Malaysia's Chocolate And Cocoa Confectionery Industry And Competitive Landscape 2023
Updated: February 16, 2024Industry Landscape
Demand Conditions
In 2023, Malaysia's imports of chocolate (HS code 1806) amounted to USD 189.4 million by value (down 8% YoY) while exports were considerably higher at USD 394 million (up 7.6% YoY). In volume terms, the gap was wider with imports of 33.2 million kilograms (down 10% YoY) being less than half that of exports which amounted to 90.5 million kilograms (up 2% YoY).
Malaysia's per capita chocolate consumption is just around 0.5 kilograms, compared 11 kilograms for Switzerland (the world's largest chocolate consumers on a per capita basis) suggetsing tremendous room for growth as incomes rise. Malaysia's per capita incomes, among the highest in Southeast Asia, have grown at a CAGR of 5.6% during the five year period between 2017-2022.
Supply Factors
Malaysia has an extensive cocoa supply chain; with the exception of cocoa beans (HS code 1801), Malaysia is a net exporter of key raw materials for chocolate production i.e., cocoa powder (HS code 1805), cocoa butter (HS code 1804), HS code 1803).
Malaysia's cocoa grinding volumes reached 367,540 tonnes in 2022 up 4.4% compared to 2021 according to data from the Malaysian Cocoa Board.
Malaysia's cocoa planted area dipped slightly to 5,985 hectares in 2022, with 11% owned by estates and the remaining 89% owned by smallholder farmers. The state of Sabah accounted for 57% of Malaysia's cocoa planted area in 2022, followed by the state of Sarawak with 24%, and Peninsular Malaysia accounting for the remainder according to data from the Malaysian Cocoa Board.
The Malaysian government has an encouraging stance towards the country's domestic cocoa industry. The government is aiming to make Malaysia a chocolate hub in an effort to develop the country's upstream and downstream cocoa industry. In 2020, plans were announced to set up a chocolate hub in the tourist hotspot of Langkawi, and this year a cocoa trade hub was set up in the southern state of Johor. In 2022, the Malaysian Cocoa Board opened a Chocolate Entrepreneurship Centre in the state of Johor in the hopes of developing domestic chocolate brands and and new cocoa crop projects were implemented in 2023 with a target area of 200 hectares across Malaysia (100 hectares in Sabah, 80 hectares in Sarawak, and 20 hectares in the peninsular) in an effort to boost domestic cocoa bean production (particularly premium, single-origin cocoa beans). The MCB signed an MOU with Angkatan Koperasi Kebangsaan Malaysia (ANGKASA) this year in an effort to support cocoa cooperatives with requirements such as training. Given labor constraints in Malaysia, the MCB is turning to smart farming technologies and in 2022 teamed up with local plantation company Permaju Industries Bhd to jointly develop and manage a 100-hectare single origin smart cocoa plantation in the state of Negeri Sembilan. Permaju will partner with Agrocloud Sdn Bhd, a subsidiary of Key Alliance group Bhd to develop a Decision Support System (DSS) named Cocoa Plantation Management System (CPMS).
Cocoa growers are showing signs of strain as labor constraints, input cost inflation, and a gradual reduction in subsidies for cocoa growers by the Malaysian Cocoa Board crimp coca farmers' margins and incomes, raising concerns over long term prospects for the sector if farmers switch to more profitable crops like palm oil.
Trends And Opportunities
Chocolate flavor innovations with a local flair are becoming increasingly popular in Malaysia, particularly during festive seasons. Notable examples rolled out in 2023 include Chocolate Concierge's Deepavali collection (featuring murukku bar chocolate, soan papdi bon bons, and badam pista barfi brittle), Cocoraw's rendang chocolate introduced during Ramadan, and Vochelle's Spice Islands Collection featuring typically Malaysian flavors such as lemongrass, coconut and ginger.
Challenges
Cocoa farming is labor intensive and Malaysia has for many years had acute labor shortages making it challenging to find and employ suitably skilled workers for cocoa farming and fermentation.
Competitive Landscape
Guan Chong Bhd
Public-listed Guan Chong Bhd is the world's fourth largest cocoa grinder and Malaysia's leading producer of industrial chocolates and cocoa-derived food ingredients including chocolate beverages, chocolate chips and chunks, liquid chocolate, cocoa powder, cocoa butter, cocoa mass, cocoa cake sold under a collection of brands including Favorich, Favorich Chocolate, Carlyle Cocoa, and Schokinag. The company enjoys considerable supply chain advantages thanks to its global footprint, with their cocoa grinding facilities spanning four continents including Côte d'Ivoire (Côte d'Ivoire is the world's top producer of cocoa beans) which brings them closer to cocoa bean sources, while their chocolate production facilities in the UK and Germany bring them closer to their customer base. The company has a total cocoa bean grinding capacity of 337,000 metric tonnes and an industrial chocolate capacity of 95,000 metric tonnes. Industrial chocolate capacity is expected to increase to 116,000 metric tonns by 2H 2023 due to a recently commissioned facility in the UK which the company expects could help increase their market share in Europe.
Recent financials:
For FY ended December 2022, revenues rose 12.7% YoY to MYR 4.4 billion, driven by higher average selling prices of cocoa powder and higher sales volume of other cocoa ingredients helped by strong chocolate demand helped by a post-pandemic lifting of international border restrictions, increased air travel and tourism.
FY2022 gross margins dipped slightly to 8.5% from 8.9% the previous year.
FY2022 net profit amounted to MYR 147.4 million, down 4.8% YoY due to lower cocoa butter prices and higher finance costs. Net margin declined to 3.34% in FY2022 from 3.95% the previous year.
FY2022 operating cash flows amounted to MYR 277.7 million compared with an outflow of MYR 79.1 million in FY2021. FY2022 CAPEX amounted to MYR274.8 million, up from MYR 174 million the previous year.
Apollo Food Holdings Bhd
Public-listed Apollo Food Holdings Bhd is manufacturer of compound chocolate confectionery products and layer cakes sold under the brand Apollo. The company's product assortment comprises chocoalte wafers and packaged cakes.
Recent financials:
For FY ended April 2023, revenues rose 36.6% YoY to MYR 257 million driven by higher sales owing to the post-pandemic re-opening of Malaysia's borders. About 68% of revenues were generated in Malaysia with the remainder generated in international markets which includes Singapore, Thailand, Philippines, and Vietnam among others.
FY2023 gross margins improved to 25% from 20.3% in FY2022.
FY2023 net profit tripled to MYR 31.7 million helped by sales improvement. Net margins increased to 12.3% from 5.3% the previous year.
FY2023 operating cash flows improved to MYR 38.4 million from MYR 2.6 million in FY2022. CAPEX for the year amounted to MYR 1.4 million compared with MYR 2.5 million the previous year.
Benns Ethicoa
Benns Ethicoa is one of Malaysia's most recognized single-origin chocolate brands, boasting an extensive portfolio of single-origin chocolate products made using beans from a variety of countries including Malaysia, India, and Vietnam. The company's product portfolio includes bar chocolates, drinking chocolate, chocolate spreads, and dragees sold under a brands including Benns Ethicoa, and Benns Chocolate.
Recent developments:
New products launched during the year include a single estate chocolate drink, and three new exclusive single origin chocolate bars for Hilton Hotel Kuala Lumpur.
In partnership with the Malaysian Cocoa Board, in June 2023, Benns Ethicoa launched a new sustainable, single-origin chocolate brand produced using ethically-sourced cocoa beans exclusively from Malaysian cocoa farmers. Through a shorter supply chain and direct ties to Malaysian farmers, Benns Ethicoa pledges farmgate prices that are three times higher than the market price.
Marketing initiatives included trade shows (at least three during the year, two in China including the Salon Du Chocolat chocolate show in November 2023 in Shanghai, and one in Kuala Lumpur, Malaysia), and chocolate tours.
Benns Ethicoa opened a new chocolate factory in the Malaysian state of Negeri Sembilan.
Future plans:
The company's growth efforts are focused on expanding their Asian export markets. Currently, their products are exported to China (their biggest market), as well as Indonesia, and Singapore. Export markets on the horizon include Thailand and Vietnam.
Barry Callebaut
Switzerland-based chocolate and cocoa products giant Barry Callebaut offers a variety of cocoa and chocolate products including chocolate couvertures, compound coatings, chocolate decorations to name just a few sold under a collection of brands including Callebaut, Cacao Barry, Carma, VanHouten, and Mona Lisa, largely aimed at B2B customers.
Recent developments:
In early 2023, Barry Callebaut established a business excellence center in the state of Kuala Lumpur which will provide various support services to the company including financial and accounting, information management and technology and customer service among others. Following this, a few months later in May 2023, Barry Callebaut teamed up with shipping company A.P. Moller-Maersk, to establish a built-to-suit cocoa bean warehousing and dispatching facility in the southern state of Johor. The facility, expected to be one of the largest in Southeast Asia, is expected to be completed by 2Q 2024. Barry Callebaut also introduced a new line of gourmet chocolate innovations - ruby chocolate and dairy-free chocolate in both milk and dark flavors - for the Malaysian market in response to emerging trends in the country, namely intense indulgence, healthy indulgence and mindful indulgence according to the company.
New Entrants
Italian chocolatier Venchi opened their first store in Malaysia. Located in the capital Kuala Lumpur's swanky shopping mall Pavilion KL, the store offers a variety of tradiational Italian-style chocolate.