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The bunny brings turbulence

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The Association of Hungarian Confectionery Manufacturers timed its pre-Easter roundtable discussion to coincide with the spring equinox – but the situation in the confectionery market is far from so balanced.

Last year’s inflation bite also left a deep mark on the confectionery market. While the soaring prices pushed the market size in excess of HUF 381 billion with an annual growth of 23 percent, consumption in terms of tonnes declined significantly in almost all product categories, said Sándor Sánta, president of the Association of Hungarian Confectionery Manufacturers. Last year, a total of 109,000 tonnes of sweets were purchased, 5.8 percent less than the year before, but the decline was significantly higher in almost all product segments, with ice creams and sponge cakes, for example, falling by over 8 percent. At the other end of the scale, chocolate bars and chocolate snack bars fell by 1.3 and 0.3 per cent respectively, thus the latest figures again show that chocolate is the hardest to give up for consumers.

At the same time, 2023 was the first year in which Easter sales fell in all product categories without exception, albeit by widely varying degrees, from 1 to 18 percent. A total of 1,000 tonnes of Easter bunnies and eggs, i.e. hollow chocolate figures, were purchased at a value of HUF 10 billion, 5.6 percent less than the year before.

Weather phenomena stir up cocoa

In addition to domestic inflation, global economic, social and environmental factors have also contributed and will continue to have a major impact in the period ahead. Cocoa, sugar and cereals are among the most important raw materials in the confectionery industry, and their quality and careful processing are crucial to the texture and taste of the products – but their producers face severe challenges.

The three largest producers of cocoa beans are Côte d’Ivoire, Ghana and Indonesia, while the largest supplier of premium cocoa is Ecuador. The crop’s environmental requirements mean that production areas are geographically limited and the market is highly concentrated on the supply side, with the two African countries accounting for nearly 60 percent of global cocoa supply. However, the cocoa fields in Côte d’Ivoire are drying out due to warmer and drier than average weather and the passage of the Harmattan trade winds through the country. Thus the African country has been able to release nearly 40 per cent less cocoa beans than the average yield to the global market, leading to a price explosion – the commodity price of cocoa beans per tonne has risen by 400 per cent in a year, scaling to USD 7,000 in January this year.

The Association of Chocolate, Biscuit and Confectionery Industries of Europe (CAOBISCO) reports that world cocoa bean producers have been unable to meet demand for the past five years and that, unfortunately, the shortage is expected to grow even more in the coming years. In addition to climate change, El Nino and other weather events, as well as pest infestations, the situation is exacerbated by the fact that small farmers in Africa are working inefficiently on fragmented land, in plantations that are suffering from youth exodus, and are therefore achieving lower yields. At the same time, in Asia in particular, a growing middle class with greater purchasing power is demanding sweets, further widening the abyss between supply and demand and threatening to make cocoa even more expensive.

Manufacturers are looking for a way out through innovation

Brazil is the largest producer of sugar, another important raw material, and the European Union accounts for 20 percent of world production. CAOBISCO forecasts that global sugar production in the 2023/24 season could reach 178.4 million tonnes, close to the record production of 180 million tonnes two seasons ago. However, as the world population continues to grow, so does sugar consumption, which could push sugar prices up despite a good harvest.

In the EU, for example, which can produce only 50 percent of its own sugar from sugar beets- the other half from cane and beet sugar imports – the price of white sugar per tonne has risen by 80 percent in the course of just a few months. Much higher sugar prices than in other parts of the world reduce the competitiveness of the high value-added products of local confectioners, increase inflation and have a negative impact on the EU’s economy and trade balance.

The domestic confectionery and sugar industry therefore recommends to the forthcoming Hungarian EU Presidency the initiative of European sugar recultivation, the development of sugar beet cultivation and the sugar industry, and the liberalisation of sugar imports to ensure a smooth supply of sugar for food production.

Beáta Olga Felkai, Deputy State Secretary of the Ministry of Agriculture, also provided an overview of the agricultural priorities of the Hungarian EU Presidency and the expected support at the roundtable discussion. Among the key challenges facing the sector, the Deputy State Secretary also highlighted the need to ensure adequate supply of raw materials, as well as to increase competitiveness with the necessary digitalisation and modernisation, as well as the need to to increase energy efficiency and achieve sustainability goals.

The Ministry of Agriculture will help the industry respond with new grants under the KAP Strategic Plan, which will be open for biweekly applications in June and November 2024. Among other things, the scheme will provide opportunities for the development of other types of value-added farms for agricultural products and for the purchase of renewable energy equipment, including a power plant, with a production capacity that exceeds the energy needs of the place of consumption.

In addition to further improving their energy efficiency and productivity, confectionery manufacturers are also innovating in response to market challenges and other trends, said Sándor Sánta. While they are not changing the tried and tested recipes of their most popular products, the examples of Mars, Hershey and Nestlé show that manufacturers are reducing the weight of some of their products by bubbling, making them partially coated instead of fully coated, and replacing cocoa butter with peanut butter or palm oil. The use of whole grains and natural flavourings and colourings is also increasing, with the global market for the latter set to exceed USD 14 billion by 2028.

However, it would be difficult to predict how retail sales of sweets will unfold this Easter or especially during the much more significant Christmas season domestically. As Ferenc Németh, commercial director of Tutti Food Ltd. pointed out, the impact of the commodity exchange on consumer prices is reflected with a time lag. In order to ensure an uninterrupted supply of raw materials, manufacturers purchase the necessary quantities for a longer period, up to six months in advance, so that for this year’s chocolate Santas they will use the cocoa they bought at the current inflated price.

About the Association of Hungarian Confectionery Manufacturers

Founded in 1992, with 24 current members, the Association of Hungarian Confectionery Manufacturers (MÉSZ) is the ambassador of the producers of quality confectionery to be consumed with pleasure and moderation. The Association engages in dialogue with the public and decision-makers and represents the interests of the sector in Hungary and in the Union. Its aim is to create a supportive and competitive environment for the Hungarian confectionery industry. It stands for fair taxation, correct regulation, skilled workforce and high quality education. Website: https://www.hunbisco.hu/

For further information please contact:

Gábor Intődy
Association of Hungarian Confectionery Manufacturers
sec.gen@hunbisco.hu
+36 70 359 6989

About Wafers and Neapolitaners

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When biting into the cone while having an ice cream hardly anyone thinks of a sacrifice, even though the name of the wafer originates from the Latin word hostia, and the product itself is a religious ritual that has found its way onto the plates of those with a sweet tooth. It is also a little-known fact that the Neapolitan wafer made from wafer sheets did not originate in the eponymous Italian city, but was the brainchild of a Viennese pastry chef – and the clues in this story also lead back to the ancient Greeks.

Easy to eat on the go, wafers and Neapolitan wafers are a summer favourite for snacking in the warm weather. Popular for their typically lower sugar and energy content, affordable prices and wide range of products, the market – which is far from free of challenges these days – is set for promising growth, said Sándor Sánta, president of the Association of Hungarian Confectionery Manufacturers, at the organisation’s seasonal roundtable discussion, which, in addition to reviewing trends, also gave a taste of the latest innovations from domestic and international players.

Europe and North America account for the largest share of wafer and biscuit sales, with the two regions accounting for around three quarters of the total global market of USD 100.92 billion in 2021, according to Maximize Market Research’s report (Wafer Biscuits Market – Industry Analysis and Forecast, 2022-2029). According to the analysis, the market size of the product category will grow at an average annual rate of 2.9 percent until 2029, reaching USD 126.85 billion by the end of the decade.

A big slice of the market

In the domestic market, the HUF 55 billion segment of wafers and biscuits accounts for almost a quarter of the market, it is the second largest after ice cream segment with a share of HUF 56.5 billion, said Sándor Sánta in his opening presentation. The secret of success lies in mixing tradition and innovation. Producers of wafers and Neapolitan slices are constantly developing their range, while maintaining the original basics, so they can always adapt to changing consumer tastes and preferences.

While the popularity of the great classics, cocoa-hazelnut Neapolitan wafers, traditional cones and wafer sticks is undiminished, the increasing health-consciousness and gourmet taste of consumers is also reflected in the growing number of products made from wholemeal flours and alternative ingredients, vegan and gluten-free versions, bite-size packaged slices, and the growing sales of products with premium ingredients such as extra chocolate, pecans, lyophilised fruit and special flavour combinations.

At the same time, our industry faces challenges such as the extent of the EPR levy, which enforces extended producer responsibility, the administrative burden of the public health product tax, NETA, and the accumulation of the tax in certain product sectors. Our sector is also plagued by a general shortage of skilled workers, difficulty in recruiting as well as SME financing, non-payment of tenders, while we are seeing a decline in retail sales approaching 13 per cent, down by more than 10 per cent, the President said.

Although consumption may continue to decline in the second half of the year, the Association of Hungarian Confectionery Manufacturers hopes that the negative trend will eventually halt. Having made its opinion known, the organisation hopes to eliminate the NETA accumulation and reduce the EPR fee, and trusts in further rationalisation and reduction of the administrative burden. This, alongside the stabilising prices of raw materials and energy, would be necessary to increase the competitiveness of domestic confectionery producers and to continue the development and innovation that characterise the sector even in difficult circumstances.

Wafer sheets filled with innovation

Even in ancient times, the Greeks made flat biscuits (obelios) from flour and water, baked between two metal sheets over an open fire. Their recipe and method, which was known throughout Europe in the Middle Ages, was developed further by Belgian, French and Dutch confectioners. In addition to the wafers made for religious services, waffles with a higher moisture content and a softer, deep lattice texture also appeared. The leftover edges of the wafers after they were cut to size, were eaten by altar boys sweetened with chocolate or caramel. This may have inspired Oscar Pischinger of Vienna to create the wafer cake named after him in the 1880s, which is still a popular dessert in Central Europe, the Hungarian Museum of Trade and Hospitality pointed out in its historical overview.

Although sweet wafers appeared in the Italian provinces in the early Middle Ages (pizelle), contrary to popular belief, the Neapolitan wafer is not an Italian invention. Its origins can be traced back to Austrian confectioner Josef Manner (1865-1947), who used high quality Italian hazelnuts in the filling of the wafer slice that bears his name, and made a special point of highlighting this to promote the new sweets. The official godfather, however, became the German confectionery company Bahlsen, which in 1940 named its hazelnut-flavoured wafer biscuit Napolitaner in honour of its Neapolitan origins.

The innovation of the wafer, which spans centuries and even millennia, is still going strong today, as illustrated by the presentations of the three guests at the roundtable.

If the name Bakery World Hungary does not ring a bell for many people, its products reach a wider range of consumers, as the company serves its customers with its own-brand ice cream wafers, natural, dipped and filled wafer sticks, Belgian waffles and, as a novelty, caramel and speculoos biscuits, said Márton Sárközi, Managing Director. The direction of development in this palette is shown by the emphasis on quality chocolate coatings, the bite-sized packaging of biscuits and the renaissance of “Utas Ellátó” (Passenger Supply) confectionery combining tradition with innovation.

Urban Édesipari Kft. has grown from a family business to a major market player in 42 years, continuously investing in the development of production technology. Its two production halls produce 3,000 kilograms of Neapolitan wafers per hour, in addition to Christmas honey cakes and tea cakes, and its machinery lines are capable of producing pillow-bag and bucket packaging, stand-up pouch, slice and block packaging, as well as handling different cream fillings and wafer thicknesses within a product. This year, the company will also start production in its third hall, and after packaging premium products, it will also renew its bucket product labels under a unified company logo. The company, which also takes care to protect the environment, with measures such as waste heat recovery, on-site wastewater treatment and the reduction of packaging materials, aims to be at the forefront of the market at a regional level within five years, said Viktória Hullmann, Commercial Director.

Mondelez Hungária Kft. is the market leader in both the chocolate bar and chocolate and other bars sub-segments, with a respective 33% and 40% market share, while in the wafer bars sub-segment it is the third with a 23% market share, said Krisztina Nagyidai, Brand Manager of the Hungarian subsidiary. The supplier, which offers popular international and domestic brands, focuses on both healthy snacking and sustainable cultivation and production, and is responding to consumer demand by opening up to white chocolate, coconut, vanilla and caramel flavours in addition to its most popular basic flavours. Another new addition is the soon-to-be renewed packaging of Milka Waffelini products, as well as a ‘new jersey’ for the Sport bar, which celebrates its 70th anniversary this year.

Confectionery manufacturers are optimistic: even in difficult times, we won’t give up on sweets, but you never know

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In times of peace, crisis and war, people have always loved, love, consumed and consume biscuits, chocolate, candies and other delicacies, said Dr Róbert Török, director of the Hungarian Trade and Hospitality Museum, at the traditional pre-Easter round table discussion of the Association of Hungarian Confectionery Manufacturers.

He added that people look for sweets and chocolate even in times of crisis, and manufacturers have always found the right answers for the given circumstances. They substituted raw materials, experimented with alternative delivery routes, and came up with new recipes in order to always be able to produce confectionery and chocolate. This was already the case during the Napoleonic conquests, but also during the crises and major wars of the 20th century.

The Secretary General of the Association of Hungarian Confectionery Manufacturers, Mr Gábor Intődy, reported that the sector has overcome some recent difficult periods. The recession of 2008, the introduction of the public health product tax in 2011, and the pandemic in 2020 significantly reduced the demand for sweets, which stabilized by 2021 with the introduction of the vaccinations. Manufacturers are currently optimistic and do not expect a similar decline. At the moment, we can clearly speak of an increasingly more expensive market. The main reasons are the inflationary environment, raw material prices, energy prices, labour costs, a significant increase in the NETA tax, and the attempts by traders to curb their losses due to their rising expenses, additional taxes and price caps.

According to the Association’s estimate, the increase in the price of chocolates, biscuits, candies and other confectionery products was around 20% in total, while the turnover rose by 20% to around HUF 310 billion, with sales volumes typically stagnating or slightly decreasing. With this, the increase in the price of sweets remained below the average food inflation of around 40%. Even so, there are big differences between the product groups: some have become drastically more expensive and other less so. There was also a winning product category last year: ice cream, where sales increased by around 5%. Meanwhile, the price of ice cream has also risen significantly, due in no small part to hiking energy costs, because ice cream is a very energy-intensive delicacy due to the need for continuous deep cooling.

Hungarians generally do not give up their quality expectations despite the price increase. According to the Association’s survey, 49% of confectionery consumers answered that they do not compromise on quality, but rather buy the given product less often and in smaller quantities. 37% are at times more price sensitive and at times choose quality, and only 14% clearly almost always choose the cheaper product.

Manufacturers emphasize that innovation continues: they strive to make their confectionery products more attractive with new flavours, colours, and packaging. At Easter, the most popular candy is still the chocolate rabbit, followed by the chocolate egg.

The manufacturers are optimistic, they expect that raw material prices will stabilize, energy prices will stagnate, and they hope for further rationalization and administrative simplification in tax matters. According to their forecast, the decline in turnover will not be as significant as in the 2008 recession or the first year of the pandemic, and they do not expect a prolonged crisis. At the same time, referring to the sudden changes and hectic processes of the economic, ecological and social environment, it was noted that with such predictions, hopes and estimations, it should be taken into account that nowadays ‘you never know’.

About the Association of Hungarian Confectionery Manufacturers:

Founded in 1992, the Association of Hungarian Confectionery Manufacturers (MÉSZ) is the ambassador of the producers of quality confectionery to be consumed with pleasure and moderation. The Association engages in dialogue with the public and decision-makers and represents the interests of the sector in Hungary and in the Union. Its aim is to create a supportive and competitive environment for the Hungarian confectionery industry. It stands for fair taxation, correct regulation, skilled workforce and high quality education. Website: https://www.hunbisco.hu/

For further information please contact:

Gábor Intődy 

Association of Hungarian Confectionery Manufacturers

sec.gen@hunbisco.hu

+36 70 359 6989