In the 1800, when John Cadbury decided to enter the chocolates business in England, he figured that the best strategy was to target the high-end market for his products to partially compensate for the high cost of production, which was a stepping stone to the success of the Cadbury brand. Now, nearly two centuries later, chocolate businesses in Oman, which have come up in the recent years, are seen adopting a similar strategy, targeting the mid-to-high-end segment with niche offerings and competing head-on with international brands such as Patchi and Godiva.

Increasing appetite

The chocolate business is still at a very nascent stage with annual sales volumes pegged at around 20,000kg. This might seem somewhat negligible when compared with markets like UAE where the volumes sold are nearly four times more, according to chocolates business owners in Oman. Out of this, the premium chocolates market (where prices of chocolates start at around RO12-15 per 125g) occupies a 40 per cent share with a majority of the purchases coming from corporate clients, while the remaining share is dominated by brands such as Mars and Cadbury.

Executives from local chocolates businesses point out that this has much to do with the strong Arabic culture and affinity towards sweets such as the Omani halwa, especially during festivities, as opposed to indulging in mass consumption of chocolates.

"Oman is still a very price sensitive market when compared with other parts of the GCC. Many consumers are yet to get used to the idea of spending a lot on premium chocolates," says Salma al Hajri, CEO, Salma's Chocolates. But with only around three international brands dominating the premium segment, some Omani entrepreneurs saw vast untapped potential in the chocolates industry to combine international chocolate recipes with Arabic flavours and concepts that appealed to the local audience.

As a result, in the last one year alone, at least three new Omani chocolates businesses (namely S&H Chocolate Lounge, Salma's Chocolates and Luna Lucé) have come up in the sultanate. Another chocolate café concept, Chocomania, is coming up in Qurm and is expected to open in the first quarter of 2013. It is being established by Modern Concepts Enterprises. Older businesses like Art Chocolate that have been operating in Oman for five years redefined their business strategy in the beginning of 2012, by adding more than a 100 variety of chocolates and changed their location from Al Masa Mall to Muscat Grand Mall to target more customers and corporate clients.

Unique Strategy

To break into the chocolates business in the Oman market where consumers are more familiar with brands like Patchi and Godiva, entrepreneurs realised that they needed to introduce unique concepts and products with a slightly different flavour to become successful in this business.

For instance,  S&H Chocolate Lounge gained the reputation of becoming the first such concept here offering chocolates, cakes, fondues and related beverages in a café instead of just selling premium chocolates in a conventional manner. While most of Salman and  Hamza al Lawati's - co-founders of S&H Chocolate Lounge, ingredients for their chocolates are sourced from abroad, the chocolates are made in Oman. Talal Sultan and Alla al Lawati of Modern Concepts Enterprises point out that the lounge concept combines the chocolates business with the coffee  café concept that has always been popular in Oman, especially among the youth.

Salma's Chocolates, on the other hand, decided to source most of its ingredients from Oman itself to incorporate a local flavour and garnered immense popularity as an Omani handmade chocolates brands. A business such as Chocolate Gallery that opened up in 2011, decided to focus on chocolate arrangements for birthdays, weddings and Eid celebrations but aimed to set itself apart from international brands by offering customised silver and gold platters and cups with traditional Omani designs for such arrangements. "I also bring in different flavours of chocolates every six months, more often than brands like Patchi," says Etab al Zadjali, owner, Chocolate Gallery.

Along the similar lines, Art Chocolate has focused on creating decorative chocolate pieces with special flavour and arrangements on platters and crystal ware that are imported from markets like Europe to cater to customised orders. For Luna Lucé, the focus was on importing at least 30 varieties of Belgian chocolates where each order is customised to suit the client's tastes and requirements.

Businesses like S&H Chocolate and Salma's Chocolates have focused on in-house production, while Chocolate Gallery, Luna Lucé and Art Chocolate prefer to get products that are manufactured in factories abroad. Some have been meticulous about creating chocolates incorporating popular flavours such as special fillings with nuts, caramel and brownies along with local flavours like zatar, saffron, honey and the Omani halwa. These businesses also consulted and coordinated with chefs from places like Lebanon and other international markets to learn the best practices and techniques to create chocolates.

"We always feel that success in the chocolate business lies in combining high quality with the maximum variety at the best competitive cost in the market," says Anjali Verma, commercial manager for Al Awadi International that heads the brand Art Chocolate. "You need to constantly come up with innovative concepts and new flavours to stay ahead of the game," says Salma. Hence, Salma's Chocolates and Art Chocolates have recently introduced a new line of chocolates with low sugar content for diabetic patients, a market that has been still not explored.

"There is a lot of potential for young entrepreneurs in the chocolates business today as there are no limits to creativity in this business. It is true that starting a regular chocolates business costs lesser than most start ups, but creating a unique concept or offering in the premium segment is not as cost-effective as one would expect it to be," says Lawati. If one is looking to simply import a handful of chocolates from other parts of GCC and from Europe to set up a small base in Muscat, the initial capital can be as little as RO10,000-15,000.

But a regular chocolates business may not survive for long in this industry, executives point out, especially due to strong competition from international brands. Hence creating a special concept or a unique offering has cost these Omani businesses more than RO50,000 during their initial months. As such, pricing their products for the mid-to-high-end consumer segment in Oman seemed logical for these businesses, with a huge focus on corporate houses that contribute around 60 per cent towards the businesses' overall revenue.

Factoring risks

In the Oman market, over the years, many small scale chocolates businesses have come up and shut shop within six months of operations - or entrepreneurs of these businesses decided that it was best to maintain low overhead costs and to operate out of home. Executives from businesses like Salma's Chocolates, Art Chocolates and S&H Chocolate Lounge point out that this is a high-risk business.

"In the chocolate business, initially it may take time to break even  as the profit margin is marginal. But in the long run, it is quite a profitable business as demand is increasing for premium chocolates in the country," says Anjali. The purchases, be it by corporates or individuals, are also very seasonal according to festivities and important occasions. Those in the industry estimate that it takes anywhere between three to five years to become profitable.

Hence, curtailing overhead costs by keeping their employee base small during the initial years of operations is a strategy that most of these businesses seem to be following. Efficient supply chain management when it comes to sourcing ingredients and chocolates from abroad will go a long way in minimising the risks in the business, says Lawati.

Building brand awareness is just as important for the success of the business. "You cannot depend on individuals alone who visit your shops to market your product. In the chocolates business, you need to create brand awareness by going out and visiting companies in the private sector to garner corporate customers," says Mohammed Hamzeh, owner Luna Lucé.

For these businesses, finding the right location is imperative for selling a premium chocolates brand concept, but this is an area where many entrepreneurs have encountered road blocks while setting up their businesses. "Malls and shopping complexes here prefer to house international chocolate brands. Since we are not a franchise, they do not trust us easily," says Lawati.

He adds that the fierce loyalty of customers towards international brands is also still quite pronounced, aiding them in capturing the dominant market share. "As a small and locally based brand we have an upper hand in better understanding our customers and their needs. International brands are more established and thus have a further reach and a much larger scale of operations, which we hope to achieve in a few years," says Aisha al Hajri, co-founder of Salma's Chocolates.

Emerging trends
Considering the number of players that have entered the chocolates segment in Oman in the past year alone, it is clear that the market is expanding fast. Looking back on their past year's success, business like Salma's Chocolates and S&H Chocolate Lounge are targeting the GCC markets to expand as franchises. Etab of Chocolate Gallery who opened two new stores in the last one year has ambitious plans to expand further in the sultanate as does Lawati and Salma. 

When each of these entrepreneurs are posed with the question of whether or not at some point in the near future, Oman's premium chocolates sector can organise itself well enough and experience growth levels as high as some of its GCC neighbours, all admit that the sultanate still has a long way to go. But with only a handful of brands operating in the premium chocolates segment, the opportunities are vast for new players with many more unique concepts to enter this market and take it to the next level in the GCC chocolates industry.

© businesstoday 2013