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The Sweet Sales of Success
Premium chocolates continue to be the star in the confections industry, contributing the majority of growth in the chocolate category. Research from market research firm Mintel shows sales of premium chocolate increasing 129 percent from 2001 to 2006, when it reached $2.05 billion - about 13 percent of the total chocolate market. Mintel's forecast for the premium chocolate market shows growth of 73 percent in current terms and 53 percent in constant terms over the next five years. Total premium chocolate sales in the U.S. are forecasted to reach $3,554 million by 2011.

Premium Tastes
Premium chocolate is growing in popularity for a number of reasons, according to Mintel's U.S. Premium Chocolate Confectionery report. First, medical research suggests that the flavanols and antioxidants in chocolate have the potential to reduce rates of stroke, heart failure, cancer, and diabetes. These are benefits of interest to many in an aging American population. Consumers also continue to be fascinated with dark chocolate and with chocolate that is flavored with a wide range of novel ingredients.
"The chocolate industry is becoming more focused on very specific target markets. They are eliminating any sense of compromise. If you're selling premium chocolate, you are not asking your customers to compromise at all, you are delivering really high-end chocolate," John Stanton, professor of food marketing at St. Joseph's University, explained. "There are also more adult flavors - chocolate with spices, exotic tastes like mangos or things of that nature."
Stanton compared the growth of premium chocolates to that of wines. Customers are being asked to determine their favorite blend or bean. Chocolate lovers can tell their friends what country or origin their favorite chocolate bar comes from and what its cacao content is.
Mintel's report echoes Stanton's comments referring to the growth in tastings and flavor profiles.
"Tastings and sampling of chocolate is becoming more popular as the field becomes more crowded and consumers become less confident in their ability to choose a product they will like. New York City-based La Maison du Chocolate has long had tastings at its store, but others are also starting to promote the idea: Hershey Co.'s Web site (www.allchocolate.com) has a page dedicated to the 'hows' of chocolate tasting; the site also has information on wine and chocolate pairings, a popular new tasting concept. Ethel's Chocolate Lounges (Mars) also has tastings and dessert menus in its stores in Illinois and Nevada. The menu pairs a selection of chocolate and coffee or other options."
Mintel's report builds on Stanton's trend analogy as well as provides a picture of sales and growth for the category.

Trends to Watch

• Premium chocolate launches have received considerable attention, and the flavor notes of premium chocolate have ranged from basics like dark, milk, caramel, and coffee, to more exotic flavors including honey and chai.
• Chocolatiers' imaginations can run wild as premium chocolate consumers seem up to just about any challenge: exotic flavors that have come to market include ice wine, goat cheese, and olive oil.
• Other trends include single origin (chocolate made with cacao exclusively from one region), organic, Fair Trade and sustainable.
• Chocolate with high cacao content (ranging from about 45% to about 72%) now has the cacao percentage printed on the label so consumers seeking high-cacao chocolate (for health or taste reasons) can easily find products that suit their needs.
• Since chocolate has become the subject of extensive medical research, it is not surprising that new "functional" chocolate is on store shelves. Products promise to be rich in antioxidants and to help with a number of health issues. Also, in an attempt to make chocolate healthier, an increasing variety of sugar-free premium chocolate is coming to market.
• Options for customizing or personalizing premium chocolate are becoming relatively popular, analogous to personalizing M&Ms. In the case of premium chocolate, it is usually the label or foil overwrap that is personalized, not the chocolate itself.
• Stanton sees this customization trend as something manufacturers can build on. It's also a way to elevate mainstream products like M&Ms, while also providing customers with a personalized product option.

"I think what M&M/Mars is doing online is fantastic. You can personalize your own M&M by putting any message that you want on it. Think about it, M&M in a bag is not a high-end item, but with your own message, it becomes a $30 to $60 per pound sale," he explained. "What they have done is drawn the focus away from the chocolate and drawn attention to the product. For manufacturers and retailers, it's important to understand the difference between what you make and what people buy. As the head of Revlon used to say, 'In the factories, we make cosmetics; at the counter, we sell hope.' M&M is selling ego enhancement."

Sweet Sales
A Nielsen's Strategic Planner report completed for The Gourmet Retailer checked the current pulse of premium chocolate sales. In order to best profile "premium" chocolate trends, analysts pulled chocolate candy by brand, sorted the brands by AVG EQ PRICE (average equivalized unit volume price or average price per pound by brand name, not by UPC or item), grouped together all brands with AVG EQ PRICE $8 or more, and called it "premium" chocolate. Nielsen findings show "premium" chocolate - brands selling for an average of $8 per pound or more - sold in U.S. food, drug and mass merchandiser stores (excluding Wal-Mart) was up 35.3 percent for the 52-weeks ending October 6, 2007, to $567.3 million. At the same time, brands selling for an average of less than $8 per pound are up 1.8 percent to $4.2 billion; however, equivalized unit volume is down 1.2 percent to 1.1 billion pounds sold.

Mintel's U.S. Chocolate and Seasonal Chocolate Confectionery, report released in July 2007, illustrates that although premium chocolate sales are experiencing increased sales, a closer look reveals trouble in the category over the past three years. Since 2005, sales have declined annually in constant terms.
"Dark chocolate (up 49% in current terms and 36% in constant terms between 2003 and 2006) and premium chocolate (up 91% in current terms between 2002 and 2007) are the darlings of the chocolate world. But, their soaring sales have not been enough to boost category sales over the rate of inflation," the report states. "Chocolate bar players will want to take back snack time from nutrition and energy bars, a category that has increased sales 35 percent in current terms between 2001 and 2006. To do so, chocolate makers may want to fortify their products with vitamins and/or point out to consumers that chocolate bars are often the same amount of calories as energy bars, plus a lot more satisfying."

Mintel's Premium Chocolate Sales Snapshot Includes:

• The premium chocolate market is growing at a rapid pace: sales through all channels increased 129 percent over the period 2001 to 2006, from $896 million to $2.05 billion.
• The rate of growth is not slowing: after 2002, when the market first began to gain traction, it grew at about 14 percent year to year, buoyed by growing consumer interest in dark chocolate for "self-gifting" and "self-reward," and by the positive health news linking dark chocolate to heart health.
• Dark chocolate has seen significant growth, increasing 49 percent from 2003 to 2006, or 36 percent in constant 2006 prices, from $1.26 billion to $1.88 billion. Growth more or less parallels that of premium chocolate; dark chocolate products that do not fit the criteria for premium, i.e. those positioned as mass market chocolates, have also seen sales increase.
• Premium milk chocolate should not be ignored. While it is not that popular in Europe, American consumers still like milk chocolate. Mintel's survey found that among respondents who eat premium chocolate, 43 percent prefer dark and 42 percent prefer milk, making it clear that there is still a significant market for high-quality milk chocolate.
• Fueling premium chocolate growth are the positive health messages being promoted about premium (especially dark) chocolate. The distribution of the products across multiple channels has also contributed to the growth of premium chocolate.
• The total impact of premium and healthy chocolates on the market has not yet been seen. Mintel believes there is a lot more to come from these sectors. Premium chocolates will continue their retail expansion and their flavor innovations. It is possible that experimentation with texture is next (Premium fudge? Premium chocolate soup?). The evolution of healthy chocolate could involve sugar- and fructose-free (bitter) options, as well as calcium-fortified ones.

Tasting Notes
Mintel's report also gauges consumer preferences, providing insights into what consumers are craving in the chocolate arena. Almost all respondents eat chocolate in one form or another. Here is an outline of their findings:

• Just 15 percent of respondents never eat chocolate bars, while 21 percent never eat chocolate pieces. But 38 percent never eat boxed chocolates, suggesting that there is room for growth in that segment if manufacturers can find a way to convince consumers that boxed chocolates are not just for special occasions.
• On average, respondents who eat chocolate are prepared to pay about 45 cents per ounce ($7.20 per pound) for "high quality" chocolate, a price point very close to the established industry standard for premium chocolate (about $8 per pound).
• Some 42 percent of respondents who eat chocolate eat premium chocolate products. There is no statistical difference between male and female respondents, even if popular mythology determines that women are more likely than men to eat chocolate. Differences are seen by age, however, and younger chocolate-eating respondents are more likely than their older counterparts to eat premium chocolate.
• Respondents who have purchased premium chocolate in the past three months have made such purchases through a wide variety of outlets, from supermarkets and mass merchandisers to mail order and the Internet.
• Some 82 percent of respondents who have purchased premium chocolate in the past three months did so for themselves, while 42 percent did so for their spouse or partner. A third of respondents (33%) bought premium chocolate for a non-family member, and 20 percent bought premium chocolate for their children.

What Respondents Know and Believe About Premium Chocolate

• Almost three-quarters of respondents who purchased premium chocolate in the past three months have heard that dark chocolate is good for their hearts, and believe the message. A similar proportion has heard that dark chocolate contains antioxidants, and believe the message. Clearly, the results of medical research have been received.
• Respondents who purchased premium chocolate in the past three months are not significantly aware of the benefits of single origin chocolate: nearly a quarter (24%) have heard and believe the idea that chocolate from one source is better than products made from beans sourced from a number of places.
• While the media and manufacturers have been promoting the health benefits of dark chocolate, respondents who purchased premium chocolate for themselves in the past three months are almost evenly split between dark and milk when it comes to their own personal premium chocolate preference.

Stanton said it's critical for retailers and manufacturers to understand what people are really buying. "They have done really well on the kids' side with products that have names like stinky feet . . . when you taste it, the sourness almost drives you crazy. The key is trying to deeply understand what people are really getting from you. Do they want to be able to talk to their friends about what chocolates they like? Do they want to feel superior over their friends like people we know that like to do that with wine? These are the kinds of questions that need to be answered."

Stanton believes the industry can also make gains by merchandising premium chocolates in innovative ways. He suggests merchandising chocolates with the fast-moving candle category, providing an image of indulgence and relaxation to customers. He also questions additional channels for premium chocolates such as cosmetic stores, targeting directly the most prominent chocolate consumer - women.

Mintel also suggests manufacturers consider broadening channel distribution by targeting restaurants and cigar bars. But this recommendation also provides retail opportunities. Partnering with local cigar bars and restaurants to market small samples of chocolate at non-smoking restaurants and bars could appease smokers who are craving a cigarette but do not have the opportunity to indulge. In return, it introduces the customer to the product and your store.

At the same time, a savvy retailer might want to work with cigar bars and other smoking-friendly establishments, giving smokers another option (besides drinking) in between lighting up.

Mintel also suggests looking toward other merchandising opportunities for premium boxed chocolates. Manufacturers of premium chocolate, and the retailers who stock such items, could work together to make premium boxed chocolate convenient and easy to find on other holiday occasions as well. For example, Father's Day is not really a chocolate holiday, but it could very well be, considering the extent to which male respondents to Mintel's survey eat chocolate. Forward-thinking manufacturers and retailers could put a twist on Father's Day gift-giving by displaying premium chocolate boxed in "male-oriented" containers beside other, more traditional, Father's Day items (e.g. aftershave, grooming supplies).

So, as you digest all these trends - hopefully with your favorite dark chocolate and a glass of wine - consider what it is your customer wants. Stanton believes consumers will focus much more on the health benefits of chocolate. Your customers may be more interested in the environmental impact of sustainable, organic and Fair Trade. By understanding the desires of your premium chocolate customers, you can tailor merchandising programs, demonstrations and inventory selections to satisfy their sweet tooth.

The Gourmet Retailer Magazine conducted its own retail survey for premium chocolate sales. For survey results of your retail peers, go to www.gourmetretailer.com/chocolatesurvey.

If you would like to comment or send us your feedback on this article, please send e-mail to mmoran@gourmetretailer.com.

Single Origin Chocolates - Single origin chocolates are those products that are made with cacao exclusively from one region. Dagoba was the pioneer of this concept, with bars containing chocolate exclusively from Ecuador, Peru, Costa Rica and Madagascar. Hershey launched "country of origin bars" in 2006 under its own label, with products from four different sources. Other companies with single origin products include Chocovic (Spain), which has products from Grenada, Ecuador and Venezuela; and Valrhona (France), which boasts single origin products not only from specific countries, but also from specific estates produced during specific years, much like fine wine. Valrhona's Ampamakia Bars from the 2006 and 2005 harvests, for example, come from "the Millot Estate in the north of Madagascar, near the river Sambirano." Lindt also launched its own single origin bars in 2006: its Origins Collection includes Excellence Origins Ecuador 75% Cocoa Bar, and the Excellence Origins Madagascar 65% Cocoa Bar. Lindt was to have added a third bar, sourced from Peru, early in 2007. (Source: Mintel)

Organic Chocolates - Organic products are increasing in popularity. Dagoba and Green and Black (now owned by Cadbury) were among the first widely distributed organic products. By 2006, the list of organic chocolates grew to include Equal Exchange, Ithaca Fine Chocolates, Lake Champlain Chocolates, La Siembra Co-operative, Maramor Organics, Mars, San Francisco Chocolate Factory, Terra Nostra Organic, Theo Chocolate, and Vivani. Russell Stover and Whitman launched organic versions of their products in 2006-07, and Hershey was scheduled to release organic premium chocolate in 2007. (Source: Mintel)

Fair Trade and Sustainable - Fair trade and sustainable products are also gaining in popularity. Dagoba and Equal Exchange are both fair trade, as are many other organic brands. Even mainstream brands are promoting sustainability: the Mars "sustainability" Web site (www.cocoasustainability.mars.com/) discusses the cocoa industry and sustainable products in great detail, as does Hershey's www.allchocolate.com.

Proof that premium is one of the fastest-growing segments in chocolate - 50% of Premium Chocolate sales occur outside Food/Drug/Mass outlets (Specialty Stores and Boutiques).

Key Chocolate Segments - FDMxC52 Weeks
Mainstream Chocolate Growth: 82% Growth: +1%
Trade Up Chocolate: 13% with +5% growth
Premium Chocolate: 5% with +45% growth
Source: IRI/ACN: Ending 8/12/07