Who'll win the bar wars?

You go in a shop and see a display of Cadbury Dairy Milk bars, and another featuring KitKats. Which bar do you buy?

A new report has revealed that in October, more UK consumers - 47 per cent - tried York's flagship chocolate wafer bar than Birmingham's iconic master brand (40 per cent).

The triumph follows the launch this year of a range of new KitKat varieties and substantial marketing by Nestl Rowntree, under its dynamic new boss Chris White.

But the report also revealed that the recent success has come after a worrying period of UK market share losses for Nestl and, with Dairy Milk still commanding more consumer loyalty than any other chocolate brand, KitKat appears to face a major struggle to establish a permanent lead.

"Dairy Milk remains the brand to beat in the UK," says the report by investment bank Morgan Stanley.

Headed "Time To Take Profits", and examining Cadbury's share performance in 2004, it says the company has been an "outperformer", and recommends that investors now take their profits.

But it is the results of a consumer survey, also featured in the report, that are more intriguing for Nestl and its thousands of workers in York, who are ultimately dependent on the company's prosperity for their jobs.

Opinion research firm MORI was commissioned to survey almost 1,000 households in October to assess current consumer perceptions of the two iconic brands, Dairy Milk and KitKat. Just less than 700 of the households had eaten chocolate in the last month.

Thirteen per cent of respondents said KitKat was their regular brand. But that left it in second place, a long way behind Dairy Milk, which a staggering 25 per cent of consumers said was their regular brand.

When asked spontaneously to mention chocolate brands, 58 per cent mentioned some version of Dairy Milk, compared to 46 per cent for Mars and 31 per cent for KitKat.

However, Nestl's recent innovation offensive could be turning the tide. The company has this year launched a startling range of new KitKats, including a low carb version, Seville Orange, white chocolate and lemon flavours.

Morgan Stanley says there has been a substantial gain in market share since the launch of the promotional campaign for the new varieties, reversing long-term market share losses.

Supermarket scanner data has shown a momentum in sales growth for Nestl Rowntree.

The authors expect continued gains in the coming months, on the back of substantial marketing spending.

But they stress: "While we believe this is a positive short-term gain, it is unlikely to translate into a permanent lead for KitKat."

The report says the wafer has traditionally been positioned as a snack, for example accompanying a larger meal, but it has recently been marketed more as an indulgence.

But while the advertising has succeeded in getting consumers to try the more indulgent versions, the key test would be whether they remained loyal over coming months. The report says Nestl might be forced to continue its current high level of support for the brand, or risk consumers switching away. It expects Nestl to continue with high levels of spending on marketing in 2005.

The report claims that Cadbury Schweppes' share of the UK chocolate market has grown over the last four years, mainly at the expense of Nestl. It says Cadbury now commands 30.2 per cent. Mars has 20.9 per cent and Nestl only 15.4 per cent.

Cadbury's share has been driven by the launch of new varieties of Dairy Milk, such as Dairy Milk Wafer, and by rebranding other products under the Dairy Milk umbrella brand. With the brand celebrating its 100th anniversary in 2005, the competition from Birmingham is hardly likely to become any less fierce.

However, the report says there is still room to grow in UK chocolate. It points out that only 70 per cent of respondents had bought chocolate in the last month. And that implies there's still a large pool of potential consumers out there to be wooed.

Nestl chiefs were staying tight-lipped about the research, but it is believed they are thrilled to be giving Cadbury a run for their money.

A Nestl source said: "The report shows a pleasing trend, but from our point of view the war is not won."

Council economic chiefs said the company's success could only be a good thing for workers at its York factory and the city as a whole.

Tony Bennett, City of York Council's assistant director for economic development said: "This is clearly good news for York. Nestl is one of the city's key businesses, both as an employer of local people and as a focus for investment in the important food manufacturing sector. Investment in a new range of their key KitKat brand seems to be paying dividends. Greater performance and gaining of market share in a key brand is very welcome news indeed."

How York became a chocolate city

YORK has sometimes been dubbed the "chocolate city", and the origins of the confectioners Rowntree can be traced back to a tiny tea and coffee shop that opened here in 1725.

Since then, the Quaker firm has merged with international food giant Nestl and its Wigginton Road factory remains one of the city's biggest employers.

The importance of its continued success has been thrown into sharp focus by the recent announcement that the rival Terry's factory will shut its doors, with the loss of more than 300 jobs. The Terry's plant, built in Clementhorpe in 1886 by Joseph Terry Junior, was bought up by Kraft Foods in 1993 and just ten years later it was suddenly surplus to requirements.

Production of products including Terry's Chocolate Orange, Terry's All Gold and Twilight is expected to be transferred to other facilities in Sweden, Belgium, Poland and Slovakia.

The announcement was greeted with horror by many who saw the Terry's name, formerly Terry's of York, as synonymous with chocolate making in the city. Now the spotlight is on the continued success of Nestl Rowntree, with this latest bank report making welcome reading for those whose livelihoods depend on it.

Even at his most optimistic, Henri Nestl could not have foreseen the extraordinary growth of his business when he founded a small business in Switzerland in 1867.

From its origins in milk and dietetic foods the firm has gone on to become the world's largest food company.

Almost from the start, Nestl was setting up factories in other countries. By 1900 it had moved beyond Europe and begun manufacturing in the USA.

It bought the Rowntrees business in 1988 and since then York has even given its name to every truck driver's favourite bar, the Yorkie.

But now all eyes are on the popularity of the flagship KitKat bar, launched in 1935 as Rowntree's Chocolate Crisp. Company bosses now estimate that 47 of them are eaten every second.

Updated: 11:11 Monday, December 20, 2004