Chocolate makers find success in niche market

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NEW YORK --- When he was a software developer who worked at NASA, Timothy Childs built vision-tracking systems for the space shuttle. Now he has a new venture that he says is out of this world: chocolate.

As demand for premium chocolate soars, a new crop of high-tech confectioners is changing the industry with Silicon Valley-style innovation, antique German equipment and an obsession with the simple cocoa bean.

"The bean totally seduced me," said Mr. Childs, co-founder and the "chief chocolate officer" of TCHO, a San Fransisco startup seeking to improve the quality of chocolate through scientific experimentation with flavors.

"On a molecular level, making chocolate is enrapturing."

TCHO, pronounced "choh," isn't your ordinary chocolate factory. Based on San Francisco's idyllic waterfront, the company sells its chocolate only online in brown packets labeled "beta," solicits feedback and reaches out to customers through social media outlets such as YouTube. It plans to sell its chocolate to food companies and through high-end retail outlets.

TCHO shuns the usual practice of classifying bars by cacao content or origin, relying instead on a "flavor wheel" that emphasizes taste above all: "Chocolatey," "Fruity" and "Nutty" are out now, with "Earthy," "Floral" and "Citrus" on the way.

"Saying a bar is '70 percent cacao' doesn't equate," said Mr. Childs, referring the industry standard for premium chocolate. "People should pick chocolate the same way they buy wine and food, by flavor."

A similar philosophy drives Amano Chocolate, a recently launched company in Utah's Wasatch Mountain range whose goal is to offer in the U.S. the premium, artisan chocolate once found mainly in Europe.

Founder Art Pollard, another software developer who studied physics, fell in love with chocolate making during a honeymoon trip to Hawaii and whipped up his first batch using science lab equipment intended to grind chemicals.

"Eventually I started fashioning my own equipment and began churning out some fine-quality chocolate," said Mr. Pollard, who studied confectionery in Europe and buys his beans in far-flung villages in Venezuela and Ecuador.

"It is extremely hard work and takes a lot of time, but, boy, is it beautiful when you get right," said Mr. Pollard, who now uses early 20th century equipment imported from Gemany to roast, grind, melt and mold his chocolate into bars.

Neither TCHO nor Amano would provide sales figures, but both say they have aggressive growth plans in the future.

Though a soft economy has forced Americans to cut back on some luxuries, U.S. sales of dark chocolate keep booming, lifted even higher recently by studies touting the confection's purported health benefits and growing consumer interest in organic and fair-trade products.

Total U.S. chocolate sales are expected to soar to $18 billion annually by 2011, up from $16 billion in 2006, with organic and dark chocolate representing the fastest-growing segment.

"Chocolate is an affordable indulgence. No matter how difficult economic times get, we'll always want to treat ourselves," said Joan Steuer, the president of Chocolate Marketing LLC, which studies trends and new products in the industry.

But while sales are growing, so is the competition, crowding shelves of grocery stores with brands like Ghirardelli, Godiva, Dagoba and Scharffen Berger.

While there's only around a dozen U.S. "bean-to-bar" manufacturers that make their own chocolate from scratch, smaller players who buy their chocolate wholesale and melt it into bars are entering the market at a rate of about one a month, Ms. Steuer said.

"It's exploding," she said. "The market isn't saturated yet, but it's close."

That doesn't mean people are getting rich cranking out bars and bonbons, however.

Bulging input costs and paper-thin profit margins have squeezed traditional chocolate manufacturers and make it extremely difficult for new players to break in.

A commodities boom has pushed the price of cocoa, the chief ingredient in chocolate, above $3,000 per metric ton -- the highest in 22 years and double the price from a year ago.

Battered by the increases, No. 1 U.S. candy maker The Hershey Co. and smaller rival Mars, maker of Snickers bars and M&Ms, announced earlier this month they were raising prices for their products by more than 10 percent.

Still, most new chocolatiers say passion -- not profits -- is what motivates them.

Many have learned the craft over the Internet, launched one-person chocolate factories from their kitchens and put up Web sites to sell their products online from anywhere.

"The Internet has really opened things up," said Pam Williams, who runs Ecole Chocolat, an online school that trains people to make chocolate and open a business. "Now you can go to Kansas City and find a good chocolate maker who rivals the quality and craftsmanship of that you would find in Europe."

Last year, one of her former students, Donna Smith, began selling homemade truffles, peanut butter balls and other candies online through her company Smithorganicchocolates.com, which she hopes will allow her and her husband to earn an income from home.

Some niche chocolate makers have dreams of being bought by a major candy manufacturer for a sweet payday. That's what happened to Dagoba, an organic chocolate maker acquired by Hershey's two years ago for a sum believed to be between $10 million and $15 million.

TCHO's Mr. Childs said his priority is building up the company -- not cashing out. The company shuns venture capital and raised all its start-up funds through family and friends, who received equity in the company.

"For right now, I'm very happy just making chocolate that fills my factory, " he said.


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