You might have noticed that chocolate bars don’t seem as satisfying as they used to. That’s because they’re shrinking before our eyes.
A Mars bar now weighs in at 51g compared to 62.5g a few years back, Cadbury recently rounded off the corners of its Dairy Milk bar dropping the size from 49g top 45g as it did so, and Nestle have even knocked a triangle off its Toblerone.
When questioned, Mars said these changes are what consumers want. A spokesman told The Grocer:
“As part of our global commitment to promote responsible consumption, and as a signatory of the Responsibility Deal’s calorie reduction pledge, we said we would ensure that all our single-serve chocolate products would contain no more than 250 calories per portion.”
But does this tell the whole story? Is there something more driving these size reductions?
PESTLE is a simple framework to help understand the influences on commercial markets and we’ll use it here as we look at the different factors that are affecting the market for Cocoa. PESTLE stands for: P for Political, E for Economic, S for Social, T for Technological, L for Legal and E for Environmental.
Mars’ rationalisation for reducing the size of their chocolate bars falls firmly under the ‘S’ aspect of PESTLE – social pressures for a healthier lifestyle mean that high calorie chocolate bars aren’t as socially acceptable and shrinking their size is simply good corporate citizenship. Exploring other factors however provides further insight.
Huge and growing demand
The big problem is people love chocolate. The global demand for chocolate is a massive 18,000 tonnes per day, which makes over 40 million bars. This demand has increased by 80% since 2008 and this trend shows little sign of reversing. Greater disposable incomes in developing countries, such as Brazil, the Russian Federation, India and China (BRIC countries) means their chocolate consumption continues to grow, whilst new entrants such as Iran and Kazakhstan now buy and consume vast quantities of chocolate.
Ghana, West Africa, is the primary source of cocoa globally. With 700,000 farmers producing the crop, Porter’s 5 forces would suggest the competitive intensity to be fierce. This, combined with high levels of demand for the crop, should mean that the power is on the supply side of the model with buyers paying a premium.
But, here the ‘P’ element of PESTLE comes into play. In an attempt to insulate the farmers from the fluctuations of the global market, the Ghanaian government has fixed the price paid to the farmers for their crop. As a result, many are abandoning cocoa production as the crops is simply not profitable. Instead, they’re moving into rubber and other crops (an easy switch for them, as it means simply planting a different crop that doesn’t carry the same market restrictions).
The region’s weather is also highly volatile, and here the ‘E’ of PESTLE comes into affect: the environment exacerbating the supply side of the equation, with poor weather conditions reducing yields. All of these elements have a negative impact on buyer power: it’s easy to switch crops; no power over producers; fluctuation yields; but, in the buyers’ favour, the prices are at least fixed.
Add to this model, another dynamic in the form of Futures Markets. Trading in Cocoa is big business and, with Hedge funds and Global Banking thriving on volatility, major swings, both high and low, have been experienced in the last 10 years (hence Governments intervention in many countries to fix prices to the grower). In a perfect market, given rising demand year-on-year, these fluctuations are contrary to what you’d expect in a competitive market, creating additional complexity for the buyer. To counter these extreme swings, an intervention from the EU (P and E of PESTLE) is anticipated in the future that aims to introduce stability.
Suppliers seek to move down the supply chain
In the face of this complex market environment, many manufacturers are seeking stability and integrating further down the supply chain – building relationships with the growers and investing at the point of production. FairTrade co-operatives circumvent the government price controls and mean that suppliers can guarantee product.
This however comes at a higher price – driving the reductions in the size of the chocolate in our shopping baskets as suppliers strive to maintain acceptable retail prices.
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