits such as dates, figs, apricots and peaches are eaten instead. Nuts, sweets, biscuits and ice cream are also popular snacks. Despite weaker demand in 2009, chocolate products witnessed significantly wider availability through specialist outlets, where they are mainly purchased by wealthy Iranians. Interestingly, sugar-free products continue to account for a tiny proportion of sales and are mostly consumed by health-conscious younger women.

Recession takes its toll on sugar confectionery performance in South Africa

Retail value sales of sugar confectionery products in South Africa reached US$450 million in 2009, down by 4% (constant local currency retail value) on the previous year.

As in other African and Middle Eastern countries, research shows that high food inflation and low economic growth had a negative impact on demand for sugar confectionery products in the country. According to Euromonitor International’s Countries and Consumers database, GDP declined by 2% in real terms in 2009 in South Africa. Overall inflation stood at 7% that year, reducing purchasing power and pushing consumers to focus their spending on food staples like bread and milk.

Interestingly, pastilles, gums, jellies and chews was one of the few sugar confectionery categories to experience positive growth in volume terms, driven by strong innovation activity and relatively low unit prices.

In terms of qualitative trends, research shows increasing concern about health issues among major South African sugar confectionery manufacturers. In an attempt to respond to growing consumer health concerns, an increasing number of manufacturers have emphasised the fact that their products are “fat-free”. This trend is particularly evident in products such as pastilles, gums, jellies and chews, according to Euromonitor International’s findings.

However, and despite the current health trend sweeping the country, confectionery products are predominantly sugarised. According to Euromonitor International’s estimates, the latter accounted for around 94% of total sugar confectionery value in 2009. However, research shows that demand for sugar-free products is gradually growing among younger middle-class parents concerned about the oral health of their children, a trend that is likely to continue into the medium term.

Health trend drives gum sales in Saudi Arabia

Retail value sales of gum in Saudi Arabia grew by 2% (constant local currency retail value) in 2009. This performance was driven by strong demand for functional gum, which grew by 6% in retail value in 2009. Research shows that functional and sugar-free gum demand was driven by rising awareness of its oral health benefits among adults and children.

This trend was driven by extensive television advertising for leading brands such as Extra and Extra for Kids from The Wrigley Co Ltd, as well as Clorets and Dirol from Cadbury Adams Middle East SAL.

Strong catalysts for growth also included the several new launches introduced during previous years and 2009 (such as Happydent and Mentos from Perfetti Van Melle Group, Wrigley’s Extra Professional White and Gandour Sugar-free gum from Saudi Chewing Gum Co).

According to Euromonitor International’s findings, packaging was also another important area of supplier innovation, with successful examples in 2009 including the Wrigley’s Extra Go pack and Perfetti Van Melle Group’s Mentos economy pack. Both products are presented in re-sealable plastic packs and are aimed at people on the move for consumption anywhere and anytime.

Future direction

Retail volume sales of confectionery in the Middle East and Africa are expected to grow by 16% over the 2009-2014 period, according to Euromonitor International’s projections. Research shows that demand in the region will be driven by gradual economic recovery and the expansion of more premium confectionery categories, like chocolate, among middle-class consumers.

Conversely, sales growth will be partly constrained by health/obesity concerns with regard to sugar and chocolate confectionery in large urban areas.

Interestingly, sales performance is set to vary according to region and product category. Retail value sales of sugar confectionery in South Africa are predicted to decline by 6% in constant terms over the 2009-2014 period, according to Euromonitor International’s projections.

Research shows that this relatively weak performance will be partly driven by strong competition from sweet and savoury snacks, a category which is more healthily perceived and has a relatively low unit price.

In contrast, retail volume sales of gum are projected to grow by around 20% over 2009-2014 in Saudi Arabia. Rising health awareness and gradual economic recovery will drive demand for health-oriented gum formats, particularly functional and sugar-free lines.

According to Euromonitor International’s findings, child-oriented products, particularly sugar-free variants, will be an area of considerable potential in the country, a trend which will be both consumer- and supplier-driven. Saudi suppliers will largely capitalise on increasing awareness surrounding the high proportion of children suffering from tooth decay in the country, estimated at around 70% in 2009, according to the local press.

Child-oriented variants, similar to Extra For Kids from The Wrigley Co Ltd, are expected to be introduced by other international companies such as Cadbury Adams Middle East SAL and Perfetti Van Melle Group.