First Research US Industry Profile

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Candy Manufacturing
SIC Codes: 2064, 2066, 2067
NAICS Codes: 311340, 311351, 311352
Last Quarterly Update: 5/6/2019
The candy manufacturing industry includes three major segments: companies that make chocolate from beans, companies that use purchased chocolate to make candies, and companies that make nonchocolate candy. Major companies include Hershey, Mars, and Mondelez International, all based in the US; as well as Barry Callebaut and Lindt (both based in Switzerland); Ferrero (Italy); and Meiji (Japan).
Worldwide, the confectionery market is expected to generate about $285 billion in annual sales by 2025, according to Hexa Research. In 2017, the Asia/Pacific confectionery market represented about 25% of overall global market revenue.
The US candy manufacturing industry includes about 1,850 establishments (single-location companies and units of multi-location companies) with combined annual revenue of about $26 billion.
Competitive Landscape
Candy manufacturers are developing new product lines and revamping their marketing strategies to capitalize on the growing popularity of healthier snacks and gourmet confections. Small and independent candy makers that sparked the early growth of those segments are now fending off competition from major manufacturers that have been making acquisitions and reformulating recipes in an effort to gain market share.
Changes in the retail sector are also affecting the industry's competitive balance. Center-store packaged food sales have slowed at supermarkets as online grocery shopping and curbside pickup service have put a dent in impulse purchases. Many grocers are allocating less shelf space for candy and snack foods due to weaker demand, requiring manufacturers to compete more intensely for prominent placement.
Imports are a major source of competition for US producers. Most of the world's cocoa is produced outside the US; Hawaii is the country's only domestic cocoa source. Imports account for about 20% of the US market for chocolate candy made from cocoa beans or purchased chocolate, and about 20% of the US market for nonchocolate candy. Imports come mainly from Canada, Mexico, Indonesia, and Germany. Major export markets for US candy manufacturers are Canada, Mexico, and Korea. Exports account for about 11% of US production of chocolate candy and 8% of nonchocolate candy production.
Demand for confections is driven by consumer tastes, disposable income, and population growth. The profitability of individual companies depends on manufacturing efficiency, supply chain efficiency, and marketing. Large companies have advantages in economies of scale in manufacturing and purchasing. Small companies can compete effectively by offering premium and specialty products. All three industry segments — companies that make chocolate from beans, companies that use purchased chocolate to make candies, and companies that make nonchocolate candy — are highly concentrated.
Competitive Advantages:
New Product Development – Candy manufacturers invest heavily in R&D to launch new product lines in a continuous effort to maintain consumers' interest in a crowded market. Large companies often introduce varieties of their core brands — new flavors, shapes, and packaging — rather than taking the risk of creating entirely new brands. To differentiate themselves, smaller companies may regularly develop limited quantities of new premium candies that can be sold for higher prices.
Modern Distribution Strategies – As competition for grocery shelf space heats up, candy manufacturers increasingly seek to reach consumers through additional distribution channels. Direct-store delivery is losing favor among some companies as more people shop online and visit a wider variety of retail outlets rather than stocking up on groceries at a single store. Some competing manufacturers have established joint distribution deals to improve logistics efficiencies. E-commerce offers high growth potential as Amazon increases its focus on online grocery sales, and candy companies are increasingly selling items directly to consumers online.
Advertising and Promotions – Candy manufacturers invest heavily in advertising and marketing to get the attention of consumers and maximize brand loyalty, an important driver of impulse sales. Evolving media consumption habits have inspired manufacturers to develop more creative and interactive promotions to supplement traditional TV, print, and radio advertising. Ads on social media platforms such as Facebook and YouTube have gained importance, and many candy brands use social media to engage directly with fans. Widespread smartphone adoption has enabled manufacturers to reach specific subsets of consumers with targeted mobile ads. Large candy manufacturers increase their brands' visibility through event sponsorships, product placement, and co-branding partnerships.
Companies to Watch:
Mars is the world's largest candy manufacturer and the owner of top-selling chocolate brands including M&M's, Snickers, 3 Musketeers, Dove, Milky Way, and Twix. In 2008 Mars bought Wrigley, the venerable maker of Extra, Orbit, and Doublemint chewing gums as well as popular candies including Skittles, Starburst, Altoids, and Life Savers. The privately held, family-owned company combined the Wrigley gum and candy division with its chocolate business in 2017, forming Mars Wrigley Confectionery.
Mondelez International is a multinational snack food conglomerate with multiple billion-dollar confectionery brands including Cadbury and Milka chocolates and Trident gum. Its other candy products include Sour Patch Kids, Toblerone, and Dentyne, and it also owns popular snack food brands such as Nabisco, Oreo, Ritz, and Triscuit. Mondelez, which generates most of its revenue outside the US, was formed in 2012 when Kraft Foods split its snack and grocery divisions into two separate companies.
Ferrero, based in Italy, already ranked among the largest global candy companies even before it bought Nestle's US confectionery business in 2018. The maker of Nutella spread and Ferrero Rocher chocolates took ownership of Nestle chocolate bar brands such as BabyRuth, Butterfinger, and Crunch with the acquisition. Ferrero also makes Tic Tac breath mints.
Hershey has established itself as the top chocolate producer in North America, which accounts for more than 85% of its global sales. In addition to its namesake chocolate bars and Hershey Kisses, its portfolio of more than 80 brands includes Reese's, Twizzlers, Jolly Rancher, and Whoppers. Hershey also uses its chocolate to make noncandy grocery products such as baking chocolate, chocolate syrup, and cocoa mix.
Products, Operations & Technology
Chocolate candies account for about 60% of US confectionery sales, nonchocolate candy for about 30%, and gum for about 10%, according to IRI. Nonchocolate ... plus:
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