The Background
This sector is suffering from falling volume sales, as the trend toward healthier eating continues and negative perceptions surround the ingredients of artificial sweeteners. This has been reflected in the performance of the sector's main players. AB Foods, which owns Silver Spoon, is closing two of its six sugar-beet factories this year. Tate & Lyle, meanwhile, has had about 拢500m wiped off its value after issuing a profits warning in January. This was attributed to a weaker-than-expected performance by its sweetener brand Splenda and EU sugar-price cuts.
For consumers aiming to eat a healthier diet, sugar sits fairly high on the list of foods to try to avoid. As a consequence, it is a market that is in long-term decline in terms of volume. This slide has been compounded by the fact that two of the key sugar/sweetener consumption occasions - hot drinks and cereal - are also in decline. Sugar accounts for 85% of the value of the market, though volume sales have fallen from 370,00 tonnes in 2002 to 301,000 tonnes last year. While it might be assumed that consumers avoiding sugar will turn to low-calorie sweeteners as an alternative, there has been no attendant increase in sales of artificial sweeteners.
Despite being boosted to some extent by the popularity of the GI diet, which advocates their use in preference to sugar, with tablets the most popular format, this category has suffered from a perception that the products are chemically manufactured and has not been helped by health scares associated with ingredients such as aspartame. Instead, people looking to reduce their sugar intake tend simply to learn to live without it, rather than using a sweetener substitute.
Surprisingly, the total sector's value has been faring relatively well. In 2006 the combined sugar and sweetener market was worth 拢306m, a 6% increase since 2001, according to Mintel, despite the proliferation of an everyday low pricing strategy by the supermarkets, which led to a drop in value without a corresponding benefit to volumes.
The prospects for the market are not about to look rosier, though: last July the EU reformed sugar trading, with prices to be cut by 36% over the next four years. Furthermore, a voluntary scheme has also been introduced to reduce production by about 6m tonnes.
White granulated sugar accounts for the lion's share of the sugar category at 71%, but its sales are in decline.
Buoying the market's volume have been premium-priced speciality sugars such as Demerara, golden granulated and low-calorie variants; their share increased to 29% in the past year, up from 25.5% in 2004. This trend has been sparked by the revival of home baking, driven in turn by the rise of the celebrity-chef culture. The most common items baked in the home are cakes, for which sugar a key ingredient.
The popularity of home-baking has exposed one of the limitations of artificial sweeteners; if used for baking, they can break down and lose their sweetness. However, newer offerings such as Splenda and Hermesetas Granulated have overcome this problem and much of their marketing has focused on this.
Fairtrade and organic remain niche areas of the sector. While the former is seeing significant growth, the latter is not. This could be attributed to the fact that the taste benefit of fresh organic produce is not as evident in sugar, with those interested in ethical shopping opting for Fairtrade products instead.
The overall sector has two main players: Silver Spoon, which accounts for almost half of all sales, and Tate & Lyle.
Silver Spoon has dominated the light-sugar category through its Silver Spoon Light brand, which formed an integral part of its marketing strategy in 2006.
Billington's, also owned by Silver Spoon, offers a range of Fairtrade, organic and unrefined sugars, with the latter category viewed by many consumers as offering better-tasting and higher-quality products. The brand has steadily increased its share of the speciality products category.
Tate & Lyle relaunched its sugar range at the beginning of last year by repackaging and categorising variants according to their use. It now owns a fifth of the sugar market, down from a quarter four years ago.
Whitworths is one of the few companies in the sector to have increased its share recently. Distributed in the UK by Napier Brown Foods, it offers a wide range of sugars, including a Fairtrade variant, which it launched in 2003.
Among artificial sweeteners, the launch of Splenda in 2003, which is owned by McNeil Nutritionals, has had a significant impact; it is now the second-biggest brand in the category, with a 17% share of value.
Canderel, available in both tablet and granule form, is the market-leading sweetener. In 2005 it entered the low-calorie sugar sector with Canderel Crystal, but sales did not take off and the product was withdrawn. Its packaging was redesigned last year to reinforce its premium positioning.
Sweeteners are most likely to be used by those over the age of 55, according to TGI. Almost a third of people over the age of 45 never use sugar. It is a health-conscious age group that often includes those suffering ill health with conditions such as Type-2 diabetes. In the UK 2.2m people suffer from diabetes.
The rise in the proportion of AB consumers has not helped the sector, as they are the least likely to be frequent consumers of sugar and sweeteners.
There is limited advertising support for brands in this sector because manufacturers view the products as a commodity, although sweetener brands do receive slightly more investment.
The prospects for the sector are not encouraging. Consumption levels are expected to continue to fall, with the market's value declining by 20% over the next four years, to 拢269m by 2011.
SUGAR TYPES BY SALES AND MARKET SHARE
2006 (est) 2004 04-06
pounds m % pounds m % % change
1 White granulated 183.9 71 197.6 74 -6.9
2 Caster 18.1 7 18.6 7 -2.7
3 Demerera 12.4 5 12.5 5 -0.8
4 Low-calorie 10.1 4 4.0 2 152.5
5 Brown 9.8 4 9.3 4 5.4
6 Icing 9.3 4 10.1 4 -14.6
7 Golden granulated 8.8 3 8.0 3 10.0
Others (incl. fruit) 6.2 2 5.3 2 17.0
Source: Mintel.
SUGAR BRANDS BY SALES AND MARKET SHARE
2006 (est) 2002 02-06
pounds m % pounds m % % change
1 Silver Spoon 126.1 49 125.8 52 0.2
2 Tate & Lyle 53.8 21 60.5 25 -11.0
3 Whitworth 24.0 9 12.1 5 98.4
4 Billington's* 9.1 4 4.8 2 89.6
Own-label 37.8 15 31.5 13 20.0
Others 7.8 3 7.3 3 6.9
Source: Mintel * Taken over by Silver Spoon in August 2004.
ARTIFICIAL SWEETENER BRANDS BY SALES AND MARKET SHARE
2006 (est) 2002 02-06
pounds m % pounds m % % change
1 Canderel 15 31 19 35 -21.1
2 Splenda 8 17 - - -
3= Sweetex 7 15 6 11 16.7
3= Hermesetas 7 14 10 19 -30.0
5 Silver spoon 4 8 5 9 -20.2
Own-label 6 12 8 15 -25.0
Others 1 3 6 11 -85.0
Source: Mintel.
ANALYST COMMENT - Paul Rickard, Director, Mintel Inspire
There is a trend in Britain toward polarisation within food markets, highlighting the ever-more dysfunctional relationship that consumers have with their diets. It is difficult to avoid the discussions about the obesity crisis, while at the same time the nation obsesses about dieting, fitness and size zero.
In light of our obsession with health, one might think indulgence is dead, but it isn't. Indulgence can sit comfortably alongside the more purgatorial aspects of diet and lifestyle. We operate a system of credits and debits - an hour on the rowing machine, a burger on the way home.
It is this notion of healthy eating vying with indulgence that is now visible in the sugars and sweeteners market. Sugar inevitably finds itself on the back foot, but on the flipside there is a rising trend for indulgence, an opportunity that brands could be looking to exploit more readily.
While many of us are trying to lead a healthier life most of the time, we are allowing ourselves things we're told we shouldn't eat, but without which life would be dull, more frequently. We don't sign up to one food regime that we robotically pursue 24/7. Mood, time of day and eating occasion all have an impact on which eating mode we slip into.
This can be seen playing out in this market, as we know that sugars and sweeteners are frequently used alongside each other. A sweetener with my early-morning tea means I can have sugar in my coffee later. This is not an either/or market, so brands could look to exploit this duality more effectively, particularly those with feet in both camps.
To take advantage of this, sugar brands need to do more to highlight their indulgence credentials, to rival and complement the 'healthy alternative' stance of sweeteners.