ANALYSIS OF THE CHOCOLATE MARKET AND INDUSTRY IN MACEDONIA
MARKET HISTORY
Food production is of strategic interest for every country. Therefore the organization of food producers
and advocacy of their interests for the purpose of providing and promoting food production and increasing
competitiveness is of particular importance. Confectionery industry (production of chocolate, candy, cookies,
waffles, cream and chewing gum) is an important part of the food industry with its quantum of production
(industry that finalizes materials such as flour, sugar, vegetable oil, milk, cocoa, and others) employs a
significant number of workers. It is a large consumer of packaging from domestic manufacturers; it uses the
domestic transport services, and plays a significant part in the trade of food products. This industry has a positive
impact on the foreign trade balance of the state, because the value of exports of finished confectionery products
is nearly 10% of the total export of food productsv
.
The available capacity in ex - Yugoslavia amounted to
33,000 tons and were designed and built for the highly protected market of 24 million consumers of the Former
Yugoslavia. With the production of over 24,000 - 28,000 tons annually in 1991, the available capacities were
used on average of 70% annually, and in certain periods of the year to 90% (Christmas and other holidays). In
the period after the ex - Yugoslavia, the unfavorable socio - political events, economic blockades from the north
and south have narrowed the Macedonian market and a permanent decline in production from year to year was
inevitable. In the period from 1992 to 1998 production fell and remained 14,000 -16 000 tones or 45-50% less
compared to 1991, with capacity used maximum to 30-36%. From 1996 the process of liberalization through free
trade agreements began, at first among the countries of Former Yugoslavia, i.e. the region. The new market
relations and the further liberalization took place much faster than the process of advancement and
modernization of the domestic production, which led to a situation where domestic confectionary industry faced
strong competition from foreign companies. The total annual production dropped to 12,500 tons in 2002 despite
the 30 new micro entities in confectionery industry, about 50% less compared to 1991 when it was 24,000 tons
per year. Within the strategy of the EU integration processes in the past ten years, foreign trade moved and still
moves within the creation of a free trade zone in the region and the EU, thus the problem of small markets was
exceeded, and conditions for permanent growth of production in this area were created.
MARKET CHARACTERISTICS
The market is defined in different ways. One of the most commonly cited definitions explains the market
as "Full respect of the supply and demand that at a certain place and at a certain time affect sales of certain
products (goods) and the sum of all institutions, areas and devices that provide an organized and permanent
contact between buyers and vendors (Dragičevič, 1965). The chocolate market can be analyzed through its basic
characteristics: market size, market structure (products/production, players, financial dimension), market
division. The chocolate market is a mature, differentiated and exacting market, which makes distinguishing
yourself a challenge to marketers of chocolate products.
Regarding the market size, the chocolate market is primarily divided according to the geographical place
where the companies perform to domestic (small) and foreign (large) market, and within the domestic market
they choose only the larger urban areas for the sale of their products. The most significant foreign markets for
the domestic producers are the regional countries (Serbia, Montenegro, Bosnia and Herzegovina), and in last few
years the EU market (Austria, Slovenia, Slovakia, etc.) and the U.S. and Australiavi
. From the financial aspect,
the export of confectionary products in 2009 made $ 27.4 million, which is 21% more than the financial
exchange inflow in 2008vii
. On the side of imports, in 2010 about 17,000 tons of confectionary products were
imported, worth around U.S. $ 25.2 million.
Market size is also determined by the upper limit of the annual
market demand, which is shown through the size of the imports of approximately 17,000 tons of confectionary
products and the domestic production of 8000 tons destined for the domestic market. In total, the annual
consumption of confectionery products in the Macedonian market is about 25,000 tons. With the open markets
through free trade agreements and over 500 million people, there is a high potential for market development and
promotion, or for new investments in this business in Macedonia.
In relation with the market structure, on the side of the supply there are 50 business entities, from which
85% are micro and small companies. There is also a significant production from entities registered as craftsmen
that produce mostly bakery products and homemade sweets. The demand is constructed from the total population
in the country on one side, as well as the wholesalers and retailers on the other. The production capacity of the
domestic confectionery industry is around 45,000 (within the projected time to work on capacity) tons annually,
16 000 tons of which are accounted for the largest domestic manufacturers - JSC "Europe" - Skopje and JSC
"Vitaminka" -
Prilep, which are considered to be the strongest direct domestic competitors. Lately, under the
pressure from foreign competition that enters the market with well- known and established brands, the placement
of domestic products on the domestic chocolate market is visibly reduced. The increase in export is seen as a
way out, of course with constantly decreasing profitability per unit. Namely, the export in 2007 was higher for
33% than in 2006, but in 2008, only 11,5% higher than in 2008. The production in 2009 reached 22,000 tons,
(the level of 1991), with available capacity used on the level of over 55%. In addition, the total production in
2009 compared to 2008 was higher by 32%, where separately by products the highest growth was in products
containing cocoa (6.5 times), sweet biscuits 119% waffles 126% etc. As compared to 1998, when the enhanced
liberalization of the market started, production in 2009 was higher by 73%.
Table 3. Export - Import of Confectionery products (in tons)
Due to the global recession and decline in consumer spending, most ranges in chocolate confectionery
experienced negative growth. However, due to the stable performance of tablets, which is also the largest range
within chocolate confectionery, the entire sector was able to achieve positive growth in retail value and volume
terms. Apart from tablets, other ranges able to achieve positive growth in 2010 were bagged selflines/softlines
and seasonal chocolate. Kraft Foods, and its staple brand Milka, led sales in Macedonia with a market share of
16% in 2009. Nestlé assumed second position with 15%, while Kraskomerc, with its tablet chocolate brand
Dorina, held third place on 14%viii. These companies have a rich tradition on the Macedonian market, especially
Kraskomerc, which had been the leading chocolate retailer in Macedonia during the Yugoslavia era. Milka has
the widest product and brand presence in Macedonia, the largest brand portfolio and benefits from the most
aggressive promotional campaigns. As a result of the global recession, also the impulse and indulgence products
sector experienced another year of relatively low growth. However, compared to 2009, when the sector and
consumer spending were particularly badly affected by the recession, the growth rate in 2010 was still higher.
Kraskomerc Ltd led sales in 2009 with a market share of 10%, Kraft Foods followed in second place on 7%,
with Vitaminka in third with a 6% shareix. Kraskomerc and Vitaminka were able to secure sufficient market
share due to their longstanding and traditional presence on the Macedonian market, while Kraft gained ground
based on its commitment towards brand development and aggressive marketing activities. As Macedonia
recovers from the global recession and consumer spending increases, demand for chocolate confectionery and
the impulse and indulgence products is expected to rise again and the sectors growth rates will improve. The
chocolate confectionery sector is expected to increase by a constant value CAGRx of 5%, reaching MKDxi3,477
million by 2015, while the impulse and indulgence products sector will increase by a CAGR of 3% in constant
value terms, reaching MKD9 billion by 2015xii
.
The chocolate market in Macedonia has certain drawbacks which hamper the operations of the domestic
companies. Low prices on chocolate that can be found on the market usually come from the offer which is
actually a chocolate substitute which is placed as chocolate. The composition of these products are based on
cheaper raw materials. Another deception of consumers is fueled by a similar names of chocolates from different
manufacturers, so instead of "Nestle", the consumer can buy "Neste" instead of “Milka” – “Mila”, and besides
changes in the taste of the chocolate that come from the poor quality, the improper storage of the products also
causes organoleptic changes in the product. The chocolate that can be found in Macedonian market, due to the
free trade agreements are placed in lower prices than the domestic products, because the raw materials used by
the domestic production, especially sugar, imported from the those countries is entering with a great customs
burden.
That means in certain contexts unfair competition, because of the unequal conditions for production and
import of the same products.
With respect to the financial dimension, the most commonly used type of finances by the domestic
companies, besides their own funds, are the credits from the commercial banks, with annual interest rates from
6%-16%. During the recession the interest rates were elevated up to 13%. The companies, especially the small
and medium – sized companies, have a financial aid from the Government through the Macedonian Bank for
Development Promotion, with a main objective to promote export, through providing credits and other forms of
support: export and investment credits, insurance of claims based on performed export against short term
commercial riskxiii
. The greatest weakness of the method of financing is the minimal usage of self -financing, due
to the undeveloped capital market and the lack of foreign capital in the domestic companies.
The chocolate market in Macedonia can be divided by types of products and types of customers. Buyers
of chocolate products can be divided into three categories: Wholesalers, Retailers and Individual consumers. By
type of products, the chocolate market is fragmented as any other market of fast moving consumer goods
(FMCG), such as: ice cream, soft drinks, cosmetics etc. On the market exists strong competition between
manufacturers of confectionary products. Based on the conducted research on entrepreneurs and consumers,
Macedonian chocolate market can be divided into six parts: Market of ‘boxed’ chocolate; Market of 'Molded
bars'; Market of 'Seasonal' chocolate; Market of 'Countlines'; Market of 'Straightlines'; Market of 'other'
chocolate confectionery.
