Euromonitor International’s Jared Koerten discusses the impact COVID-19 is having on the core strategies of the premium confectionery and snack sectors.
Cleveland — Observable traits and features such as ingredients and packaging are the determining factors of premiumization within snacks. These tangible value drivers allow a product to sell at a higher price point. Simply raising prices or shrinking pack sizes on standard products would not be indicators of premiumization but are better defined as inflation.
Premiumization is also a process rather than a status. Some brands in the confectionery category are widely recognized as premium, including Lindt and Godiva. This status is distinct from premiumization, which is the process of changing consumer perception to create a willingness to pay more.
This process can take years. Nestlé S.A.’s work with KitKat — first in Japan and now more broadly — is an excellent example. For more than two decades, the brand invested to pivot toward its vision of more premium positioning. The KitKat Chocolatory concept has established high-end boutique stores and luxurious variants that feature high cocoa content, novel flavors and striking packaging designs.
Three Factors Of Premiumization
Euromonitor International Ltd. developed a framework to help brands distill the complex premiumization process into three constituent factors — ingredients, packaging and channel distribution.
Ingredients play a pivotal role in consumer perception, and there are several innovation frontiers in terms of what goes into a product. Ingredient origins can establish quality, local identity or appeal with organic or ethically sourced inputs. Ingredient curation refers to how these ingredients are put together, with handcrafted, small-batch, artisanal, craft or gourmet/novel flavors all being hallmarks of premium brands. Finally, the health properties of the ingredients, whether clean label, free-from or functional, are also drivers of higher price points.
Packaging defines how a product looks on the shelf. Pack design conveys a premium image through both the material used (i.e. metal tin or gift box) and elements such as colors, imagery and font. Functional packaging can also generate a willingness to pay more through features that offer novelty (i.e. chocolate with toys), convenience (i.e. reclosable) or sustainability (i.e. recyclable).
Retail channels set the location in which consumers engage with a product. Owned retail locations including pop-up stores, high-end boutiques and online shops give brands direct control over their image and story. Many offer experiential elements such as watching a confectioner handcraft a treat, which significantly increase a consumer’s willingness to pay. Other high-end retail sites, including travel retail, luxury shopping malls and department stores also offer a premium environment for sweet treats.
These elements combined offer a framework to help contextualize the critical components of premiumization in confectionery and snack items. Adopting this systematic approach can ensure brands maintain a holistic understanding of premiumization and avoid focusing exclusively on a single element within this framework.
The Impact Of COVID-19
The COVID-19 pandemic will influence confectionery and snack premiumization in several unique ways. In a time of stress and anxiety, many people look to indulge with sweet treats and snacks as an escape from the present. At the same time, growing economic uncertainty might lead some to trade down from super-premium brands to more affordable luxuries. In this way, the pandemic is similar to prior economic downturns.
However, COVID-19 is different than a recession. The drastic reduction in consumer mobility resulting from quarantines, social distancing and lockdowns has devastated the channel component of this framework as shoppers avoid non-essential trips, and cafes, specialty shops and pop-up stores have closed.
A collapse in cross-border tourism has decimated travel retail. Foot traffic in department stores and other high-end retail has plummeted. Unpackaged and handcrafted items that made specialty channels unique have lost appeal as consumers seek the safety of packaged offerings.
As such, COVID-19 rendered all elements of channel premiumization nearly irrelevant, save ecommerce. Premiumization efforts now must refocus on ingredients and packaging. For brands that had relied on an extensive network of self-owned retail stores, the experiential and brand storytelling elements must be reoriented in an online environment as much as possible.
The unique features of the pandemic could also create new opportunities. People are spending more time at home, giving rise to “hometainment” as consumers look for new types of in-home recreation. This might offer confectionery and snack brands a new frontier for premium innovation. In April 2020, Unilever PLC’s launch of Make My Magnum kit in the UK allowed consumers to replicate the Magnum store experience in their homes. In the U.S., The Hershey Co. has launched Build-A-Snowman chocolate bars that are basically a chocolate puzzle, while Mars Wrigley Confections U.S., LLC debuted an app-based digital trick-or-treat experience called Treat Town.
Social distancing also presents new opportunities for premiumization in the form of gifting. People are looking for ways to express gratitude, appreciation or affection at a time when they are unable to visit in person, and confectionery and snacks can fill this void. In Argentina, for instance, Mondelez International, Inc. introduced Milka tablets with on-pack messages as an affordable gift option. Gifting has always been important in sectors such as boxed chocolates, but with ongoing economic pressures, demand for gifts at more accessible price points is set to expand.
The Future Of Premiumization
Premiumization has been a crucial driver of past growth in the confectionery and snack markets. As the industry moves into a new decade, this important trend will look different in the aftermath of a global pandemic. However, amid ongoing uncertainties, premium confectionery and snacks will continue to serve as a small indulgence for consumers but perhaps in new and different ways.
Contributor Info — Jared Koerten is the head of packaged food at Euromonitor International. He provides strategic insight and analysis on developments shaping the global food landscape, is an expert in market trends and has spent nearly a decade researching the industry. He can be reached at [email protected]