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October 24, 2007

Entrepreneurship: What's With Chocolate?

In the last few days, the world has seen a morass of chocolate-related news. The New Yorker has a story on the hippie-go-lucky founders of Dagoba Chocolate, the popularity of which has surged on a reemergence of interest in natural cacao. Artist Cosimo Cavallaro has just opened a gallery show in the Chelsea neighborhood of New York featuring life-size statues of nine religious figures -- in chocolate (witness "My Sweet Lord," a massive chocolate Jesus.) Some teenager in Britain has made news by creating a booming chocolate company out of his house in Shropshire, just by thinking up peculiar flavor combinations.

And yet, the New York Times reports this week that Hershey's profits have plummeted by almost two-thirds, and Cadbury Schweppes has moved its chocolate production from England to Poland, and plans to cut over 7,500 jobs in the process.
What's going on with chocolate? And what does it mean for entrepreneurs like the British teenager?

Most successful entrepreneurs are adept at finding a niche unfilled, and filling it with a great product or service. However, there's another brand of entrepreneurship that requires a little less originality and a little more knowledge of zeitgeist: re-doing a corporate product, and making it trendy. As the New Yorker says in its piece about Dagoba, consumers are becoming increasingly interested in "artisanal" foods, and chocolate is one of the hottest.

Interestingly, plenty of large-scale food and beverage producers have yet to realize that they are serving increasingly health-conscious customers. Yes, we live in times of epidemic obesity, but let's not underestimate humanity. When human beings see a negative trend, we slowly work to reverse it. It's happening with global warming now. More quietly, it's happening with food.

The remarkable success of chains like Whole Foods and Trader Joe's indicate a paradigm shift on a macro level, but consumers are becoming increasingly picky on a food-by-food basis, too. I firmly believe that one of the reasons Red Bull consistently outsells its cheaper copycat beverages is that it doesn't use high fructose corn syrup, the sweetener found in regular soda. People increasingly read the labels on the foods they ingest, especially with the Chinese-ingredient poison scares in pet food and toothpaste.

Hence the troubles at Cadbury and Hershey's. Their chocolate (while often delicious) is of poor quality -- far less than the 70% cacao content of boutique chocolates like Dagoba, and lacking in antioxidants. Their candy is also subject to that mysterious chemical processing that prevents M&Ms from melting in your hand, or spoiling on a shelf after 9 months. Chocolate with high cacao content actually doesn't spoil easily, but cheaper milk chocolate should. People know that a year-old package of Reese's Pieces shouldn't taste okay, but it does. And it's starting to make them uneasy.

Until the big companies really get wise to consumers' changing tastes, there is an increasing opportunity for small-scale, health-oriented companies to make a killing selling foods with comprehensible ingredients. It's happening with soda, potato chips, and yes, chocolate. It's only a matter of time before it happens with other junk food staples.

But there's not much time. Dagoba Chocolate was recently acquired by Hershey's, indicating that the behemoths aren't as out of touch as they seem. Are natural foods startups doomed, as the big boys muscle in? In 20 years, will we be back to the same big companies -- Coca-Cola, Hershey's, Frito-Lay -- just under smaller, nichey brand names?

Posted by Chris Dannen at October 24, 2007 11:49 AM | Category: entrepreneurship + small business | 4 Comments