"Last Word"-The Chocolate Commodity
Thursday, May 22, 2008SUSIE GHARIB: And finally tonight, when it comes to making it in candy land bigger is better. That's the reasoning behind the recently proposed marriage of confection giants Mars and Wrigley. And it could be the factor that sugarcoats more pairings in the industry. As Diane Eastabrook reports from the all candy expo in Chicago, the urge to merge could be spurred by chocolate.
NEIL TURPIN, GENERAL MANAGER, GREEN & BLACK'S: Organic means that we don't use any pesticide. We don't use any herbicide.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Green and Black's is one of Cadbury Adams more recent additions. Buying the small organic company gave Cadbury better access to more upscale consumers with a taste for premium chocolate. Green and Black's general manager Neil Turpin says the deal gave his firm a bigger platform to grow its business.
TURPIN: They provided the additional infrastructure that we would struggle to deliver quickly if we were left as a totally independent, so things like route to market, market data and capital to invest in marketing programs.
EASTABROOK: At the all candy expo in Chicago this week, confection companies from around world are looking for ways to sell more product in a more challenging economic climate. Soaring commodity prices are pinching profit margins. At the same time, fewer big retail outlets make it harder for candy companies to raise prices. Morningstar confection analyst Mitchell Corwin says the name of the game going forward is gaining scale either through product innovation or acquisition. But Corwin admits finding good partners is getting harder.
MITCHELL CORWIN, CONFECTION ANALYST, MORNINGSTAR: I would say they are out there, but figuring out which ones you would be interested in as an acquisition candidate, that's a little bit more difficult.
EASTABROOK: In the highly fragmented and crowded candy industry, experts say premium chocolate is the sweet spot. Sales in the segment are expected to increase 30 percent this year over last. With growth in premium chocolate expected to continue at that pace over the next several years, candy makers are racing to expand into the category. Acquisitions are helping the Hershey Company. It now owns Dagoba, an organic chocolate company, and premium chocolate brands Scharffen Berger and Joseph Schmidt. Hershey spokeswoman Jodi Cook says the success of those brands helped spearhead a new line of Starbucks chocolates and other products.
JODI COOK, SPOKESWOMAN, THE HERSHEY COMPANY: We are also launching an extra dark product with pomegranate flavor in it for people who are looking for the antioxidants and the dark chocolate and really the more sophisticated tastes and offerings.
EASTABROOK: Acquisitions of premium lines can also help companies expand traditional ones. Mars snack foods U.S.A. used its Dove brand to help develop a new line of premium M&M chocolates. Sales Vice President Tim Lebel says Mars hopes to grow the premium chocolate category further either with new products or perhaps acquisitions.
TIMOTHY LEBEL, SALES V.P., MARS SNACKFOOD U.S.A.: If you look at it from an indulgence standpoint, people still want to take a moment and reward themselves and a premium chocolate or M&Ms premium is a great way to do that.
EASTABROOK: Analysts think premium chocolate is one way to keep candy in the hands and hearts of consumers, at any age. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
GHARIB: Well, my sweet tooth is craving some of that premium chocolate right now.
KANGAS: Mine too.
