Do We Have to Give Up Chocolate, Too?!

The last few months have been tough on the economy. Americans have had to cut back on everything from going out for drinks after work to making the payments on their very homes. With the cost of raw materials, transportation, and manufacturing rising, is chocolate the next sacrifice that Americans will have to make as well? Not necessarily. But the forecast does look a little grim.

Carolyn Cui in the February 13, 2008 issue of the Wall Street Journal pointed out that while many other commodities may have fallen, possibly going into a deflation cycle, cocoa bean and raw sugar crops have been hit by shortages because of crop failures and other problems. On top of that is the increase in transportation and manufacturing costs when labor, increased gas prices, and other factors are considered.

The International Cocoa Organization believes that because the demand exceeds the supply, even with consumer purchases dropping off, the prices will ultimately increase. Last year prices increased at both Leonidas (in May) and Hersheys (the final quarter), while other chocolatiers such as Amano Artisan Chocolate and Godiva Chocolates have said they are operating on slim margins or taking other cost cutting measures (see article here).

But, this is a resourceful country, built on the hard work of inventive and creative small business people, some of them chocolatiers who know and appreciate their product and their customers. Chocolate Zoom decided to take a casual poll of the chocolatiers we could contact to see how they were faring in this uncertain economic environment.

Art Pollard of Amano Artisan Chocolates pointed out that one of the good things about cocoa beans is that once they have been harvested and dried, they can hold for years before being transported and used in the manufacture of chocolate. However, he said this is also a weakness as farmers are looking for crops they can sell on a constant basis, not something that will only sell occasionally. Cocoa trees are being replaced by tropical fruit trees. Industrialization in countries that produce cocoa could also bring with it disease and other environmental factors that would decrease the crop.

When asked if he thought that Amano would be raising its prices, Pollard said, "Yes, we intend to raise our prices. Perhaps not right away -- we are trying to weather the current financial storm . . . However, we anticipate that cocoa and chocolate will one day be much much more expensive than it is today."

Shawn Askinosie of Askinosie Chocolate lamented that they had to lay off three of their already small staff. Yet, he also notes that those former staffers have found other jobs. In the meantime, Askinosie said that they have actually increased their sales from 2007 figures, by 40% in the final quarter of last year and by double what they expected in January.

What has helped them, Askinosie believes, is a combination of moves on their part, such as exporting their chocolate, which accounted for 10-15% of their revenue last year. They have also introduced a product called the "Itty Bar" with a low price point (costs a dollar to the customer). The customer gets a taste of Askinosie Chocolate without breaking their budget. Ultimately, Askinosie believes that Askinosie Chocolate will weather this economic storm and doesn’t foresee raising prices anytime soon.

Lachlan Oliver, owner of Heaven Sent Desserts said that despite the nation’s economic woes, he’s actually been in the kitchen nonstop. While walk-in traffic has increased 12%, their wholesale market has increased 70% because other restaurants have had to lay off their pastry departments, yet these restaurants still need to provide pastry to their customers. He was optimistic about their future.

Fritz Knipschildt, Maitre Chocolatier of Knipschildt Chocolatier and Chocopologie has said they are doing well, though they expect 2009 to be like 2008, with a slight increase. Knipshildt, the wholesale arm of the company, was up a steady 20% last year and is expected to continue in that steady, yet slight, incline.

Chocopologie, Knipschildt’s retail/restaurant concept, was up 30% between 2007 and 2008, while their January 2009 sales were up 15% over 2008. "Perfect concept-everybody can afford a little piece of chocolate and buying a box of chocolate compared to a Gucci handbag is affordable luxury," notes Knipschildt. So, while growth is not spectacular, it’s still there.

Finally, when we heard from Alan McClure of Patric Chocolate he reiterated what many of the other chocolatiers had said. Sales have increased over last year. He doesn’t see Patric Chocolate increasing prices unless there are major changes in the market. "I am just trying to keep labor balanced and I am being more cautious with investment in new machinery," McClure said.

Will chocolate return to being the expensive luxury it was before Hershey revolutionized chocolate-making in the US? Or will it remain the "affordable indulgence" that Cui, Knipschildt, and Askinosie, among others, see it as being? When I stopped by the Leonidas down the street from where I live I asked the people behind the counter what they thought. They both pointed out that while prices did increase in May, those running the Leonidas shops were loathe to increases prices, and had in fact, kept the price per pound slightly lower for our neighborhood.

Chocolatiers understand the place that chocolate holds in the lives of their customers. If they place the cost of good chocolate out of reach of their average consumer, then they are apt to lose any gain they’d make from the increase in prices. So, as with much of rest of the economy, it’s a matter of time, waiting to see if the chocolate industry will weather this economic storm.

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