A Higher Chocolate Premium

October 1, 2005
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A Higher Chocolate Premium

Mainstream and mass premium chocolate manufacturers respond to consumers wanting more of “the good stuff” on an everyday basis.
The bar has officially been raised — the chocolate bar, that is. “Everyday premium” has become the confectionery catchphrase as mainstream chocolate players join those on the higher end of the cocoa spectrum with investments and marketing in more upscale chocolate. Two key examples:
• A newly formed unit of Hershey, Artisan Confections Co., this summer purchased two high-end chocolatiers from Northern California: Scharffen Berger Chocolate Maker Inc., a company known for its dark chocolate bars and baking products, and Joseph Schmidt, noted for its artistic, handcrafted truffles and chocolates. 
• Mars has unveiled a gourmet chocolate line, ethel’s, to coincide with an innovative new concept in chocolate retail — chocolate lounges — which launched in Chicago this past spring.
Mars says it’s creating the first-ever “approachable gourmet chocolate,” which means no “mystery middles” and flavors encased in chocolate that truly deliver the tastes chocolate lovers expect.
Each upscale candy grouping — Cocktail, Fruit, American Pop, Truffle, and Nut and Caramel — has a distinctive look to make selecting the flavors straightforward and easy. The fun-filled chocolates include some with whimsical names such as Yum Rum, Chocolapolitan and PB&J.
Ethel’s is sold only in ethel’s Chocolate Lounges and online at www.ethelschocolates.com. In the lounges, pieces run $1.50; samplers are available for $6.50-$12.50.
Ethel’s (named for the “late matriarch of  Mars”) is the latest gourmet chocolate brand from the Mars Gourmet Chocolate and Retail Group out of Henderson, N.V.
The Ethel M. brand has been in operation since 1981 and is a more classic boxed chocolate available through regional, traditional chocolate retail stores. Ethel’s boasts two first in the industry — approachable gourmet chocolate served up in a chocolate lounge that features comfortable chairs and a warm setting perfect to maximize chocolate enjoyment.  Chicago is slated for a total of six ethel’s Chocolate Lounges to be up and running this fall; Mars reports “a national rollout” in the future.
“Everyday premium is clearly on-trend,” says Joan Steuer, president of Los Angeles-based Chocolate Marketing. “I credit Starbucks to a great degree for promoting everyday premium in the coffee category; that has definitely crossed into chocolate, where more consumers are spending two or three dollars every day for a chocolate treat.”
She says the trend has really come down to an experiential one that is being enjoyed “earlier and earlier” in the day. “Instead of going for dessert after dinner, people are taking a chocolate break, sometimes instead of a coffee break, after lunch or mid-morning. It’s a mindful, conscious enjoyment of chocolate where consumers are sitting instead of gobbling, taking the time out and having a moment.”
The so-called “mass premium” chocolate players, previously more exclusive, have recently been making great distribution strides in the mainstream market (approximately 40 percent of premium chocolate sales now come from food/drug/mass (FDM) channels, according to a Mintel Premium Chocolate Report, released in February 2005); they continue to fuel this “class to mass” chocolate passion that Steuer and others have identified.
Lindt, for example, is working with mass retailers to set up Lindt Shop in Shops, according to CEO Thomas Linemayr. Product-wise, the company is expanding its mainstream truffles line this fall with an extra dark version, wrapped in a sophisticated black and gold wrapper. In addition, it is highlighting new Petits Dessert Bars, also launching in the fall, featuring “the pleasure of gourmet desserts combined with the finest Lindt Chocolate” — The Lemon Tart, Crème Brulee and Truffle Cake.
For the last couple of years, Ghirardelli has “invested in national TV advertising and other marketing support behind our Ghirardelli Squares business as we’ve expanded our distribution nationally,” according to Mona Maher, director of marketing-confections. “Being in the forefront of this trend has led to incredible growth for our company, but we continue to see lots of opportunity.”
But premium interest is raising the bar in a lot of consumable categories — contributing to, as well as being influenced by, what’s happening in chocolate. Beverages, baked goods, pasta and grains, fresh produce, ready-to-eat meals, condiments and sauces, cheese, ice cream and frozen desserts and candy, including chocolate — these were eight product areas profiled in a late-summer report released by Packaged Facts, which found that just under one-fifth of U.S. adults can be classified as “gourmet food consumers.” More specifically, it found that an estimated 18.3 percent of adults try to eat gourmet foods whenever they can. Based on data from Simmons Market Research, the report, “The U.S. Market for Gourmet Foods and Beverages,” predicts that the market for gourmet foods and beverages will exceed $62 billion by 2009; the market currently is reportedly just over $42 billion.  
Reported another way, sales of “specialty” foods increased 16 percent between 2002 and 2004, according to Specialty Food Magazine and the National Association for the Specialty Food Trade, Inc. (NASFT) in their “State of the Specialty Food Industry” report, compiling data through Mintel International Group and SPINS. Specialty confections saw a 42 percent growth in new products during this same time period.
“Public tastes are becoming more upscale; people’s palates are becoming more sophisticated in terms of chocolate flavors and intensities,” notes Stan Rothstein, president of Redstone Foods, Inc., a distributor and importer primarily of specialty confections, based in Carrollton, Texas. “We’re seeing unusual flavors associated with chocolate, such as Indian spices or Mexican peppers, becoming bigger and bigger — and this is not in the ethnic markets, this is mainstream specialty.”
The dark side
Coupled with the premium trend in chocolate, a darker story is unfolding. For the 52 weeks ending July 16, 2005, dark chocolate candy increased nearly 11 percent in dollar sales and nearly 9 percent in unit sales in FDM channels excluding Wal-Mart vs. the same period a year ago, according to ACNielsen. The ACNielsen dark chocolate definition includes dark, sweet dark, semisweet, bitter, and bittersweet chocolate.   This is in contrast to milk chocolate, and the total chocolate category as a whole, which are flat — both of which increased less than a percent in dollar sales and just over a percent in unit sales for the same time period.
The ACNielsen Strategic Planner also looked at the five-year trend, documenting that dark chocolate candy increased nearly 31 percent in dollar sales for the same time period vs. five years ago (milk chocolate was still flat and the total chocolate category, which includes “diet” candy, increased 8 percent in dollar sales).
Clearly, America’s taste for “better” chocolate is also translating to darker chocolate. “As recently as 10 years ago, our sales were 80 percent milk, 20 percent dark; now that’s completely flip-flopped to 80 percent dark,” says Rothstein, who mostly supplies specialty stores, including grocers such as the Texas-based H-E-B unit, Central Market.
Russell Stover’s Dark Chocolate Assorted Chocolate Box — “which we’ve marketed for more than 50 years is now one of our fastest- growing boxes,” maintains Mark Sesler, vice president of product development. “We’ve not been in a recent retailer meeting where dark chocolate was not a topic, which is a decided change vs. a year ago.”
Guylian USA, which started as a gift chocolate manufacturer, has noticed “dark chocolate taking off like crazy,” according to Brad Maslan. “In our 7.05-oz. bar line, dark gains are outpacing gains in milk; in another line, it’s the same thing — the dark chocolate version is outpacing sales of the other two varieties we offer,” he says.
Ghirardelli is introducing a line of gourmet chocolate bars called “Intense Dark” in the beginning of 2006. “This line showcases great combinations of luxuriously deep dark chocolate flavors at different cacao levels complemented by sophisticated ingredients,” maintains Danielle Jin, brand manager.
Cacao (cocoa) content has seemingly become an important “measure” for premium (dark) chocolate consumers, as chocolate manufacturers highlight it. “Cacao terminology is increasingly more important to our buyers and to the consumer,” maintains Russell Stover’s Sesler.
While Madelaine Chocolate Novelties Inc. has always offered many of its products in dark chocolate with a 47-49 percent cocoa content, the company recently launched a new line of 72 percent cocoa, all natural, premium dark chocolate, which includes mini-hearts wrapped in copper and dark brown foil, a 1.8 oz. bar and a variety of panned items including nuts and dried fruits.
“When we developed our 72 percent cocoa product line, we wanted to bring out the incredible flavor of dark chocolate as well as the flavanoids, which are found in pure cocoa and are reputed to reduce hypertension or high bloods pressure,” says Barbara Berg, spokesperson for Madelaine.
Thompson Brands, which has responded to the premium trend with a line of all-natural and organic chocolates, also sees the percent of cacao content as “useful to the organic and premium chocolate consumer,” not just as a measure of taste, but a measure of potential health benefits for consumers, according to Ed Main, marketing manager. Thompson has seen great evidence in this with a strong interest and growing sales in our 50 percent and 70 percent dark chocolate blends of our organic line.”
As with many issues hyped in the press, there has been some confusion surrounding the buzz, as well. “Cacao terminology has become a very interesting topic,” begins Tyler Jeffrey, vice president of sales and marketing for World’s Finest Chocolate, which has a very strong catalog and E-store business that sells an extensive array of personalized chocolate gifts. “The struggle with the topic is that I don’t think most consumers understand what percent cocoa solids means. Consumers have taken this to be some proxy for quality vs. a description of ‘darkness,’ which it actually represents. I think more education on the chocolate-making process is needed to help consumers make more informed choices.”
But, of course, deep and dark chocolate is not for everyone despite all the attention it’s getting in the marketplace. “Yes, dark chocolate is getting more play; however, the vast majority of chocolate sold will always be milk chocolate,” reminds Jeffrey.
Single bean source?
Single bean or origin chocolate is also stimulating confusion, as well as interest in the premium end of the chocolate category. “It can mean a particular plantation or it could mean a country,” says Steuer of Chocolate Marketing. “So hopefully there will be more stringent labeling as people become more intrigued by the culture and socio-economic conditions behind the chocolate.”
But single bean over blended bean chocolate — is that truly where the premium market is headed, similar to wine labeling? “Origin chocolate is really part of the experimentation and exploration that consumers are doing around the chocolate-eating experience,” adds Jeffrey, although he does not believe it will in any way take over the market.
“Chocolate making is not a new science and what people have learned over many years is that the best taste comes from blends of different beans. Complexity and depth of flavor is enhanced through blending beans with different attributes,” says Jeffrey.
Companies such as Lindt note that it’s up to the chocolate manufacturer to pay attention to bean source. “Lindt’s customers may not be aware, but our selection of cocoa beans is very specific,” says Linemayr. “Lindt Excellence only uses premium Criollo cocoa beans, which represent only a small fraction of the world’s harvest. Even though the consumers are not particularly aware, they are enjoying the resulting flavor.” n
Sweet Premium Facts
• Sales of premium chocolate exceed $1.5 billion
• Approximately 40% of premium chocolate sales now come from food/drug/mass (FDM) channels
• Sales are highly seasonal, occurring mostly between Thanksgiving and Easter
• Science suggests premium chocolate has some healthful properties
• Consumers are shifting brand preferences
• In FDM channels, premium chocolate purchases are shifting from drugstores
• Premium chocolates are frequently gifts and daily indulgences
• The future will bring more mass chocolate manufacturers into the premium chocolate market
Note: Premium chocolate in this report is defined as chocolate candies with an upscale positioning and price tags exceeding $0.50 an ounce. This can be compared to the price of a regular Hershey chocolate bar which retails for roughly $0.30 an ounce.
Source: Mintel Premium Chocolate Report — U.S. — February 2005
How Convenient? — Chocolate In the C-Store Channel
With “everyday premium” chocolate moving forward and better chocolate “value” taking a stronghold with consumers — where does that leave convenience store chocolate sales? It is merely speculation at this point, but a majority of convenience retailers are concerned about a consumer shift away from buying candy and chocolate in their channel and towards buying it more often in larger stores, according to a recent report by Deutsche Bank, which surveyed 14 of the largest U.S. c-stores and gasoline retailers.
But for right now, that contradicts research put out internally by leading c-store distributor McLane Company. “Nearly 70 percent of confectionery category growth has come from chocolate, and we expect this to continue,” says the McLane report, prepared for its convenience-store confectionery category managers looking ahead to the first quarter of 2006.
"Chocolate and non-chocolate are the most responsive to any merchandising activities — displays, temporary price reductions, feature tie-ins with another category — and when utilized, the stores can expect to see, on average, over a 200 percent increase in dollar sales," maintains a spokesperson for the Temple, Texas-based distributor.
According to McLane, chocolate bars account for nearly 33 percent of c-store confectionery sales; premium/other candy, which includes chocolate — more than 8 percent; and seasonal candy, which includes chocolate — nearly 4 percent.
The top five candy manufacturers in c-stores represent more than 75 percent of total candy, gum and mint sales in the c-store channel; the top three chocolate manufacturers fall within the top four candy manufacturers — Hershey (No. 1 on both counts) with nearly a 29 percent share; Masterfoods (No. 2 on both counts) with nearly a 19 percent share, and Nestlé (No. 3 in chocolate, No. 4 in confectionery) with a little more than an 8 percent share.
New item introduction is very important to the chocolate success in c-stores, McLane outlines. Limited edition offerings are a big part of the recent excitement, especially since they highlight popular flavors, including dark versions, caramel ribbons, etc., that supplement the popularity of the mainstays.
Bittersweet Chocolate - Dark chocolate that contains a minimum of 35 percent chocolate liquor. Bittersweet and semi-sweet both fall under this definition; however, bittersweet is often the term used for chocolate with a minimum of 50 percent chocolate liquor.
Chocolate Liquor - The ground up center (nib) of the cocoa bean (otherwise known as unsweetened chocolate) in a smooth, liquid state. It contains no alcohol. Also called “chocolate liquid.”
Cocoa Beans - Seeds from the pod of a Theobroma tree. Native to the tropical Amazon forests. Commercially grown worldwide in tropical rainforests within 20° latitude of the equator.
Cocoa Butter - The fat of the cocoa bean. It is not a dairy product.
Cocoa Powder - The cocoa solids resulting from pressing cocoa butter out of chocolate liquor. May be natural or dutched.
Dark Chocolate - See sweet chocolate below.
Dutch Process - A treatment used during the making of cocoa powder in which cocoa solids are treated with an alkaline solution to neutralize acidity. This process changes the color of the cocoa and develops a milder chocolate flavor.
Fat Bloom - The result of inadequate tempering or temperature abuse of a properly tempered chocolate. Visible as a dull white film on the surface of the chocolate with the possibility of a soft or crumbling texture on the interior. A visual and textural defect only. The product is fine to eat.
Milk Chocolate - Chocolate with at least 10 percent chocolate liquor and 12 percent milk solids, combined with sugar, cocoa butter and vanilla.
Nib - The center (meat) of the cocoa bean. When ground, the nib becomes chocolate liquor.
Semi-Sweet Chocolate - Also known as bittersweet chocolate. Contains a minimum of 35 percent chocolate liquor.
Sugar Bloom - Visible as a dull white film on the surface of the chocolate. Dry and hard to the touch, sugar bloom is the result of surface moisture dissolving sugar in the chocolate and subsequent recrystallization of the sugar on the chocolate surface. Typically caused by cold chocolate being exposed to a warm, humid environment with resultant condensation forming on the product. A visual and textural defect only. The product is fine to eat.
Sweet Chocolate (Dark) - Chocolate that contains a minimum of 15 percent chocolate liquor with varying amounts of sweeteners and cocoa butter.
White Chocolate - Contains cocoa butter but no cocoa powder. Also contains sugar, cocoa butter, milk solids and flavorings.
Source: The Ghirardelli Chocolate Co.

Top 5 King-Size Bars
Top Brands C-Store Sales (in millions of dollars) % Change vs. Year Ago
1 Reese's Peanut Butter Cups (2.8oz)$9.7+6.3%
2 Snickers (3.7oz)$9.5+5.0%
3 M&M's Peanut (3.1oz)$6.2+7.9%
4 Hershey's Milk Chocolate w/ Almonds (2.6oz)$5.2+3.3%
5 Hershey's Milk Chocolate (2.6oz)$4.2-1.1%
Top 5 Regular-Size Bars
1 Snickers (2.07oz)$11.2+0.4%
2 Reese's Peanut Butter Cups (1.6oz)$6.6-9.5%
3 M&M's Peanut (1.74oz)$5.3-6.7%
4 Hershey's Milk Chocolate (2.6oz)$5.2+4.5%
5 Hershey's Milk Chocolate w/ Almonds (2.6oz) $4.4 -2.1%
Source: McLane Category Management Handbook using IRI and ACNielsen mid-year 2005 data.

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