Can the strong Swiss franc open new doors for chocolate marketers?

The Swiss National Bank decided to remove the peg of the Swiss franc to the euro on 15 January. Previously, the exchange rate was set at a minimum of one euro for 1.2 Swiss francs. Today, the Swiss franc has appreciated to just over one Swiss franc for one euro.

As the Swiss franc appreciates, the prices of its exports would also go up.

Already, the strong Swiss franc has seen Singaporeans buying Rolexes and other Swiss-made watches before prices shoot up. Meanwhile, some say this may provide an opportunity for makers of smartwatch to erode the market share of the Swiss watch.

A spokesperson from Swiss candy brand Ricola told Marketing: "The decision of the Swiss National Bank remains a challenge for Ricola, as the company is export-oriented."

Another product of Switzerland is chocolate.

According to the MarketsandMarkets report Global Chocolate, Cocoa Beans, Lecithin, Sugar and Vanilla Market By Market Share, Trade, Prices, Geography Trend and Forecast (2011-2016), the chocolate market worldwide is expected to grow from US$83.2 billion in 2010 to US$98.3 two years from now.

That represents a CAGR of 2.7%. The Asian chocolate market will make up a 20% share of the global market in 2016, growing from US$15 billion in 2010 to US$19.7 billion in 2016. The region will experience a CAGR of 4.7%, higher than the global cumulated annual growth rate because of lower market penetration.

Premium Swiss chocolate brands compete in the Hong Kong chocolate market and may see their costs go up if the Swiss franc continues to appreciate.

Will this have an impact on their competitiveness and drive them to compete in non-price terms such as marketing and branding?

The presence of Swiss chocolate brands in the Hong Kong market is divided up into brands available in retail outlets and in the form of raw materials for restaurants, hotels and patisseries, and in specialty chocolate stores.

Swiss chocolate brand Lindt is sold in retail stores in Hong Kong, such as supermarkets.

A Lindt spokesperson said exports from Switzerland to all other countries are affected by the negative currency effects.

"However, we attempt to counter these challenges with increases in efficiency and volume.

"At this point of time, it is impossible to make any statement about the evolution of the prices of our chocolates in Asia. We have to wait and monitor the further development of the Swiss franc."

William Chan, GM at food distributor Metro Alliance, which distributes products for food brands such as Alpen and Weetabix, agreed it is too soon to comment on the impact of the appreciating Swiss franc on Hong Kong's chocolate market.

However, he said Swiss brands need to be prepared.

Chan said, "There's more of an impact on brands competing in the mass and premium consumer markets than chocolate specialty stores. Brands like Lindt need to prepare pricing and campaign plans to help them keep their market share.

"Premium and mass market chocolate is a high-cost product that has a relatively low retail price - if the price goes up even a little, it could affect profit margins."

He said it could also lead to new product development for Swiss chocolates, as with other Swiss food products imported into Hong Kong, such as innovating through introducing new flavours or product types.

Crystal Hung is managing director of Hong Kong chocolate specialty store chocolat-ier, which imports chocolate from the UK and Italy, competing with Swiss chocolate brands and other specialty stores importing chocolate from Switzerland.

Hung said Swiss chocolate has a low share in the Hong Kong retail market and will become even more marginalised compared to chocolate from the rest of Europe because of the strong Swiss franc.

"There's too much choice in Hong Kong for chocolate.  No brand would dare to increase the price.  If the price of Swiss chocolates goes up, their distributors may choose to import chocolates from other countries, and along with the higher price of their consumer products, they could lose market share," she said.

"Non-Swiss chocolate importers like us would benefit from that."

Exchange rates have an impact on the competitiveness of chocolate brands in the local market.  Hung gives examples of the sterling pound and euro, which affects her UK and Italy chocolate imports.

"The euro depreciated a lot last year.  It went from one euro for HK$10.47 to one euro to HK$8.90," Hung said.

"The same happened with the sterling pound - last year, at one time, one sterling pound cost HK$13.20 and now it's around one sterling pound for HK$11.70.  If our chocolate costs less and we can sell it at a lower price to customers."

Rising cocoa prices will exacerbate the challenges faced by Swiss chocolate brands.

"For us, the cost-savings from the depreciation of the euro cancelled out the high cocoa prices. But for Swiss chocolate brands, if the cocoa prices continue to go up and the Swiss franc appreciates further, it will be very hard for them to make up that difference in a market where they don't dare to raise the price," Hung said.

Distributors typically have contracts with food manufacturers where they cannot change what they charge the distributor for a set time period such as six months, Chan said.

Meanwhile according to Hung, unlike food importers, specialty chocolate stores as well as restaurants, specialty stores, cake stores and caterers that use chocolate as raw materials, only import around 50-100 kilograms of chocolate at a time.

"They would not store lots of stock and will use up what they have in two to three months. Raw material consumers can switch to another chocolate brand produced in another country more easily and quickly than distributors," Hung said.

Swiss chocolate brand Carma is popular in the F&B industry such as with hotel chefs. It is produced by Barry Callebaut, one of the world's largest chocolate manufacturers that is based in Switzerland.

A written announcement of its three-month sales figures published yesterday said, "The Barry Callebaut Group conducts 99% of its business outside of Switzerland and therefore has limited operational exposure to the Swiss franc.

"Furthermore, the Group hedges all relevant exposure arising from operational and financing transactions. However, the company’s reporting currency is the Swiss franc, thus there could be a currency translation impact on the reported figures."

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