Wednesday, November 28, 2012

"The Economics of Artisanal Chocolate" (Here at Zero-bound Chocolates, We Believe...)

From Felix Salmon at Reuters:
Who doesn’t like hanging out in a chocolate factory? My visit to Cacao Prieto, in Red Hook, was fascinating: what I wanted to do was understand the reason why artisanal chocolate (or artisanal coffee, or even artisanal mayonnaise, for that matter) seems to be such a fast-growing market these days.

Both Dan Preston, of Cacao Prieto, and Tim McCollum, of Madécasse, agreed that at the supply end of the chain, nothing much has changed. They’re using Victorian technology, largely (although Preston has built some clever new machines of his own), and relying much more on a simple back-to-basics approach than on anywhere that buzzwords like “scalable” might apply. That said, the marketing at least has got to be much easier these days; the Cacao Prieto website, in particular, is gorgeous, at a cost which would be a rounding error in the context of a big chocolate company’s ad budget.

And the demand end of the chain has changed a lot: as Dan says, there’s a whole new market now for what he calls “fine chocolate”, as opposed to “confections”. And truth be told, that split makes a hell of a lot more sense than, say, the creation of “super-premium vodka”, which is to all intents and purposes identical, in everything but price, to any other vodka. Chocolate, even more than coffee, has a depth and richness of flavor, when it’s carefully and lovingly made, which is easily worth six bucks. (Compare, for instance, the amount you’d pay for a very good coffee, or a very good glass of wine.) If you cultivate an audience of people who consider themselves connoisseurs, they will happily follow you to a world of unprecedented pricing.

On top of that, artisanal chocolatiers, much like Fair Trade coffee merchants, can tell a true story of how they’re doing a very good job of treating developing-world farmers with respect and high prices. That message resonates to differing degrees with different people, but at the margin it certainly helps.

Why are these kind of businesses cropping up now, in particular? I think there are a few reasons. Firstly, money has appeared to fund them for pretty much the first time. In a zero interest rate environment, risky businesses with little correlation to anything else look increasingly attractive...MORE
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