The sweet smell of love is in the air…oh wait, no…that’s candy that I smell! The nation’s 1,700 candy manufacturers combine chocolate, sugar, and other raw ingredients to produce every imaginable variety of confection and chocolate-based product. And Valentine’s Day is one of their prime opportunities to shine.
The business exit rate for candy manufacturers from the end of 2017 to the end of 2018 was 7.34 percent, lower than the average for all U.S. businesses, according to data from Powerlytics. Might candy manufacturers be a sweet niche to include in your small- to medium-sized business (SMB) portfolio?
The big-picture numbers
A typical candy manufacturer operates out of a single location, employs 35 to 43 workers, and generates about $15 million annually.
- The candy manufacturing industry as a whole consists of about 1,700 companies that employ 65,000 workers and generate a total of over $26 billion annually.
- Chocolate confectionery manufacturing accounts for 67 percent of industry sales.
- The candy manufacturing industry is concentrated — the top four chocolate confectionery manufacturing firms are about 65 percent of category sales. While non-chocolate confectionery manufacturing is less concentrated, large firms still dominate — the top 20 companies are over 75 percent of category sales.
Top trends within the candy manufacturing industry
Candy Sales Slow Overall
Consumers are buying less candy. While sales were up 0.9 percent by volume for chocolate candy, they were down 2.2 percent for non-chocolate candy in 2018 compared to the previous year, according to the National Confectioners Association and IRI. Seasonal and sugar-free candy led growth in the chocolate category and Halloween candy posted the strongest growth in the non-chocolate candy segment.
Raw Ingredient Costs Mixed
The cost of key ingredients involved in candy manufacturing — dairy, cocoa, and refined sugar, for example — can change significantly from year to year due to commodity pricing and supply/demand issues. To preserve profitability, many candy manufacturers increase their wholesale prices or adjust the size of their candy packages.
Despite improved economic conditions, value continues to be an important factor in the candy market. By dollar value, sales were up 0.5 percent for chocolate candy and 0.7 percent for non-chocolate candy in 2018, according to the National Confectioners Association and IRI. The increase in dollar value of sales was driven by higher prices, which were up 1 percent from a year earlier. While raising prices can help to mitigate a volume decline in the short term, candy buyers tend to be price-sensitive and often choose other types of snacks if their favorite candy bar is priced over $1.
Risks to the candy manufacturing industry to consider
- The cost of raw ingredients used in candy manufacturing — like cocoa, sugar, corn sweeteners, dairy, and nuts — can vary significantly from year to year, according to trends in commodity prices. Raw ingredients account for a sizeable percentage of product costs, and variability has a substantial effect on profitability.
- Candy manufacturing generally involves a large investment in equipment/machinery, property, and buildings. Most candy production involves specialized equipment, and assembly lines often have large footprints. With the exception of expensive, handmade candies, a high degree of automation is generally necessary to produce the volume required to generate profits.
- Demand for candy is seasonal. Halloween is the biggest seasonal period, followed by Easter, Christmas, and Valentine’s Day. Forecasting is critical for special products because holiday-related packaging limits shelf life.
- Dramatic increases in obesity among Americans over the last few decades have resulted in scrutiny over high-calorie foods, including candy. Some school districts are even restricting or prohibiting the advertising and sale of candy. High sugar content, lack of nutrients, and use of artificial colors or flavors have made candy a target for consumer groups aiming to reduce junk food consumption.
- The candy industry is dominated by large companies that own numerous big brands with loyal followings. While small companies may offer unique, high-quality products, generating awareness and competing effectively against big brands is a challenge due to lack of financial resources.
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All of the industry information in this post came directly from the Vertical IQ Industry Profile on Candy Manufacturing. Reviewing this profile, or even doing a quick five-minute review of the industry’s Call Prep Sheet, gives you valuable insights into your candy manufacturer prospect—their opportunities as well as the issues that may be keeping them up at night.
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