With 3,200 new confectionary products launched in 2007, it’s reasonable to question whether the market is becoming oversaturated. Consumers, for now, certainly don’t mind and aren’t giving up their cocoa — and premium candy — vices, despite rising food and gas prices. But behind the scenes, candy manufacturers and brand owners are struggling to compete in a competitive market, in addition to keeping pace with cost pressures from raw materials, consolidation and emerging markets such as China and India.

The $29-billion confectionary market today is largely driven by chocolate, not sugar. After a few years of splashy limited-edition launches, the candy market has grown up and is providing premium candy and chocolates from around the world, increasing sales 3.5 percent in the process, according to reports.

Shoppers can now find flavor fusions in gums, chocolates and snacks; international sweets and snacks from Venezuela, Tanzania and Ghana; gourmet artisan offerings; healthy and fortified options; sugar-free choices; organics; classics with a twist such as Reese’s Whipps bar; and interactive candies for children. Quite simply, a product exists for every niche, and smaller players can win share with cheaper non-chocolate confectionary products.

“Premium candy continues to be a good seller,” says Jeff Asher, vice president sales and marketing, Asher’s Chocolates, Souderton, Pa. “Even in a difficult economy, consumers are willing to spend a little extra on a special treat for themselves. Dark chocolate continues to gain in popularity, especially when coupled with unusual or new flavor combinations.”

In fact, dark chocolate sales increased a whopping 50 percent in 2007, according to figures from the National Confectioners Association, Vienna, Va. It’s a natural offshoot of the “premiumization” trend, with most major players getting on board too, says Scott Burns, vice president of client solutions for Chicago’s Information Resources Inc.

Semi-sweet chocolate provides a healthy — or at least better-for-you — indulgence with its high levels of natural cocoa content, offering the same flavanol antioxidants that can be found in tea, berries and grapes.

“Consumers are starting to understand that, according to research, high cocoa content might be positive to their health, and they seem to be learning that different countries’ cocoa powders add unique flavors to chocolate,” says Marcelo Dadone, contract manufacturing manager, Arcor USA, a Miami-based confectionary manufacturer.

Despite the aging of our population, many manufacturers are targeting young, upscale urbanites who are seeking high-quality, experiential products, Burns says. This strategy fits nicely with the premium and dark chocolate trends, besides enabling manufacturers to offer indulgent products and a higher price per volume.

Burns predicts that the Hispanic market also will be aggressively targeted by manufacturers. “Given the current demographic shift — and projections for the future — tapping into this emerging market will be critical to success in the future,” he says.

To appeal to all shoppers, manufacturers are adding dried fruits to their gourmet chocolate selections to provide flavor and a healthier choice. “Fresh and healthy is here to stay — even in the candy market,” says Tony De Rubeis, vice president of sales for candy and snack manufacturer Todd’s Incorporated, Vernon, Calif.

Greening the Marketplace

Sustainability, fair trade and “going green” also are becoming more widespread with regard to production. Smart marketers will leverage this trend as it gains appeal with consumers, notes Burns.

“The eco-friendly movement influences consumers’ decisions 20 percent to 25 percent of the time,” he says. “Organic and single-origin chocolate have been emerging on the marketplace, but have been relatively slow to gain critical mass,” he says.

Packaging has its role to play with green consumers, as well. Contract manufacturers must consider the size, components and waste factor of a package. “Packaging needs to be more environmentally friendly and use less materials,” Asher says. “A reduction in packaging also helps offset the increasing fuel costs.”

For consumers’ convenience, Todd’s Incorporated is adding nutritional information to the front of its organic confections, which will come in resealable packaging.

“We’ve done our research,” says De Rubeis. “Sixty percent of consumers want help identifying healthy products. It’s important to address that.”

Ice Cream vs. Candy

The Hershey Co., Hershey, Pa., has been drawing attention to its new line of Hershey’s chocolates by partnering with Seattle-based Starbucks to create high-end, premium and decadent products.

Ice cream flavors also lend themselves well to the premium candy market. Recently, The Jelly Belly Candy Co., Fairfield, Calif., launched jellybeans with Scottsdale, Ariz.-based Cold Stone Creamery flavors. Baskin-Robbins, Canton, Mass., teamed up with BestSweet, to introduce soft candy with its trademark flavors.

“Everyone in the U.S. and world knows Baskin-Robbins for its quality, taste and innovation,” notes Mark Fields, brand manager for BestSweet, Mooresville, N.C. “We’ve always had fantastic hard candy, and now we can put more premium in these products through high-quality cream and cocoa. The soft candies recreate the ice cream experience at Baskin-Robbins.”

Mothers, of course, play a huge role in families’ candy decisions, and many moms are conscious of their children’s weight and sugar intake given the country’s growing incidence of childhood obesity. Providing sugar-free or 100-calorie confections will continue to play well with this crowd.

“We can’t hypothesize and ‘put’ a product into consumers’ mouths,” Fields says. “As an industry, we listen to retailers but need to understand the impact to consumers. When we meet their needs, unlike other products, a connection is made and evangelism for the product is created.”

Keeping Costs Down

As the cost of energy, goods and wages continues to rise worldwide, manufacturers and packagers are under pressure, and are forced to pass on the cost increases to consumers. Companies are looking to source raw materials from countries with a substantial price differential in their commodities.

So, unbeknownst to the typical shopper, the price of America’s chocolates and candies is directly driven by the stability of other countries, particularly cocoa-producing nations. “Unrest in many cocoa-producing nations can keep an air of instability about the future cost of goods,” notes Burns.

To offset the higher cost of raw materials and freight, Sunrise Confections, for one, moved its plant to Mexico. “We’ve heard interest from other companies that want to explore opportunities to offset their rising costs,” says Curtis Whetten, vice president of business development, Sunrise Confections, based in El Paso, Texas.

A co-packer’s ability to cater to emerging demand in global markets — especially China and India — will be critical to its ongoing success. Many global partnerships are forming to help manufacturers rapidly expand in emerging markets, such as Barry Callebaut with Hershey and Nestle. To expand its Asian operations, Barry Callebaut also has been making acquisitions and within the past year partnered with companies in Malaysia, China and Japan, to name a few, Burns says.

Mergers and acquisitions are likely to continue in the candy category. Powerhouses Mars and Wrigley recently merged; Hershey acquired Josef Schmidt, Mauna Loa, Dagoba and Scharffen Berger; and Godiva was bought by a Turkish confectioner.

Indeed, contract manufacturing in the candy industry has come a long way. Brand owners understand that a strategic partnership with a manufacturer goes way beyond simply giving a company the opportunity to make a product.

“We work elbow to elbow with our partners,” Dadone says. “Due to our location, the only way we have to succeed is to work together on research and development, strategic routes for efficiently transporting the product and lowering costs.”