CONFECTIONERY SECTOR

COMPILED BY Yamini Sequeira

INDULGENCE DRIVES GROWTH  

Sathish Rathnayake offers insights into the frozen confectionery sector

Q: What structural factors are sustaining category growth in frozen confectionery – and where do you see the strongest growth drivers emerging over the next few years?

A: The frozen confectionery category has significant long-term growth potential, mainly because per capita consumption in Sri Lanka remains below regional and developed markets. 

This means that even a modest increase in per capita consumption can translate into meaningful volume growth. And this headroom is supported by expanding middle-income households, a young consumer base that drives impulse purchases and experimentation. 

Product innovation will remain a key catalyst with extruded products, new formats, novel flavours, convenient pack sizes, improved packaging and single serve opportunities creating new consumption occasions. 

Improved availability across more markets will also support category growth. 

Together, these factors will support both penetration and frequency of consumption over time.

Q: How have inflationary pressures and changing household spending patterns influenced consumption behaviour? And what does this reveal about affordable indulgence in consumer purchasing decisions?

A: Inflationary pressures have made discretionary spending more selective, particularly among value conscious households, with larger lifestyle expenses such as dining out, travel and entertainment being considered more carefully. 

However, the appetite for small affordable rewards has remained resilient and psychologically important, allowing frozen confectionery to serve as a source of comfort, emotional satisfaction and normalcy at a price point that consumers can still justify. 

Its role as both a personal treat and shareable family occasion shows that consumers do not necessarily eliminate indulgence during difficult periods. Instead, they seek more affordable ways to experience it while still feeling that they’re receiving value for money compared with other indulgent categories.

Q: To what extent is premiumisation shaping the future of the category – and how are manufacturers balancing demand across value, mainstream and premium segments? 

A: Premiumisation has been developing over the past 10 years and is showing renewed growth as consumer confidence improves, although it remains a relatively niche segment locally. 

Premium products currently account for approximately five percent of category volume and around eight percent of category value, contributing above their volume weight through higher unit prices and stronger brand equity. 

Therefore, manufacturers need a balanced portfolio with value products supporting accessibility, mainstream products delivering household penetration and volume, and premium offerings building margins and encouraging trade up through superior ingredients, distinctive flavours, richer textures, premium inclusions and elevated consumer experiences without chasing premium at the expense of mainstream volume.

Q: What are the main challenges in maintaining supply chain efficiency and profitability, particularly in the context of rising energy and logistics costs? 

A: The main operational challenge is maintaining an uninterrupted cold chain across manufacturing, storage, transport and retail display, because frozen confectionery requires continuous refrigeration and the product never really gets to rest. 

Rising electricity tariffs and fuel costs affect every stage of the value chain, while cold rooms become more expensive to operate during peak production and festive periods, when higher demand requires extended operating hours and greater capacity. 

The sector increasingly recognises that health and indulgence are not mutually exclusive

At the retail level, smaller outlets may switch off freezers to reduce electricity costs, affecting product integrity, shelf life, food safety and consumer confidence. It follows that energy efficient refrigeration, logistics optimisation, digital supply chain management and stronger retailer partnerships will be essential.

Q: As consumers become increasingly conscious of health, wellness and ingredient transparency, how is the sector navigating the tension between indulgence and nutritional expectations? 

A: The sector increasingly recognises that health and indulgence are not mutually exclusive but they need to be addressed through choice rather than by forcing one product to satisfy every consumer need. 

A segmented portfolio enables manufacturers to cater to different occasions through pure indulgence products, everyday enjoyment ranges, ‘better for you’ or feel good options, functional products with added benefits and portion controlled formats, rather than replacing traditional indulgent products. 

This approach allows health-conscious consumers to remain within the category without diluting the taste, richness and indulgence credentials of the core range, while keeping brands relevant as lifestyles, ingredient expectations and wellness awareness continue to evolve.

Q: What lessons can the local frozen confectionery sector draw from more developed international markets? And which global innovations are most likely to influence the local sector in the future? 

A: Developed markets demonstrate that format innovation will be an important growth area, particularly single serve products, which account for around 90 percent of consumption in developed markets compared with approximately 30 percent in Sri Lanka. 

Better for you frozen desserts are also likely to influence the local sector over time, although this segment accounts for less than one percent of the category locally while being more established in mature markets. 

The most practical innovations for Sri Lanka are likely to include unique textures, inclusions, layered products, novel flavour combinations and visually distinctive formats, supported by stronger cold chain management, energy efficient refrigeration and digital supply chain capability.

The interviewee is the Head of Confectionery of Ceylon Cold Stores and Senior Vice President of John Keells Holdings.