The Barry Callebaut Group (Callebaut), a leading global manufacturer of high quality chocolates and cocoa products, is optimistic of China and Indonesia markets. The 2 countries, being the largest and 3rd largest consumer markets in Asia, offer Callebaut a huge growth potential in the future.
In China, Callebaut has just celebrated the 10th anniversary of its chocolate factory there. Over the past 3 years, Callebaut experienced double-digit growth in China. In March 2017, Barry Callebaut expanded its Gourmet offerings in China to meet growing demand for chocolate by premium professional users.
Barry Callebaut's Asia Pacific President Ben De Schryver said, “Over the last 10 years, we have played a leading role in helping develop the chocolate market in China. Although chocolate consumption in China is still only about 200g per capita, consumers are becoming more and more sophisticated and educated on all things chocolate. This trend fuels our excitement about the future of chocolate in China which we believe has the potential to become one of the biggest chocolate markets in the world.” At 200g, this is a far cry from per capita consumption in western countries like Switzerland (8.9kg), United States (5.5kg) and France (3.9kg). As such, the growth potential is tremendous as China accelerates into becoming a developed nation.
Unlike in China, Indonesia offers a different type of success trajectory for Callebaut. This is because Indonesia is not only a big fan of chocolates, with a higher per capita consumption of 400g, but also one of the world’s largest producer of cocoa (see Chart 1.0 on Cocoa Industry Capacity). The cocoa industry in Indonesia is growing rapidly from a capacity of just 159,934 tonnes in 2007 to 465,000 tonnes in 2017. This is almost 300% growth within a decade. As such, Indonesia plays a unique role as Callebaut’s success depends pretty much on how Callebaut controls its production costs from the cocoa beans to production and to end-products like chocolate confectionery.
Callebaut’s products are manufactured with raw materials that are subject to strong price fluctuations due to seasonal and climatic conditions, and market speculation. Callebaut relies on the regular supply of cocoa and sugar to develop its products. For instance, the international price of cocoa beans, used in chocolate has been volatile in recent years. Volatility in raw material prices could materially affect the group's profits.
With the importance of production process, Callebaut emphasises on building good relationship with the source, i.e. farmers and suppliers of cocoa and its intermediate products in Indonesia. Earlier this year, Callebaut introduced its first Forever Chocolate pilot program in Indonesia, thereby recognising the importance of Indonesia market for Callebaut. This program aims to improve cocoa farming in the cocoa growing regions. Barry Callebaut has designed the pilot programs to test the theories of change to improve sustainable cocoa production. It has also collaborated with the Wageningen University and Research in this endeavour, as Callebaut aims to increase the incomes of cocoa farmers, eradicate child labour and transform cocoa farming into a carbon-positive industry. Callebaut will launch other pilot programs, after Indonesia, in other cocoa-growing countries in Africa and Brazil.
In general, Callebaut strengths lie in its strong manufacturing abilities and focus on R&D done at its Innovation Centres and Applied R&D units located all around the world. The R&D teams has expertise in structuring, sensory, sugar reduction, and cocoa science. In 2017, the Group invested CHF 22.4 million (US$23.5 million) on R&D, almost 10% more than 2016. Callebaut also has 55 production facilities in EMEA (21), Asia Pacific (6), the Americas (13), and Global Cocoa Region (15). In Asia, Callebaut had also invested substantially to expand its production capacity. For example, in late-2016 Callebaut unveiled plan to expand its chocolate manufacturing facility in Singapore and around the same period, it also entered into a partnership agreement with GarudaFood Group to open its first chocolate factory in Indonesia.
Barry Callebaut Group reported strong financial performance over the past 4 years. In 2017, it reported sales revenue of CHF 6.81 billion (US$7.13 billion), a 1.92% growth from the previous year. Despite the strong growth projection, Callebaut does have its own challenges.
In recent years, the company also faced several product recalls which might affect Callebaut’s brand equity. For example, in May 2016, the company recalled a dark chocolate product for exceeding EU BaP (Benzo(a)pyrene) and PAH (Polycyclic Aromatic Hydrocarbons) limits. The product was made for Chocolaterie de L’Opera. Apart from this, Callebaut also faced challenges from growing counterfeit goods, and rising competition from manufacturers both from global and domestic markets.
Despite the growth potential of China and Indonesia markets, Europe still offers the most stable growth for Callebaut. Demand for convenience snacks is driving the market for confectionery industry in Europe. In addition, growing trends in favor of low-fat and low-calorie products by health-conscious consumers are fueling the demand for sugar-free chocolates and non-chocolate confections. According to an in-house research report, the confectionery market in Europe was US$59.22 billion in 2016 and is expected to grow at a CAGR of 3.6% during 2016-2021 to reach US$70.79 billion in 2021.
This growing trend in Europe will probably take some time before it makes its impact into these 2 huge consumer markets in Asia. Till then, Callebaut still has a lot of work to finish !