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THE BACKGROUND

Despite being hit by growing consumer interest in healthier foods, the sweet biscuit market is on the rise. While manufacturers have introduced lower-fat variants to cater to this health trend, they have also added luxury ranges with which consumers can 'treat' themselves when they do indulge. These are the two categories in which growth is expected, though the sector may soon come under greater pressure from confectionery brands as they continue to introduce biscuit-chocolate hybrids.

Changes are afoot in the biscuit sector; the traditional ritual of having a plain digestive with a cup of tea is giving way to an indulgence in premium products or 'healthy' biscuits low in salt or fat.

After a few rocky years the sweet biscuit market has improved, as manufacturers have invested in new product development and marketing support.

The sweet and savoury biscuits market is expected to reach £1.7bn in 2005, up 20% since 2000, of which sweet biscuits will account for £1.4bn in sales, according to Mintel.

The impact of the ageing population on the sector follows the trends seen in other food sectors: greater disposable income means trading up to premium biscuits is common.

The heaviest purchasers of biscuits tend to be households with children.

Almost 15% of the population eat biscuits every day and therefore fall into the high-use category. This proportion peaks among men and the retired.

Almost 40% of the population are classed as light users, eating biscuits once a week or less. The majority of this category are women and the under-45s. A key challenge, then, is to find a way of encouraging 16- to 44-year-old women to eat sweet biscuits more often.

Health concerns

In line with other food markets, the government has called on biscuit manufacturers to lower the salt and fat content of products. This has led to growth in the low-fat and healthy categories, as well as the premium market, where biscuits are viewed as a treat.

The fortunes of many brands rest on stealing share from, or losing it to, those outside the biscuit sector. The chocolate biscuit countlines category - those that are individually wrapped - is the biggest in the sector at an estimated £369m in 2005, but has fallen 14% since 2000. This is a result of the rise in cereal bars, which offer an an acceptable alternative to chocolate consumption. Schools are a key driver in this shift, with many imposing bans on chocolate, crisps and fizzy drinks on the premises.

The brand performance of the everyday biscuit category, which includes digestives, rich tea and non-chocolate variants, and the everyday treats market, which covers biscuits with cream, jam or half-chocolate, has improved recently, but own-label has suffered. The category is estimated to be worth £252m in 2005, a fall of 7% since 2000. The market has been hit by brand owners fighting own-label on price, and customers becoming accustomed to seeking out packs on promotion.

Many shoppers always opt for the same biscuits, but limited-edition flavours and packaging, and product formats such as tube packs or mini versions, have sparked additional interest.

Special treat biscuits, such as Tesco's Finest and McVitie's Boasters, are often packaged luxuriously to appeal to the after-dinner adult market.

This category is worth about £95m.

Last year United Biscuits (UB) bought Danone's UK biscuit operation for £240m, adding the Jacob's brands to its portfolio, which includes McVitie's, and giving it a market-leading share of 23%.

At the end of 2004 UB axed its McV umbrella branding to focus on individual products such as Hobnobs and Chocolate Digestives, which, with a 4.8% market share, is the second-biggest-selling brand in the UK. It has also experimented with limited-editions such as a foot-long pack of Jaffa Cakes last Christmas.

At the start of the year it dropped its AM breakfast products, rebranding them under its healthier Go Ahead! range. It has committed itself to reducing salt, sugar and trans fats in its brands.

Burton's is number two in the market. It produces own-label biscuits as well as Cadbury-licensed products and kids' brands Jammie Dodgers and Wagon Wheels. In February 2005 it introduced Cadbury Highlights, a low-fat chocolate wafer bar, and in March added Fruvo to its range to compete with the cereal bars.

Nestle, the third-biggest player in the market, owns Kit Kat, the biggest biscuit brand in the UK, with a 5.7% market share. It also owns the Blue Riband, Breakaway and Drifter brands in the countline category.

Growth strategy

Other companies include German-owned Bahlsen with its premium brand Chocolate Leibniz; Masterfoods with its Twix and Bisc& brands; Northern Foods with Fox's Biscuits and the Officially Low Fat brand; and long-established Scottish baker Tunnock's, whose portfolio includes Snowballs and Teacakes.

Future growth is likely to come in the health and indulgence sectors.

The latter can build on the trend toward healthier eating, because if consumers regulate their diets, they are more likely to treat themselves when they do indulge.

The category is also likely to face further pressure from confectionery brands expanding with biscuit-chocolate hybrids. However, the ageing population is good news for the sector, as they tend to eat more biscuits. The market for sweet biscuits is predicted to grow by 25% at current prices to almost £1.8bn by 2010, according to Mintel, representing 15% growth in real terms.

SWEET BISCUIT MANUFACTURERS BY VALUE SALES AND SHARE 2005 2001 01-05 pounds m % pounds m % % chng 1 McVitie's (including Jacob's*) 332 23 244 21 36.1 2 Burton's (including Cadbury) 216 15 166 14 30.1 3 Nestle 156 11 115 10 36.2 4 Fox's 134 9 111 9 20.7 5 Masterfoods 53 4 50 4 6.0 6 Jacob's* n/a n/a 40 3 n/a 7 Tunnock's 30 2 26 2 15.4 8 Bahlsen 14 1 6 1 133.3 Other brands 238 17 31 3 667.7 Own-label 258 18 392 33 -34.2 Total 1431 100 1180 100 21.3 Source: Mintel *Purchased by United Biscuits (owner of McVitie's) in 2004 SWEET BISCUIT BRANDS BY VALUE SALES AND SHARE 2005 2003 03-05 pounds m % pounds m % % chng 1 Kit Kat 82 5@7 78 6@2 5@1 2 McVitie's Chocolate Digestives 69 4@8 67 5@3 3@0 3 McVitie's Jaffa Cakes 44 3@1 39 3@1 12@8 4 Penguin 31 2@2 44 3@5 -29@5 5 Cadbury range 30 2@1 38 3@0 -21@1 6 McVitie's Hobnobs 29 2@0 25 2@0 16@0 7 McVitie's Digestives 29 2@0 31 2@5 -6@5 8 Go Ahead! 28 2@0 36 2@8 -22@2 9 Rocky 25 1@7 27 2@1 -5@7 10 Maryland Cookies 24 1@7 23 1@8 4@3 11 Blue Riband 21 1@5 18 1@4 15@4 12 McVitie's Rich Tea 18 1@3 20 1@5 -7@7 13 Tunnock's Caramel Wafer 18 1@3 18 1@4 1@1 14 Jammie Dodgers 17 1@2 19 1@5 -8@1 15 Jacob's Club 10 0@7 19 1@5 -45@9 16 Echo 10 0@7 12 0@9 -16@7 17 Wagon Wheels 9 0@6 18 1@4 -49@4 18 Bisc& 8 0@6 27 2@1 -70@4 All other brands 643 44@9 399 31@6 61@1 Own-label 286 20 309 24@4 -7@4 Total 1431 100 1265 100 13@1 Source: Mintel

ANALYST COMMENT - NICK BEEVERS, CONSUMER MARKETS ASSOCIATE ANALYST, DATAMONITOR

The UK remains Europe's biggest biscuit market, despite falling volumes for most of the 2000-2004 period. In 2004 the average Brit chomped their way through the equivalent of more than 31 300g packs of chocolate digestives.

Rising prices have sustained the value growth of the market, but at a fairly low rate. The UK market generated revenues of £1.8bn in 2004 - a compound annual growth rate (CAGR) of 1.1% between 2000 and 2004.

In comparison, France and Germany generated sector revenues of £873m and £1.3bn respectively in 2004, at CAGRs of 1.6% and 3.4% since 2000.

Looking forward, the UK biscuit market is expected to decelerate. With an anticipated CAGR of 0.8% in the 2004-2009 period, it will have reached a value of £1.9bn by 2009. Conversely, volume growth is expected to improve, with a CAGR of 0.7% forecast to push it to a total volume of 581.4m kg by 2009.

To fight decelerating growth, manufacturers have innovated in a fairly saturated market. United Biscuits (UB) has added several products and flavours, including a novelty white chocolate biscuit for Christmas under its McVitie's brand. Cadbury, meanwhile, has launched its own jaffa cakes.

The focus on health issues has also been addressed to stimulate growth.

Nabisco recently launched 100% wholegrain biscuits in the US, while in the UK, UB reduced the salt content of its biscuits in October.

This year has seen sales of wholegrain bakery, cereal and rice products gain momentum, and progress into the snack market could follow suit. The perceived and real health benefits of such snacks will play a big role in whether they are snapped up, but manufacturers are confident.