Who's Winning China's Chocolate War?

M&M as Terracotta Warrior Credit: FITCH

At the new M&M's World chocolate megastore in Shanghai, the decor is a tribute to Chinese culture. There's a Great Wall of Chocolate and a massive M&M statue wearing the armor of a Terracotta Warrior. Chen JieTing, 20, posed for photos with an M&M wearing Bruce Lee's yellow jumpsuit. "I love M&Ms -- not too sweet and so cute," she said.

Chinese consumers traditionally prefer salty snacks, but the world's chocolate makers have been making converts -- and competing fiercely for market share -- in the high-stakes market that's home to 1.37 billion people. The local chocolate market has been growing 12% annually, according to Euromonitor International. China's embrace of chocolate has helped push up cocoa prices and contributed to fears of an international shortage. (Mars Inc., the maker of M&Ms. has warned the industry will need 1 million more metric tons by 2020 and is working on sustainable farming to boost yield.)


Meanwhile, Western brands have upped the ante in China by building factories and innovation centers, launching flashy campaigns, buying local chocolate makers and creating retail experiences like the M&M's store, which opened in August.

Mars, which also makes Snickers, has come out ahead, with a projected 39% of the Chinese market in 2014, according to Euromonitor. Its biggest hit is the Dove brand, which accounts for a whopping 34% of national chocolate consumption.

After the era of Chairman Mao Zedong, "when China's doors opened in 1979, you really had a billion people who had never tasted chocolate," said Lawrence Allen, a former Hershey and Nestlé executive in China. "It was a virgin market."

Companies rushed in and learned by trial and error -- Mars tried first with M&Ms. he said, but Dove was what took off. Hersheys had a hit with bite-size Kisses while others were selling 60- or even 80-gram bars, because "Chinese people do not sit down and eat 60 grams of chocolate at a time," said Mr. Allen, author of "Chocolate Fortunes: The Battle for the Hearts, Minds, and Wallets of China's Consumers."

There were cultural differences too. China traditionally classifies foods as "heating" and "cooling," concepts not about temperature but about the effect on the body. Chocolate is a heating food, so it's ill-advised for summer.

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