Life is sweet

Sales fluctuations and a fractured market are among the challenges faced by confectionery companies in the Middle East.

  • E-Mail
By  Roger Field Published  December 13, 2005

|~||~||~|Executives involved in the Middle East’s confectionery sector have little time to relax. When they are not preparing for peak times in the market, including Eid, back-to-school season, and graduation, they have to keep a careful eye on distribution, ensuring that chocolate products are kept at the right temperate to ensure quality. As channel category sales development champion for Nestle confectionery in the Middle East, Ahmed Ismail knows these challenges well. “It is seasonal,” Ismail told RNME. “For certain products like Quality Street or the praline segment, it goes up mainly in the two Eids, especially after Ramadan. It goes up then due to the season. People buy the products as gifts. There is a new trend where sales go up during the graduation period, in June. “There is a dip in the summer due to the holiday season and of course summer isn’t the best time to eat chocolates in the Gulf. That’s from June until school starts in August.” During the two Eids, sales usually increase by about 15% to 20% for Quality Street and other gift type products, according to Ismail. And in the run-up to both Eids, Nestle runs promotions for Quality Street and other gift-line products. These are usually price cuts, premiums or product free offers, with the type of offer usually depending on what the sales and trade marketing teams decide on. Nestle markets numerous brands in the Middle East, including Quality Street, Aero, After Eight, and Kit Kat. Peak sales times vary between products according to whether they are gift-type items such as Quality Street, or count line, such as Kit Kat. Count line products rely more on spontaneous purchases, according to Ismail. “Count line is different from gifting,” he said. “It tends to be more for personal eating. It’s more about spontaneous snacking.” Even Kit Kat, a count line product that is less prone to sales rises at Eid, also has its peak sales period, in September when school term time starts. And this is certainly something that Nestle is keen to develop, largely through special promotions leading up to, and during that time, according to Ismail. “Even if you look at our competition when you go to the supermarket, you see a lot of back-to-school promotions. That’s on the pack, be it colouring, school bag images, anything that is related to school really. September is the one major season for Kit Kat.” While sales of Nestle’s products vary between different GCC countries, Saudi Arabia is its biggest market overall, while Kuwait is the strongest market for Quality Street. “We have around a 10% market share of the count line segment, which includes Kit-Kat, in Saudi Arabia,” Ismail said. He added that the count line segment is fragmented, with products including Twix, Lion Bar, Mars Bar, Bounty, Snickers, as well as local players such as Gandour vying for position. Confectionery sales also see a modest rise during Christmas and Easter in the UAE, mainly owing to a large expatriate population. But despite this, Nestle does not import Christmas-branded products itself. “You would find a lot in supermarkets like Spinneys, Choitram, and sometimes Carrefour,” Ismail said. “These are usually privately imported whether they are Nestle or other competition. We don’t actually import these products ourselves.” He added that Nestle in the Middle East has done some tailor-made promotions in certain outlets where it considers shoppers’ profiles to be suitable. Competition in the confectionery sector is also fierce, with leading players such as Masterfoods having a strong presence in the region. “We definitely respect our competition, it’s very strong,” Ismail said. “They’re [Masterfoods] very good in their marketing strategies and are number one in a lot of their products.” But it is not only Master Foods that Nestle is competing with in the Middle East. There are also numerous local confectionery producers, and many of these companies, such as Lebanon-based Gandour, are able to undercut the prices of products from Western companies. Despite this, Ismail thinks customers are usually willing to pay more money for a bigger brand. “At times, price plays a role but the shoppers are willing to pay a premium price if they know that this product has Swiss quality, even if it’s not made in Switzerland but they know it is made by a Swiss company,” Ismail said. He added that the main strategy amid tough competition is to keep consumers interested in products with promotions such as limited editions, special offers and competitions. “Any confectionery, it’s all about innovation. If you want to be ahead of the game, you have to keep the market place exciting for the shoppers to come and pick your product out, ” Ismail said. “But you have to do it first, because once you do it, everybody else will copy you.” Positioning of confectionery within shops is also important, with key space such as checkout stands particularly effective at selling many products. “You need to be on checkouts, because 70% of confectionery sales are impulse purchases,” Ismail said. “You really need to be in the hotspots in the retail outlets - that’s the name of the game. It’s a lot about the displays.” And this is likely to be important for confectionery companies looking to target Saudi Arabian markets in the next few years. Indeed, big retailers such as Carrefour are opening outlets rapidly in the country, and confectionery sales look set to increase significantly. “There are a lot of new retailers coming in such as Carrefour and that gives an opportunity for the multinational products to be even stronger,” Ismail said. But while Saudi Arabia appears to be a potentially lucrative market, some confectionery manufacturers are concentrating their efforts on more developed countries. For example, Tamer Shabana, corporate affairs manager for Kraft in the Middle East, said that Kuwait and the UAE are the strongest markets for its products, which in the Middle East include Toblerone, Dime, and Milka. “In terms of confectionery, Kuwait and UAE are really the best markets,” Shabana said. “These [Toblerone, Dime and Milka] are high profile brands so they are a little bit more expensive than the mainstream ones. This is more or less the spending habit behind confectionery as an indulgence product.” He added that Saudi Arabia is quite strong for Toblerone and Milka, but Dime has little presence in the country. “The Middle East is a very competitive market and we were a late entrant,” Shabana said. He added that the products were already present in the Middle East when Kraft acquired them, but they did not always have the marketing investment they needed. “The products have been here for some time, but it’s just the investment behind pushing them. We are looking to improve the market share.” And Kraft is also attempting to achieve this through promotions, such as multi-buys and price offers, aimed at the peak sales times of Eid, and back to school. “In terms of advertising, we stay mainly with print media and a bit of radio,” Shabana said. “We don’t do any TV advertising for these brands.” But Kraft also has good reason to be marketing products aimed mainly at special occasions such as Eid, having conducted research on the sector. “The consumer trend is more towards low cost, cheaper brands in the mainstream confectionery, but during special occasions, people then spend a bit more and indulge themselves,” Shabana said. Kraft is also adopting a shrewd policy when it comes to selecting countries to promote its goods in. And while Saudi Arabia is potentially the biggest market in the region, Shabana said Kraft will continue to spend more on promoting its goods in its key markets of Kuwait and the UAE. “In order to push any product in Saudi Arabia, you need to invest a lot in it, for advertising, promotions. Because of the size of the country, you need to spend a lot of money to make it meaningful.” And one reason for the high cost of marketing goods in Saudi Arabia is distribution. “It’s always challenging,” Shabana said. “In the UAE distribution is quite advanced now, but in Saudi Arabia, you have to go through wholesalers and the smaller shops. This is the main challenge because you can’t take confectionery everywhere in this climate.” Another challenge in many parts of the Middle East lies in consumer perceptions of chocolate. “In Europe, chocolate is about indulgence,” Shabana said. “It’s about satisfying personal needs and aspirations. Here chocolate is often perceived as being for kids, so it limits how consumers view the product itself.” But he added that this is likely to change with consumers in much of the Middle East opening up to more Western ideas. And with these changes taking place, Shabana thinks the sector might grow by about 15% to 20% in the next ten years. Despite this, Kraft has no immediate plans for introducing new chocolate lines. The company’s strategy is to continue importing quality products from Europe. For Kraft, biscuit sales are stronger than chocolate products in the Middle East, and this is also another area the company will focus more efforts on. Many distributors in the UAE are also concerned about the potential abolition of the agency law. Such a move would allow any company to start importing branded goods, and many people in the FMCG sector are concerned about whether new distributors will ensure cold chains are maintained properly. Furthermore, an influx of branded products that have been degraded through poor storage could also hurt brand value, according to some industry analysts. Shabana agrees there could be some problems. “It is a risk, and one that needs to be carefully addressed. This is the disadvantage of [removing] the agency law. When it goes, anybody can bring in anything from anywhere. It is quite risky in terms of the product safety side. That’s crucial, especially in confectionery. It’s a volatile product and if it’s not handled with care, it could end up causing lots of problems.” But overall, Shabana thinks a repeal of the agency will have little impact, with most retailers likely to remain with their current distributors. “It’s going to be very interesting. I would say it’s good and bad. It’s good because the multinational companies will have a freer hand to choose the best distributor they can get. “About 80% of them will stick to their existing distributors. They have been dealing with each other for many years, both parties have invested a lot in these brands and some companies are happy with their existing distributor, so they will probably stick with them.” ||**||

Add a Comment

Your display name This field is mandatory

Your e-mail address This field is mandatory (Your e-mail address won't be published)

Security code