Issue #6: Cyber Cocoa
Back at it again with another issue of Confectionery Chronicles. This week, tech and innovation have taken over the newsletter as it grabs the main focus on all of our sections, with a lot of talk from applications of existing tech in the confectionery space to startups trying to create chocolate alternatives in the market.
After gaining critical insights from the Sweet and Snacks Expo a few weeks ago, the industry has shifted into investment mode as they race to pilot all of the cool stuff they saw at the convention. All of that inspiration that was bottled up in Indianapolis has taken over the R&D departments of many companies, which are now working at full steam to introduce brand new concepts for their own products.
Let's explore what's new in the confectionery world!
Sweet Spotlights ??
Speaking of the devil
Last week, we dug deep into what happened at the Sweet & Snacks Expo over at Indy and some of the new and great insights that arose from such a unique and celebrated event. However, there is so much information that was left to process and so many stories that could not make it into last week's issue. Therefore, I wanted to take a quick moment to speak about Hershey's initiative at the conference.
Being the giants they are, a lot of people were expecting big things from the colossal chocolate manufacturers. On the innovation side, they brought a lot of new products that are sure to be hits on shelves, like SkinnyPop Cheddar Jalapeno, Ice Breaker Seltzers, Kit Kat Pink Lemonade, Waffle Cone Bars, and Reese's Caramel Big Cup.
This last one was put into the spotlight for all the right reasons. Hershey's will use its new Caramel Big Cup to pilot merchandising initiatives that combine technology and promotion practices to optimize sales and the rotation of its products.
Hershey's announced that they will use a combination of augmented reality (AR) and image recognition (IR) to picture and plan out shelf spacing before even reaching their stores to maximize placement potential. This will allow retailers to make sounder decisions at the time of distributing certain products around the store and also create a trusting relationship with their suppliers via data.
AR will be used mainly to get a visual idea of where the product will be placed, and IR will actually generate insights on how placement affects the rotation of the product, which could determine sales potential. AR and IR have been insights and hot topics in the last few months, but we are finally appreciating their applications in the market. This initiative could trigger a fast response from other competitors to pilot other projects, scaling the growth of this technology in the short run.
Better for you
When we think about consumer trends that have gained traction in the market, we usually think about the rise of eating healthy and the consumer behavior movement that has boosted the presence of related products on the shelves.
Moreover, we have the concept of "better for you" products that have climbed to the top in terms of popularity over the last few years. The better-for-you category is all of those spinoffs on already popular and traditional products, but boosted with certain ingredients that add more value to the product itself. This also applies to added benefits and characteristics like gluten-free or sugar-free that significantly add value to products.
It all comes down to added value. "Better for you" has been such a successful category due to the perceived value that attracts customers. Shopkick just released an infographic detailing data points of the rise in these products, which paints a picture of its growth across these years:
11,000 consumers were interviewed to gain their perspective on these products.
Where do they prefer to shop?
-Costco
-Target
-Whole Foods
Top food categories
-Carbohydrate alternatives
-Dairy alternatives
-Meat alternatives
General target audience
"50% better for you, consumers are millennials and Gen Z."
The most important factors to consider when purchasing these products
-Low sugar
-Organic
-No artificial dyes or colors
-Low sodium
-Non GMO
But it's not all rainbows and butterflies for this trend, as there has been some negative pushback, especially in terms of pricing.
84% of consumers have noticed that "better for you" products are significantly more expensive than traditional products.
The willingness to buy these products has declined from 55% in 2023 to 48% in 2024.
So while we are seeing such a rise in these types of products, we also see some issues in terms of access for the general population, so we will have to see how massive brands can use their economies of scale to drive down prices in these categories, plus the probable entrance of private labels into these ventures as well once barriers of entry have gone down substantially.
(marketing.traxretail.com/l/1037533/2024-03-27/nfsb/1037533/1711746251HOoRF83B/SK_BetterForYou.pdf?_gl=1*1jqi4f8*_gcl_au*MTI1MjczNzkyOS4xNzE0NDgyMzg5*_ga*MjIzMjQ1NDE1LjE3MTQ0ODIzODk.*_ga_364RLW3BFJ*MTcxNzU5MTU2Mi4yLjEuMTcxNzU5MTU4NC4zOC4wLjA.)
Cocoa Culture ??
Cocoa Price as of 07/06/2024
Well, at this point, I'm on a Peloton Hills ride. We are going up once again, and believe me, I feel it. Prices here for cocoa powder, liquor, and butter have gone up once again as suppliers are elevating costs in an attempt to mitigate upcoming rises. The pivotal point is uncertainty at this point. After a short stint of optimism, we are back at a point where we are getting radio silence from major cocoa organizations, and now we are stuck with a rise in cocoa prices until they can address action points to implement crop recovery.
All eyes on fairness
When I transferred to Bentley University in 2016, I could immediately sense that I was entering a heavy business background. There are a lot of suits on campus, plenty of job fairs, and the big consulting firms sponsoring anything they can to attract young talent (I'm not the biggest fan of consulting, but I'm not about to address that in this space). However, our orientation struck me the most, or the event that convinced me that I had come to a business school. We went over the concept of ethics for a solid 3 days by using the famous Enron case study and how, in the 1990s, "business and ethics were known as an oxymoron.".
This last phrase stuck with me for a while. Ethics and sustainability have been a staple in modern business as a focus for development, and we have certainly come a long way on paper... But not in practice. Our markets have been practicing the liability model for a long time in an attempt to mask several unethical business practices as efficient measures of business. Today, wages are seen as a liability, not a social contract between corporate identities and individuals in the workforce, which has left big inequalities within our market.
I think there is no bigger proof of this than the cocoa industry, where thousands of farmers worldwide live day to day depending on how much and how well they farm to earn a miserable wage. Especially when the biggest players in the market are way beyond reaping the benefits in the post-confectionery industry. I am sorry if I got political with this introduction, but trust me, it is linked to an actual socioeconomic problem that has been "addressed" numerous times in the past. And I quote because there is a lot of talk but not a lot of action.
Once again, the Investor Advocates for Social Justice (IASJ) have sent a harsh but fair letter to the biggest manufacturers in the industry, like Lindt, Ferrero, Mars, Hershey's, etc. Pleading for fairer purchasing practices of cocoa for farmers in Ghana and Ivory Coast, which happen to be the 2 biggest producers of cocoa in the world.
The IASJ claims that there is a massive gap between the profits made by confectionery producers and the cocoa farmers at the beginning of the supply chain. The main claim is that the priors have way too much purchasing power and influence within the cocoa supply chain and should offer a higher social return and investment to the farmers that make it all possible.
Of course, major players are shielded from the accusations by claiming that the African governments are the ones that place the price on cocoa as a commodity and that they are investing in projects like Nestle's Income Accelerator program to drastically improve farmers' quality of life. But it's just not enough. The IASJ is begging manufacturers to pay premiums on top of the usual prices to go hard into the root of the problems by placing more money in farmers' hands and addressing socioeconomic epidemics like a lack of education and health and unlawful child labor practices, which have only worsened over the years.
领英推荐
You would think that after the price hike on cocoa, we would see farmers catch a break. Nevertheless, the main manufacturing companies have used their influence to choke out the value in the supply chain to mitigate the costs of the crisis and cushion exponential price rises in the eyes of consumers.
We appreciate and value projects like the income accelerator projects, but this is not enough! Sustainability comes from consistent and dynamic change, not from PR-driven projects or weak social efforts. Empathy is needed more than ever for the farmers, and the only way we can help is to educate people on this matter and keep pressuring key stakeholders into funneling more profits into the source of their raw materials.
Taking the "C" out of chocolate
Einstein once said, "In the midst of every crisis lies great opportunity." That is true even for the cocoa crisis. Last week, we discussed a startup that could create the properties of cocoa through fermenting bacteria that come out of thin air. But they are not the only ones that have been busy. The market was shocked by the abrupt hike in cocoa prices, which has generated a review of producing chocolate in the future with some creative alternatives.
The tech industry has collided with cocoa abruptly as well, and the finest of minds have gathered to find solutions for possible crises that could lie ahead in terms of supply. Since the crisis began, venture funds have raised around $111 million for startups that are searching for ways to replicate the production of cocoa properties via synthetic alternatives.
In fact, I just read an article that highlights four of those startups:
Voyage Foods: The company is the leader in this sector, raising $92 million in funding and also securing partnerships with major producers in the market to enhance their R&D capabilities.
Plant A Foods: The German-based company has raised a whopping $43 million by fermenting plants with their proprietary technology to distribute their brand of products called ChoViva and also some B2B businesses with substitutes for important ingredients such as palm oil.
California Cultured: Based in... spoiler alert: California. The company has raised about $4 million in equity for alternatives for coffee and cocoa products. They use a genetic alternative by extracting cells from plants and subsequently growing them in an environment that mimics their ideal soil.
Nukoko: The UK-based company has raised about $1.9 million in equity and also uses a fermenting process to emulate normal beans into cocoa beans through the traditional cocoa fermentation process but scaled to the laboratory setting.
At least the crisis has inspired several ventures that could offer us long-term solutions for prolonged periods of shortages.
Flavor Fusion ??
Flavor fusion for indulgence
Indulgence is what I would call impulsive shopping on steroids. You already have the compulsion to buy something, but now you are also trying to satisfy a craving, which is also a potential factor in building a habit. Indulgence is a main sales driver for many brands, especially in confections, where consumers treat indulgence as some sort of daily ritual to finish off their day or keep them going throughout it.
Today, with the emergence of new flavors and combinations of tastes, companies are trying to trigger more of that indulgence by offering never-before-seen experiences for consumers. They are trying to create a festival of tastes and textures in their mouths to differentiate themselves from average confections and force consumers to develop an indulgence that can only be solved by, let's say, the double chocolate muffin from the bakery next to my house. It just hits differently from any other product, and it is the snack I need to end my indulgence.
That last bit is exactly what companies are trying to achieve by introducing novelty flavors like marshmallows, churros, caramel, and others that bring a mix of innovative tastes and one-of-a-kind textures to traditional concepts. A good example of these are baked goods like cookies, brownies, and muffins, which are flavor-friendly in terms of combinations. A lot of industrial brands are introducing more of these, but smaller brands are providing unique, quality products to generate cravings while also attracting higher margins.
Some of the flavors that are trending in 2024 are:
-Marshmallow
-Strawberry
-Caramel
-Coconut
-Blueberry
-Vanilla
Spices like cinnamon, cardamom, and nutmeg are also trending to blend unique sensorial experiences with floral components such as lavender and elderflowers. Companies are also getting inspired by traditional and complex desserts that offer many layers of complex textures and flavors, like Tiramisu or Red Velvet Cake, that allow for new and creative spinoffs on established products.
Old fish in the bay
A great source of continuous revenue stream is the re-introduction of limited edition items. Items that have a limited edition status are usually pilots in themselves, and sometimes they gain massive popularity or even cult status in the market. Unfortunately, they might not be viable in terms of manufacturing due to their diverse production practices, which affect plant costs in the long run.
Well, this week we are getting a throwback at a very special limited edition item in Pepperidge Farms Goldfish Old Bay seasoned crackers. Old Bay seasoning is a spice that comes from the Baltimore Bay area. It is a mix of celery salt, red pepper, black pepper, and paprika, which come together to form a unique savory experience.
It is a smart move by Pepperidge Farm to introduce a staple summer flavor for people to enjoy during their vacations with friends and an opportunity to try a new flavor if you haven't or get your hands on the limited edition item you've been craving for years.
Sugar Rush (Facts and Stories about your favorite snacks and candies)??
You are not you when you're hungry
Today we have the honor to explore the history of the mother of all candy bars. When you think about a candy bar today, the first product that will probably come to mind will be the Snickers bar. The combination of chocolate, nougat, peanuts, and caramel has satisfied the hunger and indulgence of consumers since 1930, becoming an icon of pop culture today after dominating the contemporary war in their respective categories.
The candy bar was introduced by Mars and named Snickers after their beloved horse. It was launched around controversy as it was sold at almost four times the price of an average candy bar at the time. Nevertheless, its differentiation allowed it to prosper and become a staple confection icon around the world. The product has been so popular that it has spawned many variations, including mini-Snickers, an ice cream bar under the same name, and even a new high-protein version as a form of "better for you" food.
It's fair to say that Snickers has turned into Mars's stellar product aside from M&M's, as the company manufactures 15 million bars in a day and managed to reach 1 billion sales of the product in 2013. The product has also bred success from its increasing marketing efforts. It is not a secret that Mars has greatly benefited from the use of traditional media like commercials and endorsements to give their brand an international name.
In 1984, Mars paid about 5 million dollars to be the official partner of the Olympics, and every year, we can expect a Superbowl commercial with a brand new witty slogan and a fun-fueled ad that revitalizes the demand for the candy even more.
The consistency of the image has also been a staple strategy to command leadership in the market, as the brand has not changed much since its inception, as has its traditional flavor and recipe, which state that every Snickers bar should have only 16 peanuts in its manufacturing.
Snickers seems to have a bright future with a successful and long tradition!
Well, that is it for this week. There are a whole lot of interesting subjects and innovations that are coming our way. We went a little bit technical into technology, politics, and even the economic state of the industry, as we can expect to see some of the insights we have been talking about the surface in the market quicker than we thought. As we approach the second half of the year, companies will measure their numbers and make decisions to double down on investments or even divest some projects that are not taking financial flight. It is an amazing time in the confectionery industry, and I am very happy to keep reporting about any changes we might see.