2023 economic trends: Sugar and confectionary products

This information is shared from the 2023 FCC Food and Beverage Report – highlighting the opportunities and challenges for Canadian food manufacturers by industry. To get the bigger picture – read the full report.  

Sales and margin growth forecasted to be weak in 2023

FCC Economics projects sales from the sugar and confectionery product industry to decline 1.3% in 2023. (Figure B.1).

Figure B.1: Sugar and confection product sales expected to decline in 2023

Source: FCC Economics, Statistics Canada, Barchart, Moody’s Analytics

Sales growth momentum has significantly eased towards the end of 2022 after rising 25% in Q2 and 10% in Q3. As 2023 progresses, we expect volume growth to be low to negative. Export volume growth is expected to substantially slow on lower U.S. demand, creating headwinds for 2023 sales. We’re projecting lower sugar prices as the global balance between supply and demand of raw sugar moves into a surplus, driven by strong Brazilian production.

Gross margins are also forecasted to weaken slightly in 2023 (Figure B.2). Raw material costs rose 29% in 2022, given the lower exchange rate that made imported sugar more expensive. Other commodities, such as butter, cocoa and packaging materials, also recorded price increases. We expect input price inflation to subside in 2023, but costs will still outweigh possible increases in selling prices. There is an opportunity for margin improvement as the year progresses if the value of the Canadian dollar rises.

Figure B.2: Gross margins in sugar and confection are forecasted to decline in 2023

Source: FCC Economics, Statistics Canada

How we got here: A normal year of holiday selling

Sales increased over 15% YoY in 2022 to $5.2 billion (Table B.1). Fuelled by an 8% price increase, a rebound in volumes driven by foodservice and strong holiday demand, 2022 was the second consecutive year with sales growth above 15%. Chocolate ranked in the top 10% of total grocery volume growth among all food and beverage categories.

Table B.1: Higher volumes boosted sales in 2022

Source: Statistics Canada

Healthy choices remain a key trend in Canada, but according to Mondelez, 78% of people believe “it’s more important than ever to have moments of indulgence in the day.” In 2022, Canadians took that to heart, fully celebrating all traditional holidays for the first time in three years.

According to data from Nielsen IQ, grocery sales of sugar and confectionery products increased 6% in 2022 YoY, outperforming total food sales by 5%. Volumes declined 1% overall, but we did see gains in several categories, including gum (11%), frozen juice pops (6%), drink mixes (4%) and candy/chocolate (2%). More expensive products, like maple syrup (-9%) and sugar substitutes (-20%), saw the steepest volume declines. Refined sugar volumes declined under 1%, with price inflation of 10%.

Anti-dumping duties on imported sugar from the U.S. and the EU contribute to a tight domestic supply of sugar available for processors. Imports of confectionery products from the U.S. grew 11% YoY in 2022. Manufactured sugar imports grew by 22% YoY, led by Guatemala and El Salvador. Chocolate exports grew 14% YoY. Import growth outpaced export growth for total sugar and confectionery products for the second year.

Bottom line

• Sugar and sugary production consumption has been declining per capita. However, indulgence will continue, and a growing domestic population will provide growth opportunities.

• The number of confectionery imports from the U.S. proves there are ample opportunities to meet robust demand for indulgence.

• Growth can also exist in the international markets as global disposable incomes rise.

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