Primed for Premium
May 1, 2007
Primed for Premium
BY RENEE M. COVINO
The premium chocolate wave is here, and it’s a big one; new industry research suggests how to ride it high — and balanced.
There were signs of its coming. A “fine” wave arced over Europe for decades. Then, as America’s hunger for small, but often daily, indulgences grew, it swiftly blew across the Atlantic Ocean, eventually touching down on our domestic (and soon, mainstream) market.
The Starbucks coffee phenomenon was perhaps the first clue that it had enthralled the masses — but another luscious brown substance was close behind, and proved an equally perfect fit for this growing “gourmet” wind. The consumer’s fascination with better-quality treats, along with the positive health news surrounding dark chocolate, squarely landed a premium craze atop the domestic chocolate industry — and some predict it has now reshaped the market forever.
“I see the premium chocolate market as a mainstay, but hopefully more segregated in-store as retailers begin to understand the realities of it,” says Michael Gilmore, vice chairman of the National Confectioners Association (NCA), and an industry veteran who recently retired from Ferrero USA, Inc., and is now working with Ferrara Pan in its chocolate brand development. He observes that premium chocolate brands are “truly indulgent” brands that evoke consumers with “emotionally-driven” cues “vs. hunger-driven” ones. “They fulfill vs. fill,” he says.
And they have certainly earned their place on the industry map. Since 2002, when the premium chocolate market first began to “gain traction,” as market researcher Mintel puts it, it has been growing about 14 percent year to year through all channels. Furthermore, Mintel’s extensive research on the category, just released this spring, officially confirmed that the premium chocolate market is growing at a “rapid” pace: sales through all channels increased 129 percent from 2001 to 2006 — from $896 million to $2.05 billion. What’s more, Mintel’s forecast is that the premium chocolate market will hit $3.5 billion by 2011.
But this is not happening in a vacuum; as premium chocolate sales expand, so too, do its boundaries. That is, the parameters that typically define premium chocolate have changed somewhat. Price, quality, consumer perception and retail positioning all come into play, and today there is a lot more “wiggle room,” according to Marcia Mogelonsky, senior research analyst at Mintel. For instance, the category was traditionally “classified” as chocolate that cost $8 a pound or more, but now other factors come into play to possibly alter that threshold, such as how the chocolate is presented — in a bar, as an individual piece or in a box. Also, “super premium” has now gained traction, commanding price points of $16 per pound and higher.
Hey, big spenders
Marketers would do well to understand the various consumer segments that are willing to pay the most for premium. Between men and women, it is the women, not surprisingly, who are more likely to put their money where their better chocolate is: Mintel revealed that overall women respondents were willing to pay more than $1.25 per pound more (on average, $7.79 per pound) for “very high quality” chocolate vs. overall men respondents (who were willing to spend, on average, $6.52 per pound).
Of the age segments, men and women aged 18-34 were willing to spend the most on premium chocolate — on average, more than $8 per pound, whereas those aged 35-54 were willing to spend just over $7 a pound. Consumers aged 55-64 were willing to spend even less than that ($6.85 on average), and those over 65 were the most price-conscious of all — on average, willing to spend only $5.19 per pound for premium chocolate.
Naturally, income levels have a lot to do with the price spent on good chocolate, too. Mintel revealed that households earning $100,000 a year or more were willing to spend the most of any segment on premium chocolate — on average, $8.76 per pound. Interestingly though, those households earning less than $25,000 a year were still willing to spend $6.47 per pound. The average across all incomes was $7.21.
One final factor to note on the premium price issue: Various regions of the country also produced differences in consumer willingness to spend more for better-quality chocolate. Those in the Northeast and West scored higher price-wise (willing to spend, on average, a little under $8 a pound) vs. those in the South and Midwest (willing to spend, on average, a little under $7 a pound).
Shedding light on dark
Mintel’s research uncovered that the growth for dark chocolate “more or less parallels that of premium chocolate” — but the industry should not consider the segments one and the same. Indeed, dark chocolate has seen significant growth, increasing 49 percent from 2003 to 2006, or 35 percent in constant 2006 prices, reports Mintel, from $1.26 billion to $1.88 billion.
But at the same time, its consumer research unwrapped that nearly the same percentage of premium chocolate lovers prefers dark chocolate as the percentage that prefers milk chocolate (43 percent vs. 42 percent). “This indicates that although dark chocolate is purported to be more healthful, and although it has received considerably more attention in the media, consumers have not turned their backs on milk chocolate,” concluded the study.
And neither is the industry. Milk chocolate is still “well represented” in Harry London Chocolates’ product assortment, according to Edward Seibolt, vice president of sales for Fannie May Confections Brands Inc., of which Harry London is a subsidiary. Seattle Chocolates’ product mix is “probably 50/50” dark vs. milk, according to Jean Thompson, CEO. She believes that forward-thinking retailers tend to ensure both are well-represented in their premium assortment. “No one wants to walk away from the milk,” she says, adding that milk chocolate contains antioxidants, too.
Mogelonsky made it clear that there is a big untapped market for premium milk chocolate, referring to the fact that in 2006, dark premium chocolate launches were up 83 percent over 2005, while milk premium chocolate launches were only up 35 percent.
“People will pay more for milk if it is positioned as premium,” she says. “Retailers need to make a big deal out of the premium milk as a plan to action.”
But the premium prediction is that the category will develop flavorings that reach far beyond a mere milk vs. dark distinction. Already, premium chocolate launches have gone beyond the basic flavor notes of dark, milk, caramel and coffee, to more exotic flavors including honey and chai. According to Mintel, chocolatiers’ imaginations will “run wild” as premium chocolate consumers “seem up to just about any challenge.” The study cites that exotic flavors now entering the market include ice wine, goat cheese and olive oil. Hemp, clove, jasmine and malt are also up-and-coming premium chocolate undertones.
Does this indicate that Mintel’s forecast for the premium chocolate market hitting $3.5 billion by 2011 is a modest one? Quite possibly — and not just because of enhanced flavor profiles.
“If there were further, unanticipated medical research during the next five years that reinforces and expands the healthful benefits of chocolate consumption, it would be likely that future sales of premium chocolate would be even greater than forecast,” reports Mintel.