Candy Manufacturing
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Industry Overview
The US candy manufacturing industry includes about 1,600 companies with combined annual revenue of $17 billion. Major companies include Mars, Nestle, Cadbury, and The Hershey Company. The total candy industry is fragmented: the largest 50 companies hold less than 40 percent of the market. However, consolidation is occurring and each major market has dominant companies: Hershey and Mars in chocolates, Wrigley in chewing/bubble gum, and Jelly Belly in jelly beans.
The industry includes three major segments: companies that make chocolate from beans, companies that use purchased chocolate to make candies, and companies that make non-chocolate candy.
Competitive Landscape
Demand is driven by consumer tastes and population growth. The profitability of individual companies depends on manufacturing efficiency, supply chain efficiency, and marketing. Large companies have advantages in economies of scale in manufacturing and purchasing. Small companies can compete effectively by offering premium and specialty products. The industry is highly automated: average annual revenue per worker for a typical company is about $300,000.
Products, Operations & Technology
Major industry products are chocolates, candy made from purchased chocolate, and non-chocolate candy. Candy made from purchased chocolate accounts for about half of industry revenue, non-chocolate candy for 30 percent, and chocolate for 20 percent. Non-chocolate candies include a wide variety of products: jellybeans, chewing/bubble gum, marshmallows, mints, and hard candies.
Chocolate is made from dried beans of the cacao tree. The beans are roasted and the inner meat is ground and refined to produce a warm non-alcoholic cacao liquor, from which cacao butter, powder, and chocolate can be made, depending on the quality of the liquor. Further mechanical processing, such as conching and tempering, affect the chocolate's texture. The type of chocolate made depends on the various amounts of cacao butter, high-quality cacao liquor, and other ingredients. Sugar, other sweeteners, flavorings, nuts, fruits, and potassium carbonate may be added before the chocolate is poured into molds, cooled, and packaged. "Cacao" and "cocoa" are often used interchangeably in the industry.
Candy made from purchased chocolate, such as candy bars, typically use chocolate as an outer layer over a variety of ingredients like nuts, fruits, sugars, flavorings, and various stabilizers that may be ground, mixed, cooked, or baked together. Production lines are typically made up of individual machines that specialize in a particular step, along with tanks for ingredients and packaging machinery.
Non-chocolate confectionery products are made in various ways. Jelly beans use two steps: the centers are molded from cooked sugar and corn syrup, then the outer shell is added in a rotating drum, or engrossing pan. Chewing and bubble gums are made from natural or synthetic gums that are ground, cooked, mixed with various flavorings, then rolled, cut, and packaged. Hard candies are mixtures of sugars and flavorings, boiled and poured into molds to harden.
Important raw materials like sugar and corn syrup are readily available from many sources. Cacao beans may be bought through import brokers or on commodity exchanges like the New York Board of Trade. The quality, availability, and price of cacao beans vary according to conditions in the major growing countries of West Africa and South America. Energy is an important input for most candy manufacture, required for roasting, liquefying, or cooking. Companies try to minimize the impact of price fluctuations in raw materials and energy costs by forward purchasing and hedging.
IT is used extensively in supply chain management. Comprehensive information systems help candy manufacturers synchronize plans between customers and suppliers. Good supply chain management helps improve forecasting, reduce inventory, and increase overall efficiency.
