Emerging markets drive growth for malt and chocolate drinks

Related tags United states Consumer Developed country Euromonitor

Malt- and chocolate-based drinks are often seen as relatively
unsophisticated in developed markets in the west, but in many
countries, in particular in Latin America, they are big business
indeed, marketed mostly as an excellent source of nutrition in
countries where food quality is often poor. But improving sales in
other countries will depend on finding a premium positioning.

Global retail volume sales of both malted and chocolate-based hot drinks reached 956,702 tonnes in 2003, according to a recent report from market analysts Euromonitor​, with Latin America alone accounting for over one third of total sales.

Indeed, Latin America accounts for two of the top three markets for chocolate-based drinks (Brazil and Mexico, the third being Spain), and manufacturers are increasingly focusing their marketing efforts on young people in these countries, according to the report.

This goes hand-in-hand with the widespread introduction of value-added products in these markets. In recent years, for example, the Mexican market saw the launch of a number of chocolate-based powders in new packaging, formats and formulas - often with new flavours. These products generally targeted consumers prepared to pay a premium, though some were aimed at low-income segments of the population, according to Euromonitor.

Brazilian manufacturers also met consumer demand by offering premium chocolate-based products, helped by the fact that Brazilian consumers are more aware of health issues than many of their Latin American counterparts. Brazilian consumers often upgrade by purchasing healthier chocolate-based products such as low-calorie and diabetic-friendly alternatives, Euromonitor said, highlighting the 2003 launch of Toddy Light by PepsiCo as an example of this trend.

Malt drinks, meanwhile, are most popular in India, which accounts for 22 per cent of the world's retail volume sales. They are traditionally consumed as milk substitutes there and marketed as a nutritious drink, mainly consumed by the old, the young and the sick. Sales have also been aided by improved retail and distribution in recent years, combined with a large child and youth consumer base, the report said.

India also recorded the highest growth (53 per cent in US$ terms) between 1998-2003, again spurred by consumers trading up to value-added products. In 2003, for example, GlaxoSmithKline relaunched Horlicks for Kids, specifically targeted at young children, as well as launching Horlicks in three new flavours.

With its Horlicks brand (often seen as an old-fashioned drink in its home market in the UK) GlaxoSmithKline in fact accounts for 70 per cent of malt-based hot drinks, with India alone contributing nearly 60 per cent of the company's global sales of the product. Other major players include Cadbury Schweppes and Nestlé.

But if developing nations have a growing taste for malt- and chocolate-based drinks, other more sophisticated markets have yet to catch on. Indeed, the report shows that the performance of malt- and chocolate-based drinks in mature western markets was characterised by of stagnation and decline between 1998-2003.

The US, for example, has seen a sharp decline in value sales of both malt- and chocolate-based drinks over the past few years, mainly as these products largely remained outside the overarching consumer trend for premium and healthy products. In fact, malt-based drinks have an almost negligible presence in the US, with manufacturers largely failing to attract the important child and youth consumer groups - a category more interested in soft drinks.

The performance of malt- and chocolate-based drinks in western Europe was more positive than that of the US, but nonetheless there was little in the way of growth between 1998-2003. A relative lack of innovation and marketing activities, allied to demographic factors such as falling birth rates, saw important western European markets such as Germany record modest growth, according to Euromonitor.

The warmer winters experienced in western Europe in recent years also contributed to the lower demand for chocolate- and malt based drinks. The UK experienced sharp decline of 13 per cent in retail volume terms in malt-based drinks and only moderate growth in chocolate drinks between 1998-2003.

Looking forward, the emerging markets will, not surprisingly, continue to provide the best opportunities for growth in this category, Euromonitor suggests. Market such as Indonesia and Mexico are expected to see strong growth in both malt- and chocolate-based drinks by 2008, with large youth populations and a rising number of middle class consumers as the key driving factors.

Among major markets, China is forecast to be the fastest growing market in both chocolate-based (up 35 per cent by value) and malt-based (up 29 per cent by value) up to 2008. China's booming economy along with rising levels of disposable income and increased availability of quality products will encourage further consumption, the analysts predict. Following China's accession to WTO, multinationals are also expected to penetrate the country further, driving up demand and in turn prompting more local manufacturers to get involved in production.

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