THE CHOCOLATE INDUSTRY - courses.cit.cornell.edu | … presentations... · AEM 4550 FINAL PROJECT...

THE CHOCOLATE INDUSTRYDaniel Abaraoha, Angel Ding, Kupono Liu, Madeleine Roglich

AEM 4550 FINAL PROJECT

AGENDA

INTRODUCTION & HISTORY

Setting the scene for

the chocolate industry

INDUSTRY

STRUCTURE

Understanding the

market & players

ADVERTISING

STRATEGIESUsing advertising to

engage consumers

CASE STUDY

ANALYSISExamining premium

vs. low-range

FINAL

TAKEAWAYSEstablishing

recommendations


WHY CHOCOLATE?Understanding the economics of our sweet tooths

Constantly changing with health conscious

trends defining demand and market reactions.

Flavors for everyone from dark to white chocolate, pure to filled, fruity to nutty, and more.

Found everywhere from grocery store aisles to boutiques, on every holiday from Valentine’s Day to Easter to Halloween.

DAILY PREVALENCE

COMPETITIVE INDUSTRY

CHANGING PREFERENCES

VARIETY & INNOVATION

Defined by an oligopoly, constant consolidation, and

competition for differentiation.

INTRODUCTION


HISTORY OF THE US CHOCOLATE INDUSTRY

Hershey Foods starts to produce

chocolate

1894

Milton Hershey’s fascination with chocolate begins

1893 1904

Hershey begins manufacturing

Hershey chocolate bars

1922

Mars, Inc. is founded

1923

Mars creates Milky Way

1930

Mars launches Snickers

Mars launches 3 Musketeers

1932

1945

Mars launches M&MS to the

public

1925

Lindt & Sprüngli (USA)

is founded

Setting the scene for modern success

INTRODUCTION


INDUSTRY PRODUCT MIX

44%

39.0%

8.7%

2.4%6.4%

Plain Chocolate Bars

Chocolate molded with

candy, fruit, nut or granola

Chocolate Coating

Cocoa Butter, Liquor, and

syrup

Cocoa powder

Source: Ibisworld

Breaking down the chocolate categories

INDUSTRY STRUCTURE


DEFINING THE SUPPLY CHAINDescribing production from bean to bar

INDUSTRY STRUCTURE


PLAYERS IN THE SUPPLY CHAIN

43.6%

32.3%

13.3%

1.0%

9.9%ConfectionaryWholesalers

Supermarkets, GroceryStores, ConvenienceStores

Specialty Retailers

Direct to Consumers

Exports

Source: Ibisworld

Defining suppliers and buyers who shape the value chain

1 Dairy Product Production (Milk and cream)

3Margarine & Cooking Oil Processing (Fats

and Oils)

5Syrup & Flavoring Production (Syrup &

Flavors)

Fruit & Nut Growers (Fruit & Nut Toppings and

Fillings)2

4 Sugarcane Harvesting (Sugar)

6Cocoa Bean Growers (West Africa and Latin

America)

Suppliers in the Chocolate Industry Buyers in the Chocolate Industry

INDUSTRY STRUCTURE


0

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22

Ce

nts

pe

r p

ou

nd

(lb

)

Year

World Prices of Sugar (1988 to 2022)

EXTERNAL SUPPLY DRIVERS

Source: Ibisworld

Determining market supply influences

INDUSTRY STRUCTURE

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0.50

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20

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$ p

er

kilo

gram

(kg

)

Year

World Cocoa Prices (1988 to 2022)


EXTERNAL DEMAND DRIVERS

0

20

40

60

80

100

120

140

160

180

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16A

mo

un

t C

on

sum

ed

pe

r U

S P

ers

on

(Lb

s/P

ers

on

)

Years

US Per Capita Sugar and Sweetener Consumption

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

19

81

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20

15

% C

han

ge in

Re

al U

S D

isp

osa

ble

Inco

me

Years

Annual % Change in Real US Disposable Income

Source: Ibisworld

Determining market demand influences

INDUSTRY STRUCTURE


INDUSTRY COMPETITION PROFILE

19.6%

13.2%

10.6%

8.4%

48.2%

CHOCOLATE INDUSTRY

MARKET SHARE

Hershey

Mars

Nestle

Lindt &Sprungli

Other

Source: Ibisworld

Breaking down the chocolate oligopoly

3,463

745

52%

FAST FACTS

HERFINDAHL

HIRSCHMANN

INDEX OF

CHOCOLATE

PRODUCERS

IN US

INDUSTRY

CONCENTRATION

RATIO

INDUSTRY STRUCTURE


COMPETITION DRIVERS & BARRIERSAnalyzing sources of competition

Brand Equity

Product Quality

INTERNAL COMPETITION

Candy Production Industry

Cookie Manufacturing

Industry

EXTERNAL COMPETITION BARRIERS TO ENTRY

Healthy and quality

ingredients are growing

threats

Cheaper input costs and

greater variety create

competition externally

Medium barriers to entry but

difficult to gain market share

from incumbents

Product Innovation

Price

Distribution Network

Non-chocolate

Manufacturing Industry

Imports of Premium

Chocolate

Large firm market share

Existing brand loyalty

Distribution relationship

Economies of Scale

Medium Capital Intensity

Little technological

change

INDUSTRY STRUCTURE


GOVERNMENT REGULATION

ANTI-TRUST LAWSFDA & FTC

Ex. 2013 Nestle, Hershey, and

Mars

Regulations against price

fixing

Ex. Ingredient lists,

consumption benefits, etc.

Honest Product Labelling

SELF-REGULATION

Ex. Mars doesn’t directly

advertise to children

Marketing Codes of Conduct

Overseeing the market with regulatory limits

INDUSTRY STRUCTURE


OVERVIEW OF KEY PLAYERSUnderstanding the largest companies driving the industry

The Hershey Company

ADVERTISING HIGHLIGHTS:

“Great American Chocolate

Bar” – Hershey’s

“Take a Break” – Kit Kat

AD STRATEGIES

Mars, Incorporated Lindt & Sprüngli

“Hello Happy,

Hello Hershey.” “A Mars a day helps you

work, rest and play.”

“Master Swiss Chocolatier

Since 1845.”


“You’re not you when you’re

hungry” –Snickers

“Left vs Right” – Twix


“Melt into a moment of bliss”

–Lindt

“Indulge in Excellence” -Lindt


HUMOR APPEALS

Message Retention &

Awareness

Positive Mood Creation

Distraction Effects

Analyzing how humor enhances advertising messages

AD STRATEGIES

APPEAL EFFECTS TWIX “LEFT TWIX, RIGHT TWIX” ADS


USING FAME FOR BRAND INFLUENCE

AUDIENCE

TARGETING

CELEBRITY

APPEALSHIGHER AD

AWARENESS

POSITIVE BRAND

ASSOCIATIONS

IMPROVED

MESSAGE RECALL

AD STRATEGIES

“Hello from Home” campaign

for Summer Olympics 2016

ATHLETE APPEALSAPPEAL OUTCOMES

Analyzing how celebrities enhance advertising messages


MEMORY-JAMMING STRATEGYObserving how advertising uses triggers to associate certain experiences to products

RE-ASSOCIATING EXPERIENCES PROMOTING BRAND UNITY

“My Dad” (2016) – associates Hershey’s with father-daughter time Hershey’s Master Brand Strategy Shift

AD STRATEGIES


PERSUASIVE ADVERTISING

AD STRATEGIES

Higher Demand

Higher WTP

Higher Prices

APPEAL EFFECTS

Observing how advertising attempts to address experience attributes to convince consumers


OTHER ADVERTISING STRATEGIES

AD STRATEGIES

Delving into other commonly used strategies

COMMERCIALIZING

HOLIDAYS

STRATEGIC

PACKAGING

Ex. Lindt trying to trademark

the chocolate bunny

Establishing new markets for

chocolate products

Ex. Snickers & word varieties

Reinforces ad message &

brand identity

Ex. Mad Men & Hershey’s

E.T. & Reese’s

Enhances brand recognition

and reach

PRODUCT

PLACEMENT


SEASONALITY OF ADS

0

10

20

30

40

50

60

70

80

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

# o

f A

ds

Months

Determining industry fluctuations in ad targeting on a time basis

Highest spike due to

Halloween

Large fluctuation

during summer

months

KEY TAKEAWAYS

Advertising behavior

did not completely

coincide with

holiday season

AD STRATEGIES


NUMBER OF ADS PER NETWORK

0

20

40

60

80

100

120

140

160

ABC CBS CW FOX NBC

# o

f A

ds

sho

wn

Networks

Largest number of

ads on CW & FOX

Chocolate brands

aiming to target

younger millennial

demographics

KEY TAKEAWAYS

AD STRATEGIES

Understanding how television networks are used to narrow down on key demographics


BRAND AD FREQUENCY BY NETWORK

0

10

20

30

40

50

60

70

80

90

100

Do

ve

Lin

dt

Snic

kers

Twix

Lin

dt

Snic

kers

Twix

Her

shey

s

Kit

Kat

Snic

kers

Twix

Her

shey

s

Kit

Kat

Snic

kers

Twix

Her

shey

s

Kit

Kat

Lin

dt

Snic

kers

Twix

ABC CBS CW FOX NBC

No

. of

Ad

s

Brands

Mars

Hershey

Lindt

AD STRATEGIES

Understanding how brands target key demographics through television networks


AD CREATIVES FREQUENCY

Mars

Hershey

Lindt

0

10

20

30

40

50

60

Children Trickor Treat (Kit

Kat)

The People'sChocolate(Hershey)

At Left Twix(Twix)

GodzillaDestroys CityWhen Hungry

(Snickers)

Finest CocoaBeans (Lindt)

Mastering TheArt Of

Refinement(Lindt)

# o

f A

ds

Creatives (Brand)

Hershey &

Mars have

more

diverse ad

portfolio

More types

than Lindt

for

widespread

appeal

KEY TAKEAWAYS

AD STRATEGIES

Understanding which brands show the most volume and variety of ads


MARS’ KEYWORD SEARCHES

0

100

200

300

400

500

600

700

800

900


No

. of

Sear

che

s

Months

Mars Keyword Searches (2012-2017)

Searches spike in

October, signaling

association with

Halloween

KEY TAKEAWAYS

AD STRATEGIES

Understanding how key consumers search and perceive Mars through the year


LINDT KEYWORD SEARCHES

0

100

200

300

400

500

600

700


# o

f Se

arch

es

Months

Lindt & Sprungli Keyword Searches (2012-2017)

Searches spike in

March for Easter &

December for

holiday season

Established as brand

for higher-end

holidays

KEY TAKEAWAYS

AD STRATEGIES

Understanding how key consumers search and perceive Lindt through the year


HERSHEY’S KEYWORD SEARCHES

0

200

400

600

800

1000

1200

1400

1600

1800

2000


No

. of

Sear

che

s

Months

Hershey's Keyword Searches (2012-2017)

Searches spike in

December for

holiday season

June & July represent

highest searches

from increased

advertising efforts

KEY TAKEAWAYS

AD STRATEGIES

Understanding how key consumers search and perceive Hershey through the year


CASE STUDY: PREMIUM VS. LOW RANGE

SUMMARY OF COMPARISON CRITERIA

1

3

2

CONSUMER TARGET PROFILESSegmenting ideal consumer audiences

based on demand and demographic

profiles

ADVERTISING CONTENTExamining ads for key advertising effects

and strategies that enhance product

differentiation

ADVERTISING STRUCTURESAnalyzing data for advertising channels

and patterns

LOW-RANGEPREMIUM

$0.89 per chocolate bar

Snickers Bars:

Milk chocolate bar packed with

almonds, caramel and nougat

$2.79 per chocolate bar

Lindt Excellence Bars:

Primarily dark chocolate bars, with

add-ins for fruit & nut flavors

CASE STUDY

Analyzing a new dimension to segment the market


LINDT’S TARGET AUDIENCE

WORKING PROFESSIONALSEducated, with moderate to high-paying

occupations.

HEALTH-CONSCIOUS CONSUMERS

Taste preferences for darker chocolate, fruit and natural flavors.

Breaking down Lindt’s sophisticated and educated adult target consumers

MATURE CUSTOMERS

Adults 24 to 54 years of age, on average.

FAMILY-ORIENTED FEMALESWomen who have partners and/or

children to create family units.

ENGAGED INTERNET USERSInterested in lifestyle, DIY, and

entertainment media types

CASE STUDY


SNICKERS’ TARGET AUDIENCE

BLUE COLLAR WORKERS Middle class, average office workers

or laborers.

MILLENIAL CONSUMERSYoung adults aged 16 to 34 years of

age, on average.

Breaking down Snickers’ humorous millennial target consumers

CRAVING DRIVEN CUSTOMER

Sweet tooth inclined snacker who wants substantial hunger relief.

ALL-AMERICAN SINGLE MALES Single men who appreciate tradition

and masculine humor.ENGAGED VIDEO WATCHERS

Interested in popular trends, shows, and funny media forms

CASE STUDY


UNDERSTANDING THE PREMIUM DIFFERENCE

Low Quality Medium QualityADVERTISING CRITERIA

Persuasive Advertising

Informative Effects

Memory-Jamming Effects

Celebrity Appeals

Humor Appeals

High Quality

CASE STUDY


LINDT ADVERTISING METHODSLindt presenting its products as an indulgence

ADVERTISING STRATEGIES

1

3

2

PERSUASIVE ADVERTISINGResonating a “dream” throughout all

ads to address experience attributes.

INFORMATIVE EFFECTSGiving information about cacao

percentages, production processes, &

maker expertise.

PRESTIGE EFFECTSEmphasizing Swiss heritage and Lindt as

a luxury lifestyle choice.

CASE STUDY


SNICKERS ADVERTISING METHODSAnalyzing a Snickers ad for different strategies

CASE STUDY


SNICKERS ADVERTISING METHODS

ADVERTISING STRATEGIES

Snickers using the humor of hunger for mass market appeal

1

3

2

PERSUASIVE ADVERTISINGRelating to a universal truth with hunger

and presenting Snickers as the remedy.

HUMOR APPEALSUsing exaggerated but still relatable

situations from real life to make jokes

about hunger behavior.

CELEBRITY APPEALSShowing distinct celebrity personalities

like Betty White, Robin Williams, etc.

CASE STUDY


SEASONALITY: LINDT VS. SNICKERSUnderstanding advertising patterns in distribution

0

5

10

15

20

25

30

35

40

45


Nu

mb

er

of

Ad

s

Month

Lindt

Snickers

CASE STUDY


LINDT PROGRAM GENRESTaking a look at what types of shows Lindt associates itself with

24%

10%

10%21%

7%

28%

DRAMA/ADVENTURE

MINI-SERIES

NEWS MAGAZINE

POLICE/SUSPENSE/MYSTERY

SITUATION COMEDY

SLICE-OF-LIFE

CASE STUDY


SNICKERS PROGRAM GENRESIdentifying what program types Snickers associates its ads with

30%

21%

20%

11% 7%

4% 3%

2%2%

DRAMA/ADVENTURE

SLICE-OF-LIFE

SITUATION COMEDY

Other

GAME SHOW

AWARD/PAGEANT/PARADE/

CELEBRATION

POLICE/SUSPENSE/MYSTERY

PROFESSIONAL FOOTBALL -

GAME

FEATURE FILM

CASE STUDY


PRICE AND AD FREQUENCYDetermining the relationship between price per ounce and frequency of ads

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

0 50 100 150 200

Pri

ce p

er

ou

nce

($

)

Advertising Frequency

Correlating Price & Ad Frequency Data Points

-0.72 CORRELATION FACTOR

CASE STUDY

Brand Price/oz # Ads

Snickers 0.43 172

Twix 0.50 45

Hersheys 0.57 152

Kit Kat 0.59 54

Dove 0.76 1

Lindt 0.80 29


INDUSTRY ANALYSIS

FINAL TAKEAWAYS

LOW MEDIUMPORTER’S FORCES

Competition

Potential of New Entrants

Power of Suppliers

Power of Consumers

Threat of Substitutes

HIGH

OVERALL ANALYSIS

SNACK

SWEET SNACK

CHOCOLATE

CONSUMPTION PREFERENCES

Reframing the US Chocolate Industry for investment


FUTURE TRENDS – HEALTHY EATING

FINAL TAKEAWAYS

THE RISE OF DARK CHOCOLATE

Revenue

Growth in

2014

8% 93%

Driven by perceived

health benefits

20%

US Chocolate Market

is dark chocolate

Driving the future with healthy consumption trends


FUTURE TRENDS – PREMIUM CHOCOLATE

FINAL TAKEAWAYS

Key Takeaways

1Consumers increasingly

seek premium chocolate

2

Switzerland & Germany

considered most premium

of producers

3

Chocolate imports

expected to increase YOY

by 3.5% until 2021

Shaping the industry externally – premium foreign chocolates & consumer preferences


INVESTOR RECOMMENDATIONS

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

$17.40

$17.50

$17.60

$17.70

$17.80

$17.90

$18.00

$18.10

2017 2018 2019 2020 2021 2022

Gro

wth

(%

)

Rev

en

ue

($

bill

ion

s)

Year

Revenue Outlook, US Chocolate Industry

Revenue $ billion Growth %

FINAL TAKEAWAYS

Remaining hesitant about further investment


ADVERTISER RECOMMENDATIONS

FINAL TAKEAWAYS

Develop stronger company

wide branding

Focused & Global

Approach

Premium Brand

Diversification

Healthier Product

Trends

Achieve more efficiencies of

scale

Ex. Mars could follow a

similar Master Brand strategy

Incorporate more celebrity

endorsements

Enhance prestige effects

Emphasize ethical conduct

& value chain compliance

Advertise healthy

ingredients in products

Emphasize health benefits of

dark chocolate

Use concept marketing to

appeal to healthy lifestyles

Driving the industry to new heights – how companies should be adapting to trends

THANK YOU. QUESTIONS?

THE CHOCOLATE INDUSTRY - courses.cit.cornell.edu | … presentations... · AEM 4550 FINAL PROJECT...

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Transcript of THE CHOCOLATE INDUSTRY - courses.cit.cornell.edu | … presentations... · AEM 4550 FINAL PROJECT...