MUMBAI: Chocolate consumption is expected to record the highest percentage growth from emerging middle-income markets including India, indicating the strong positive correlation between GDP per capita and confectionery. India and China have two of the lowest per capita consumption levels globally, so perhaps they offer the greatest long-term growth potential, analysts say.

India is forecast to deliver a compounded annual growth rate (CAGR) of 9% in confectionery over 2014-2019, according to Euromonitor, with chocolate confectionery driving over two-thirds of the absolute growth, in a market dominated by Mondelez (market share of 55%). Cadbury was rechristened Mondelez India after its US-based parent Mondelez International acquired the former globally in 2010.

Besides India and China, other middle-income markets from where the highest percentage of growth is expected over the next five years include Mexico and Brazil. The global confectionery market generates total retail sales of $200 billion, having recorded a CAGR of 5.3% from 2000 to 2014. The category can be broken down into three main sub-segments: chocolate confectionery (56%), sugar confectionery (32%) and gum (12%).

Euromonitor data shows that four of the top five strongest-growing confectionery categories are chocolate SKUs (stock-keeping units). Consumers in both developed and emerging markets are increasingly turning towards premium chocolate, with tablets, in particular, seeing strong growth, and fine flavour, origin-specific cocoa and responsible sourcing all being key drivers.

Over the past five years, the growth in confectionery has been slightly lower at a 4.3% CAGR, held back primarily by a decline in gum in several large developed markets, including the US. Going forward, confectionery may post a 4.6% CAGR over the next five years.

However, affordability may limit the near-term growth potential of premium chocolate in emerging markets, but compound chocolate (which uses vegetable oil instead of cocoa butter) provides less expensive chocolate products in emerging markets for consumers to trade into the category, says an analyst from Societe Generale.

Tastes are changing in countries like China with demand from younger consumers moving from chocolate-coated snacks to block chocolate. Chocolate is expected to continue to be the fastest-growing sub-category of confectionery, accounting for around 60% of the increase in absolute retail sales in 2014-19.

The price mix has played an important role in confectionery growth, accounting for almost two-thirds of retail sales growth in 2000-2014. Premiumization has played a role in this strong price mix – a strong link between rising per capita income and trading up through confectionery categories, from entry-level hard candy to premium chocolate.

The confectionery category’s top line prospects appear solid and underpinned by rising per capita consumption levels in emerging markets, as well as continued prevalence of snacking in key developed markets, the research says. It adds developed markets may face headwinds of ‘Mexican style’ junk food taxes (certain countries, including Mexico, in 2013 imposed junk food taxes on chocolates in an effort to curb obesity, and to address fiscal deficit).

The strong correlation between per capita income and per capita consumption of confectionery should be supportive of growth in emerging markets, which are expected to deliver the bulk of category growth over the next five years.