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Confectionery Faces Further Uncertainty After a Year of Recovery

9/9/2022
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A version of this article originally appeared in the online edition of Candy & Snack Today.

After a year of pandemic-related challenges, chocolate confectionery, sugar confectionery and gum all displayed strong performances in the US during 2021. As restrictions were lifted and celebrations resumed, growth was well above pre-pandemic levels. But, as the economic impact of the pandemic has lingered, confectionery is facing further challenges in 2022, with inflationary pressures threatening sales.

Supply chain disruptions and inflationary pressures challenge growth

The COVID-19 pandemic has led to a variety of supply chain problems for companies across all industries. Manufacturers have faced increased costs, shipping delays, limitations on travel and transport, and shortages of supplies. These issues have been particularly difficult for companies that source their raw materials from overseas, as some countries that produce raw materials such as cocoa have enforced restrictions on transit. Shortages have started to become an issue for chocolate confectionery, particularly as demand rises. Companies are becoming increasingly concerned about an impending cocoa shortage, which could affect their ability to meet rising consumer demand.

In addition to these supply disruptions, raw materials price increases are putting extra strain on companies. Prices of commodities such as sugar, milk and flour all increased significantly throughout 2020 and 2021, and are set to continue growing in 2022 amidst a challenging global economic and political environment. In addition to rising commodity costs, the cost of labour has also increased, particularly in manufacturing facilities. Companies are now paying higher wages to account for the higher cost of living. Higher raw materials and labour costs led many companies to raise their prices in 2021, and further price increases are expected in 2022 as input costs continue to rise. Confectionery prices rose 4.7% in 2021, and are expected to rise by a further 7.5% in 2022. These costs are likely to slow the volume growth rates for chocolate confectionery, sugar confectionery and gum in 2022, although growth in these categories is expected to pick up again in 2023.
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Opportunities for confectionery manufacturers

Despite the challenging economic climate, companies can focus on innovation, positioning, and growing their online presence to gain share in 2022 and beyond. Health and wellness remains an important trend in both chocolate and sugar confectionery, as there has been growing consumer interest in reducing sugar intake and avoiding unnecessary additives and chemicals in food. Companies interested in sugar reduction have been exploring rare sugars, with the two main types in development for packaged food being allulose and tagatose. These rare sugars have similar properties to traditional sugar, but are less calorie-dense. The FDA has decided to exclude them from total and added sugar declarations on nutritional labels, appealing to chocolate manufacturers looking to release low sugar options.

Plant-based remains a relatively small subset of chocolate confectionery, but is set to gain popularity. Premium brands in this space, such as Hu and Endangered Species, have grown due to their organic, dairy-free, and plant-based positioning. Although health and wellness is expected to gain importance in confectionery, growth may be challenging for products with this positioning, as they typically come at a premium price point. Higher prices may present difficulties for manufacturers at a time when inflationary pressure is already significant. A key opportunity for manufacturers of chocolate and sugar confectionery in the coming years will be making these low sugar, plant-based offerings more accessible to consumers at different price points.

Establishing a successful online presence will also become increasingly important for confectionery manufacturers. Because e-commerce remains a relatively small distribution channel for chocolate and sugar confectionery and gum, it will be important for companies to invest in growing their online presence to gain share in this channel. Positioning will be one of the most important factors for e-commerce growth in confectionery. Impulse purchases are an important part of sales of confectionery, so manufacturers will need to consider how to recreate these impulse occasions online. Some companies are placing advertisements in popular online games, videos, or at the online checkout when ordering groceries. These tactics could help to move some impulse-driven purchases online.

A promising future for confectionery

In 2022, difficult economic circumstances and inflationary pressures present challenges for manufacturers of chocolate confectionery, sugar confectionery and gum. Prices are expected to rise significantly, and volume growth is set to slow from 2021 as a result. However, there are several key opportunities for growth across these categories, and the future of confectionery continues to look promising.

For further insight and full market statistics, read the report Snacks in the US.

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