Moving Over to the Dark Side

Chocolate may be bringing up the rear of America’s upscale revolution, but consumers and a growing number of c-store operators aren’t complaining.

Higher-priced, better quality chocolates are finding acceptance on more store shelves all the time–great for consumers and great for operators’ bottom lines. Resistance to the higher price points will fade in time as it has in so many other product categories. But manufacturers and retailers need to maintain a firm grasp on consistency of offerings and appropriate in-store merchandising.

The National Confectioners Association (NCS) predicted months ago that 2008 would be a "strong year" for chocolate, especially upscale chocolate products made with exotic flavors and high cocoa content. That assessment is supported by research from Rockville, Md.-based Packaged Facts, which reports sales of premium ($8 per pound and up) chocolate in the U.S. rose by 11% to $2.7 billion in 2006, the most recent full year for which statistics are available.

Dark chocolate sales jumped 15%, to $4 billion, for the same period. In all, the firm notes, premium chocolate now accounts for around 17% of the $16-billion American chocolate market, with sales projected to continue to grow to 25% of the market by 2011.

In chocolate, as in many food categories, it’s no secret that premium is where it’s at. It is becoming all the more popular, and confectioners big and small have been jostling to get a share of booming demand.

Consider brands like Toblerone, Ritter Sport, Ghirardelli, Lindt & Sprüngli, Cadbury Schweppes, Godiva, Scharffen Berger and more are increasingly having to fend off competition from their heretofore lower-scale cousins:

• Last summer, for example, The Hershey Co. signed a development and distribution agreement with Starbucks Coffee Co. that will, the company said at the time, "help transform the premium chocolate segment." In addition, Hershey’s Bliss, individually wrapped bite-size pieces of milk and dark chocolate launched it first ad campaign in early April. As Adweek reported recently, Bliss is positioned as "an everyday indulgence."

That positioning represents a shift from previous premium chocolates carrying the Hershey’s name (Hershey’s Cacao Reserve, Hershey’s Origins), which tried appealing to consumers by touting antioxidants and the cacao beans’ country of origin.

• Not to be outdone, Mars Inc. scheduled a summer 2008 launch of its M&M’s Premiums. The line will come in five flavors: Triple Chocolate, Chocolate Almond, Mint, Mocha and Raspberry Almond. The 6-ounce packages are retail priced at just over $3. According to Mars, the brand will include seasonal package extensions for Christmas, Easter and Mother’s Day in 2009, to be followed by a line extension with new flavors.

• Nestlé is also aiming at the upper tier of the market, reportedly working on a variety of products with Belgian chocolatier Pierre Marcolini. There is, the company recently said, a "clear market for premium and super-premium chocolates in industrialized countries."

According to one candy industry insider, who asked not to be identified, the new generation of chocolates may cause consumers to think twice before buying, but won’t turn them away. "If you’re a convenience store there is no way you’re going to sell a $7, 3-ounce bar of chocolate. But there are a whole bunch of companies right now that are filling the middle range, and the leader probably is Hershey’s Cacao Reserve. They come in little Altoid-type tins filled with eight little truffles for $2.79, and they are so damn good for what they are."

Convenience stores, he added, are "going to make hay with upscale chocolate that is not outrageously expensive, better than Mars bars and crunch bars and things like that, but not flown in from France. And they will probably do very well with it."

 

‘Huge Opportunity’

As trend watchers will confirm, chocolate "might be one of the last products to upscale, if you think about it," suggested Matthew Stevens, executive editor of Chocolatier magazine. Americans have been stuffing themselves with gourmet meats, exotic produce from around the globe and $4-a-pound pastas for years. "The upscale chocolate revolution, however, is probably only about five years old as far as mass product. And if convenience store operators are looking at it, it’s even newer than that to the masses. Chocolate is on the tail end of the gourmet revolution."

Retailers are sold on the possibilities.

"I think there’s a huge opportunity out there," said Jim Fiene, chief operating officer of Open Pantry Food Marts of Wisconsin in Pleasant Prairie, Wis. "Certainly (chocolate makers) have taught the consumer that upscale chocolate, dark chocolate, is a healthy chocolate. I think people, and especially female consumers, are certainly buying into that."

Consumers are also buying into higher pricing, Fiene added. "Since the price of a normal candy bar has gone up to well over a dollar, another 50 cents on top of that, something under or around that $2 mark, isn’t a stretch any longer. It’s not the old 79 cents versus $1.69. It’s now $1.09 or $1.19 versus $1.99. People don’t mind making that buy-up to experience something they consider better or healthier for them."

Certainly Open Pantry’s management believes in the power of upscale items; the chain’s entire business model is skewed a bit higher than most competitors. In the case of chocolate, Fiene noted, consumers "may well say, ‘you know, I’m willing to try this instead of the typical candy bar because I want something a little bit better.’ It might be a little smaller and it might even be a few less calories, so making that stretch for them isn’t a bad thing."

Finding floor space, of course, remains "probably the most difficult piece to it," Fiene said. Open Pantry doesn’t set its upscale chocolate brands next to the rest. Instead, it is displayed prominently in front of the cashiers. "We have designated areas in our stores for in-and-out-type items, and that’s the area in which we really drive the upscale chocolate."

On a more fundamental level, Open Pantry has found a problem stemming from the gush of new varieties to replace old. "There are so many changes, literally month by month, of what the upscale chocolate items are," says Fiene. "The introductions are coming out faster than we can place them in our stores, and then they change."

Indeed, Open Pantry has yet to designate a permanent brand set "because by the time we get it into our stores and into a set it’s changed; it’s gone from dark chocolate to dark chocolate with raspberry to dark chocolate with raspberry and caramel. By the time you roll that out to the entire company it’s no longer available because the company itself has made changes to it."

Consumers also suffer from such frequent switches, he added. "They may sample something, like it and come back looking for it. But nine times out of 10 there will be a different upscale chocolate in that place."

As with any emerging product category, Fiene recognized, "If you’re doing it you’ve got to be committed to it. Throwing in new products like you throw in seasonal products, and we learned this because we went upscale about three years ago, doesn’t make you an upscale branded marketer."

In the winter, "everybody sells chocolate-covered cherries or Andes mints at the cash register. Then they pull them away and go with some other product," Fiene said. "This product is not that type of product. If they know you’ve got some upscale sweet offerings inside the store they’ll try different ones. But the next day, if you don’t, you’re no longer an upscale marketer. You just were selling stuff at your checkout."

 

‘We’re Trying It’

In March, 23-store operator The Parker Cos. in Savannah, Ga., inserted upscale chocolate into its set at the checkouts of nearly all of its stores. "We’re trying it," offered Marketing Manager Brandon Hofmann. "It’s not something we have any data to report on yet, but we’ve got about a two-foot section at the checkouts."

Executives were emboldened by the chocolates’ success at its downtown gourmet store, Parker’s Market. "What we did was say, ‘look, we’ll take some of the top items in that store and try them in some of our other stores,’" Hofmann said. "We’ve got it in most of our stores, but not all of them, as a trial to see how it does."

Parker stores are experimenting with what Hofmann called "a realm of variety to see what type of chocolate sells. We want to put some raspberry-filled chocolate, dark chocolate, fruit-filled chocolates and more out there. I think it gives the consumer options aside from just the standard candy bar."

Visiting the national trade shows, Hofmann has detected what he terms "a large push" for upscale product from several manufacturers. Retail price points range from $1.99 to $2.19, "a premium price above a king-size chocolate bar."

Parker has put no promotional muscle behind its upscale chocolate offerings, although executives intend to. For now, merchandising will help sell the products. "We do candy sets underneath in front of the checkout, in a prime position distinguished from all the rest of the candy," Hofmann said. "We’re in the infancy stages with this." Once Parker solidifies its product selection, he added, "we may run some price promotions and get some in-line price discounting."

Hofmann also urged colleagues to realize that they "don’t know where it is going to sell. We have every demographic in our stores. Some of them are in the inner city, others are in the country, in the middle of downtown, and out in the middle of nowhere. When we decided to do this I said there was no way in hell this stuff is going to sell out here in the country, and I was wrong," he said. "I was shocked to see it, so you have to give it a chance. If someone told me that you’re gong to get $2.49 for a chocolate bar in a low-income area I wouldn’t have believed it."

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