Chocalate Industry

The trouble with chocolate

MARINA STRAUSS AND PAUL WALDIE December 7, 2007

Brookside Foods Ltd. is enjoying strong sales on its first holiday gift packages of Chocolate Bowl and Clodhoppers chocolates, but that hasn't been enough to bring much cheer to the B.C. chocolate maker. That's because its profit margins - and those at other chocolate makers - are being squeezed by skyrocketing costs of cocoa, milk and other expenses tied to the goods, said Alan Whitteker, vice-president of sales at the company. Brookside can't raise prices to cover cost increases because pricing was set 10 months ago. "Every company in the chocolate industry today is facing a lot of pain and problems," Mr. Whitteker said. "Commodity prices are a killer ... Your margins are greatly eroded because of the increases. You're not able to pass them along [in retail price increases] like you would like." It may be chocolate makers' high season, but spirits are low these days in the sector. Spiraling costs, fickle consumers and sluggish sales in many quarters are all conspiring to leave a bitter taste in the mouths of many producers. The cost squeeze facing Brookside is playing out the same way for the major players, which have already seen sales come under pressure from shifting consumer tastes largely driven by health concerns. And to top off the list of pressures, Canadian divisions of the four biggest U.S. companies - Hershey Co., Cadbury Schweppes PLC, Mars Inc. and Nestlé SA - last month became the subject of a Competition Bureau price-fixing investigation. Whatever becomes of the probe, the industry is hurting and the few companies that are thriving tend to be those that have capitalized on a growing demand for dark chocolate. Chocolate bar sales fell by 4 per cent in Canada for the year ended Oct. 27, according to figures from market researcher Nielsen. Meanwhile, some key milk ingredient prices have jumped as much as 60 per cent over the past year, industry sources said. Cocoa prices...