Executive Summary
The Chinese market is rapidly expanding, with the demand for various types of products, including food. Patchi is a manufacturer of premium chocolate operating in Canada and several North American, European, African, and Middle East markets. Premium chocolates are a unique product made from cocoa butter, with the addition of sugar and milk. Chocolates and premium chocolates are not essential food items in most markets; however, consumers have used these products as comfort foods and a source of indulgence, especially during the COVID-19 pandemic. Hence, premium chocolate products can be marketed as a portion of comfort food to support the consumer’s wellbeing during stressful times. In China, chocolate is not a traditional product consumed by many on a regular basis. Moreover, according to Mordor Intelligence (2022), the Chinese market of chocolate remains largely untapped, presenting many opportunities for manufacturers and suppliers.
The evaluation of the premium chocolate industry is estimated at 29 billion U.S. dollars (Mordor Intelligence, 2021). The market growth for the timeframe between 2022 and 2026 is estimated at 9.6%. The segmentation of the premium chocolate market is based on the chocolate’s properties, such as white, milk, or dark; distribution channels; and geography.
This report presents the findings regarding the Chinese premium chocolate market and aims to explain why Patchi should expand its sales to the Chinese market. Based on the findings of this report, Patchi can leverage the increasing demand for chocolate in China and the fact that this market is not occupied by many competitive forces.
The COVID-19 pandemic has affected all markets, with the stores being closed and employees had to follow safety precautions to ensure that the spread of the virus is contained. However, in 2022 and with the introduction of the vaccines, the consumers’ activity begins to renew, providing manufacturers with an opportunity to explore new markets and expand their sales. Moreover, the Government of Canada has voiced its support for the manufacturers that want to expand their business to the international markets. This report will present an overview of Patchi’s products. An assessment of the chocolate market in China’s consumer trends in the selected market will contain recommendations for Patchi.
Background
Patchi is a premium manufacturer of chocolate from Canada. The brand positions itself in the following manner: “an awakening of taste, sight, sound, smell, and touch that crescendos in an immersive experience and shareable moments” (“Patchi,” n.d.). The Patchi corporation has existed for over 50 years, and over this time, the brand has opened online stores in several states, boutique stores, and Patchi cafes.
Patchi offers two types of products, either chocolate or gift boxes containing different variations of chocolates. The products are made from pure cacao mass without preservatives or coloring additives (“Our creations,” n.d.). Each product is created by a chef specifically for Patchi, which offers the consumers a unique experience and taste.
As a multinational corporation, Patchi has online stores in Canada, the U.S., Lebanon, the U.K., New Zealand, and KSA. Additionally, it has several boutique stores where the brand’s chocolate can be purchased across the world. Figure 1 displays the location of the existing Patchi boutiques. From this map, it is evident that Patchi has expanded its offline stores to markets in Europe, the Middle East, and Africa. However, the company has not had an expansion into the Asian market.
The premium chocolate market has suffered substantially during the COVID-19 pandemic. These issues are linked to the decrease in demand and supplier-side problems, such as certification and quality problems (Mordor Intelligence, 2022). Hence, the manufacturers are facing the issue of renegotiating their ties with cocoa butter suppliers and renewing the sales to the pre-pandemic levels. Still, the market is expected to grow globally, which presents Patchi an opportunity to explore new markets and extend its consumer base.
Research Objectives
The following research aims to explore the opportunities for a premium chocolate brand in the Chinese market. Additionally, this research will identify the potential competitors and their advantages when compared to Patchi’s products. Additionally, this research will identify the current market size and expected growth of the chocolate market in China. Finally, this report will present recommendations regarding the market entrance, pricing, and distribution of Patchi’s products in China, based on the findings.
Methodology
This research is based on the collection of primary and secondary data from Patchi, governmental reports, and reports by industry experts. The data that is of utmost importance is the size of the Chinese market, potential competitors, distribution strategies, and market growth reports. Next, the collected data will be analyzed to present Patchi the market entry plan. The data will be collected from reputable sources, such as Mordor Intelligence reports, The Economist articles, and other articles.
Market Intelligence
China is a politically stable country that was formed in 1949 and has continued to remain a one-party country (The Economist Intelligence, 2021). The Chinese Communist Party (CCP) governs this state, and little political competition exists. The main figure in Chinese politics is the CCP’s leader, Xi Jinping, who has had his position since 2012 (The Economist Intelligence, 2021). Hence, in general, this is a politically stable state; however, Patchi should be cautious regarding the Chinese’ policies of protecting the products that were manufactured in China, as the CCP supports primarily local manufacturers.
One potential concern is China’s trade wars with the United States, which have affected the stability of international relations between this state and the global community. Another concern is the relationship between China and Taiwan, the latter being a part of the People’s Republic of China with some sovereignty. Therefore, Pachi should be aware of the political tensions between the United States and China and its potential effects on trade relationships between Canada and China. However, currently, the Canada-China trade relationships are stable. According to Choi (2021), “Canadian exports to China rose by 23.2% in the first six months of 2021, as compared with the first six months of 2020” (para. 2). Moreover, this report indicates that the Canadian exports to China have outgrown the export rates before the pandemic, indicating a positive trade relationship. Therefore, China and Canada have a well-established trade partnership, which will make the entrance of Patchi into the Chinese market more easily. Figure 2 below presents the statistics about the Canadian exports to China, which help grasp the increasing trend for the exports.
Despite the positive trends in the trade relationships between China and Canada, the ease of doing business in the former state is a matter of potential concern. Economies that have a rank between 1 and 20 are considered friendly and easy to do business in, while those below are less suitable for business activity (Trading Economics, 2021). China is currently ranking at number 31, which means that there are some barriers that can obstruct manufacturers and distributors from succeeding in this economy. However, one should note that this state has improved its ranking in recent years; for example, in 2018, it was ranked at 46. As a result, there is an improvement trend in the ease of doing business domain in China, and therefore, potential businesses that want to enter this market can expect better conditions in the following years.
Currency risk is another potential concern when selecting a new market for entry. According to the recent Reuters (2021) report, the Chinese regulators have warned companies to work on protecting themselves against currency risk. This is due to the fact that the Chinese central bank has decided to loosen its control over the yuan. Hence, Patchi faces some potential currency risks if the company decides to enter the Chinese market. Also, it is important to note that the yuan, in general, is a heavily regulated currency, meaning that the government has had strong control over it for the past years. Therefore, it is unlikely that the yuan will be affected by some unexpected risks or market conditions that the regulator will not warn about, which provides some reassurance to businesses.
Customer Intelligence
Evidently, the customers and their preferences in the Asian market differ substantially from those in the Canadian market. For example, the Mordor Intelligence (2021) report states that chocolate is not a part of the traditional Chinese diet. However, this means that Patchi can market its products as something unusual from the Western culture, which is in line with the premium properties of this brand. The chocolate market in China is dominated by four international companies, Ferrero, Nestle, Mars, and Yildiz Holding (Mordor Intelligence, 2021). These are well-established companies; however, their distribution model differs from that of Patchi since they sell chocolate to consumers through convenience stores and supermarkets, while Patchi is available in boutiques, Patchi cafes, and the manufacturer’s online store. More detail on the differences between Patchi and its competitors will be presented in the next section and in Table 1 with SWOT analysis.
The main reason why Patchi should expand to the Chinese market is the compound annual growth projections (CAGP), which are estimated at 3.25% for the timeframe between 2021 and 2026. This statistic and the basic characteristics of the market are shown in Figure 2. As for the consumer patterns, the main reason why Patchi should expand to China is the market size and chocolate consumption trends. Currently, the Chinese consume 15% of the world’s chocolate, showing that this is a substantial market size for the business (Mordor Intelligence, 2021). However, the Chinese traditionally do not favor products that contain high levels of sugar, and traditional Chinese medicine does not recommend intake of sweet products in excess. According to Mordor Intelligence (2021), “a significant chocolate market space remains untapped, owing to the country’s culinary history” and “consumers across China consider chocolate as an exotic delicacy, which is also brought as a luxury gift during Lunar New Year or an extravagant treat” (para. 10; para. 25). This may be beneficial for Patchi, as it produces high-quality premium chocolate, which can be marketed as a gift for special occasions or celebrations.
Competitive Intelligence
The main competitors for Patchi are well-established multinational corporations, such as Ferrero, Mars, Mondelez, and a lesser-known Yildiz Holding. One luxury chocolate brand that is currently operating in the Chinese market is Godiva, a premium Belgian chocolate brand (Mordor Intelligence, 2021). This brand is so far the only direct competitor for Patchi, as other corporations, such as Ferrero, offer a set assortment of products and chocolate boxes, while Godiva and Patchi create special designs and recipes for holidays and special occasions.
Table 1. SWOT of competitors
Recommendations
The above report shows some of the important consumer trends, such as a prospect of the increasing demand for chocolate in the Chinese market, by at least 3,9% by 2026 (Mordor Intelligence, 2022). Moreover, considering that chocolate is comfort food, the market’s purchasing trends are likely to be affected positively as the global community recovers from the COVID-19 pandemic’s consequences. Hence, Patchi should consider opening an online store in China and selling its premium chocolates in this market as the consumer purchasing trends indicate a potential for profits. As for price trends, Mordor Intelligence (2021) reports that the current luxury chocolate manufacturers in China sell their products for a range between CNY 150 and CNY 1800, depending on the size of the box. Hence, Patchi has an opportunity to offer the different variations of boxed premium chocolate that the brand already sells in other markets.
The main argument for the expansion into the Chinese market is the fact that the chocolate industry and premium chocolate, in particular, are untapped and show a promising trend for growth and development. The trade relationships between Canada and China have been stable over the years, showing potential for Patchi’s expansion. This report indicates some risks, for example, the yuan’s instability. However, the local regulator has made efforts to warn the companies about the potential currency risks. Additionally, the competitor’s analysis shows that the only direct competition is from the brand Godiva, while other multinational companies have a different distribution model and a limited product range. As a result, Patchi should select a joint venture with a local company. This will help protect Patchi from the potential political and financial risks. Additionally, a local partner will be able to guide Patchi into the Chinese market’s specifics, as the culture and traditions of this state differ from those in Canada.
References
Boutiques. (n.d.). Web.
Choi, D. (2021). Canada-China trade: 2021 Q2. Web.
The Economist Intelligence, 2021. China. Web.
Mordor Intelligence. (2022). China chocolate market. Web.
Our creations. (n.d.). Web.
Patchi. (n.d.). Web.
Reuters. (2021). China’s regulators struggle to sway companies on currency risk. Web.
Trading economics. (n.d.). Ease of doing business in China. Web.