Spotlight: Mars Confectionery Maltesers Strategy

In this article we’re going to take a look at Maltesers, a successful product line of Mars Wrigley Confectionery. Mars is a multi-national FMCG company, and a leading manufacturer of chocolate, chewing gum and other confections. Their portfolio of world-famous brands include M&M’s, Maltesers and Wrigley’s Extra.

In 2018, Mars Chocolate UK merged with The Wrigley Company, to form Mars Wrigley Confectionary UK. Just a year later, Mars was recorded as having a 26.7% market share in the UK chocolate confectionery market, second to the market leader Mondelēz, who had a a 34.4% market share.

In the UK, Mars has achieved a turnover of £1.1bn and gross profit margin of 23% in 2018… the Brits love their chocolate! The Maltesers range, accounting for £139m of sales, has seen extraordinary growth of 28.7% in 2018; above the industry average of 1.2%. The Maltesers product line currently holds 4% of the UK chocolate confectionery market; superseded by Galaxy (owned by Mars) and Cadbury Dairy Milk, at 7% and 16% respectively.

Over the next 5 years, Mintel have forecasted the chocolate confectionery market value to grow by 9%…

As a whole, the Chocolate Confectionery industry is facing external pressures due to Brexit and a number of firms having large market share, meaning that both competition and uncertainty is high. So let’s grab a chocolate bar and take a look through some of the strategic issues facing this company…

PESTLE Analysis for Mars Wrigley Confectionery

The PESTLE analysis of Mars’ macro-environment suggests the company are particularly vulnerable to current political and socio-cultural factors. The uncertainty around Brexit and its predicted consequences will impact almost every aspect of Maltesers from raw material supply to pricing decisions. Whilst some effects such as the sterling value fluctuating are likely to be short-lived, it may take months or years to renegotiate suitable trade deals and movement of workers.

Mars have the advantage of strong financial resource and market presence, which enables them to develop strong supplier relationships and agree forward contracts; offsetting some of the risk of shortages and exchange rate volatility.

Consumers are becoming increasingly health conscious, they feel food manufacturers have more of a responsibility to provide vegan/healthier alternatives and calorie-controlled portions. Mars will need to take this into consideration when producing, packaging and marketing their Maltesers products to ensure they are not missing out on potential customers.

Political

• Brexit, the UK is leaving the EU which is expected to impact a number of Industries across the UK
• Implications include import taxation, trade barriers, consumer and business uncertainty, and skill shortages
• The industry is reliant on EU nationals.
• Import tax on EU sourced Maltesers ingredients increases costs
• Mars may have to negotiate visas for existing workers or recruit; wages rise during shortages
• Public Health have challenged food and drink manufacturers to reduce sugar levels, and introduced a ‘Sugar Tax’ on drinks
• The confectionary industry may face a sugar tax, which will result in reduced profits, higher prices, and increased propensity to substitute
• Mars to invent a reduced sugar chocolate or change pack sizes, both of which are costly and time- consuming

Economic

• UK economy health
• In uncertain times, consumers save and reduce spending
• Businesses reduce investment and stockpile
• Chocolate is perishable – possible loss of profit from unsold stock
• To increase sales Mars may need to offer promotions
• The pound is weak, which is expected to result in higher inflation due to more expensive imports
• More expensive imports, will affect Mars’ profit margin
• They may have to renegotiate supply deals or increase Maltesers pricing, though this may result in a decline of sales

Social

• Consumers are becoming increasingly health conscious
• Most people feel food manufacturers are responsible for making unhealthy food healthier
• Chocolate is often an impulse purchase
• The frequency of purchasing chocolate is likely to fall unless manufacturers can create ‘healthier’ alternatives
• ‘The lighter way to enjoy chocolate’ – Each Malteser contains less than 11 calories
• High sugar content – Mars may need to explore reduced sugar Maltesers
• Research conducted by the Vegan Society shows the number of UK vegans has reached 600,000, quadruple figures in 2014.
• Increasingly, chocolate confectionery companies are using vegan claims to cater for this emerging market and drive trends
• Most of Maltesers ingredients are not vegan

Technology

• Increased R&D helps confectionery companies achieve competitive advantages and cost leadership through efficiency and economies of scale
• New approaches to flavours for vegan alternatives
• Blockchain2 technology as payment
• Supply chain and logistics technology for higher profit / efficiency

Environmental

• Climate change and unsustainable farming techniques threaten cocoa production
• Confectionery companies will need to encourage/fund sustainable farming techniques to ensure long- term cocoa production.
• 49% of people say chocolate containing palm oil is off-putting
• Confectionery companies face pressure to use alternatives or sustainable palm oil.

Read the Ultimate Guide to PESTLE Analysis.

Five Forces for Mars Wrigley Confectionery

Chocolate confectionery is a highly competitive industry, evidenced by the Porter’s 5 Forces analysis, few players (Mars and Mondelēz) have high market share and the bargaining power of buyers is high. There is little perceived differentiation between products, no financial or psychological switching costs and high availability of alternatives, which means brand loyalty is low and Maltesers are vulnerable to low price elasticity.

The threat of substitution is growing as more food manufacturers are offering healthy yet equally indulgent snacking alternatives to chocolate. Mars may need to look at offering a healthy Maltesers option or adding value to their current range.

Industry Rivalry: High

• Mars and Mondelēz (Cadbury), dominate the UK chocolate confectionery market with roughly equal market share, at 26.7% and 34.4% respectively
• Competition for market share is intense
• Mars need to continuously invest in product innovation, effective advertising and price competitively
• Chocolate brand loyalty is low, 40% of people report they have no preference for one brand over another
• Brand differentiation is also low with 45% of people agreeing there is no or very little differentiation between chocolate brands
• Low brand loyalty and perceived differentiation further increases competition
• Mars have to ensure their Maltesers products are differential and retain brand loyalty to achieve competitive advantage

Threat from New Entrants: Low

• Entering the chocolate confectionery industry requires high levels of capital, experience and knowledge
• Large companies have developed strong supplier relationships, meaning trying to tap into these supply channels will be difficult and complicated
• Mars large market share will deter potential entrants
• Mars benefit from economies of scale, which allows them to undercut new entrants

Power of Suppliers: Medium

• The ingredients of chocolate are not unique and widely available, therefore suppliers’ bargaining power is relatively low
• The cocoa shortage provides farmers with some bargaining power
• Mars’ bargaining power outweighs suppliers; stemming from the sheer amount of raw ingredients they purchase
• It is likely that Mars have agreed a set price for cocoa, irrespective of market conditions

Power of Buyers: High

• Wholesale buyers such as Tesco, account for a large volume of Mars’ total sales, they have more power than smaller outlets when negotiating terms and price
• If Mars absorb the burden of lower wholesale prices rather than increasing retail prices, their profit margin is reduced.
• Consumers have high bargaining power due to low switching costs, highly concentrated market and high price sensitivity; resulting from the wide variety of alternatives
• Bargaining power allows consumers to demand better prices and products
• If Maltesers do not meet their expectations they are willing and able to switch.

Threat of Substitutes: Medium

• Consumers are becoming increasingly health conscious which is changing the way they snack
• Healthier snacks are emerging – cereal bars, fruit-based snacks and sugar-free confectionery
• Healthier alternatives pose a substitution risk
• Mars added value to some of their other chocolate ranges, i.e. ‘Snickers Protein Bar’
• Mars could offer Maltesers with dark chocolate, which is naturally lower in sugar
• The risk of substitution is partly offset by the versatility of chocolate beyond personal consumption – eg you can’t give a cereal bar as a Christmas gift!
• Mars offer a range of seasonal formats such as the Maltesers egg and Advent calendar, making the brand suitable for any occasion, all year round

Complete your own Five Forces here.

SWOT Analysis for Mars Wrigley Confectionery

Strengths

• Maltesers have heritage, good brand image and reputation
• High brand awareness
• Production expertise and patents
• Second-largest market share
• Strong supply chain relationships
• Exclusive partnerships with Tesco and Alibaba

Weaknesses

• Customers only interact with Maltesers’ social media to complain
• Poor customer service team / system
• Low brand loyalty
• Poor corporate culture and communication between management and employees
• Long innovation lead time

Opportunities

• Growing market for healthier alternatives and ‘added benefits’ chocolate bars
• To be better utilise Maltesers online and social media presence to build customer relations, engagement and marketing sensing capabilities
• Positive market growth expected over the next 5 years

Threats

• Highly competitive market, competition between Mars and Mondelēz is intense
• Increasing health consciousness
• Brexit: import taxes, skill shortages
• Economy has experienced contractions due to low consumer and business confidence

Read the Ultimate Guide to SWOT Analysis.

Possible Strategic Objectives

There are a few possible objectives for Mars:

1. To grow Mars’ market share in UK chocolate confectionery by 5%, market share will be measured by volume increase

2. To increase customer brand loyalty for Maltesers by at least 10%, currently, 47% of people surveyed said they prefer Maltesers over other chocolate brands or that it is their favourite

3. To improve Mars’ image as an ethical brand, in the UK chocolate confectionery market, currently, 39% of people surveyed said they view Maltesers as an ethical brand

Summary & Options

Innovation will be essential to achieving a product development strategy and improve the Maltesers price/quality positioning. Changing customer needs have resulted in the need for Mars to innovate in order to achieve profit and growth in an intense market.

Creation of a Maltesers product range with greater health values and sustainably-sourced ingredients carries some risk, however it allows Mars to capitalise on distribution strengths and maintain market share. Customer brand loyalty will increase as Mars are offering a differential product that meets health and environmental concerns, improving sales hopefully leading to an increase in market share.

Value innovation will be achieved through:

• Innovative networks – crowd-sourcing suggestions via social media from customers on how Mars can make Maltesers healthier
• Strategic partnerships with technology companies – new technologies would allow Mars to trial new product developments quickly
• Experimentation – testing the healthy/sustainable Maltesers prototype on customers and then conducting market tests to see if potential customers make a purchase
• Sourcing and establishing relationships with sustainable farmers or pressuring current suppliers to implement sustainable practices
• Fostering entrepreneurism and progressive management, alike Tootsie, to increase innovation and alignment with marketing objectives
• Gaining the support of key decision makers to ensure co-operation and provision of personnel and financial resource to implement the strategy properly

So there we go… a lot to digest (🙄) in this article!