Brits have had their fill of chocolate

The market has been static for five years and this is troubling Nestlé, Cadbury and Masterfoods, the three firms that dominate the British industry. "It's a saturated market," says Jeremy Cunnington, an analyst for Euromonitor, a market research agency. "Penetration has gone as far as it can." Mintel, another market research firm, agrees, predicting a slight drop in sales volume by 2006.

With profits constrained by tight pricing on supermarket shelves, firms will focus more and more on extending a few superbrands with lasting appeal, subsuming existing products into them and trying to improve sales value rather than volume. If they do, it will continue a trend towards emphasizing established brand names instead of new ones.

Cadbury has stopped selling its Wispa and Caramel products under their old names, bundling them under the Dairy Milk brand instead. Nestlé has been tinkering with its own big name, Kit Kat. A new version of the snack, Chunky, was launched in 1999, followed by bite-sized Kubes in 2003.

There was even talk recently of a lemon cheesecake flavour - apparently popular with the Japanese and the Germans.

Not all the news is gloomy, though. There are lively niche markets, where consumers' sharpening social consciences and growing fondness for luxury have been lifting sales. Clever companies satisfy both at once. Green & Black's, a small firm that sells expensive, organic GM-free chocolate, has seen its sales rise five-fold since 1999 to £23.4million in 2003. The firm has recently been moving away from its green roots to focus on its premium credentials, but "organic" and "premium" are linked in many people's minds. The "fair trade" segment is another impressive performer. Such organisations guarantee producers in poor countries a minimum price, shielding them from the ups and downs of the world cocoa market.

Figures from the Fairtrade Foundation show that Britain ate just over 1000 tonnes of their chocolate in 2003, up from 82 tonnes in 1998 - a 12-fold increase in five years, albeit from a very low base.

The big players are beginning to cotton on, with the Co-op, a supermarket chain, announcing in 2002 that it would source all its own-brand chocolate from "fair trade" suppliers. Most British supermarkets now offer some sort of "fair trade" chocolate. So will posh, socially responsible chocolate conquer the market? Unlikely, says Cunnington. Luxury firms do not compete directly against the big companies- indeed their products have little in common. Most British chocolate contains vegetable solids, and tastes quite different from the "real" chocolate that the luxury firms offer. As for "fair trade", higher prices for producers mean higher prices for consumers, limiting its appeal to a cost-conscious public. Although the two sectors are expected to continue growing strongly, they are unlikely to escape from their niches.