Ghirardelli’s Success Squared

It’s universal: chocolate is emotional.

Talk to an employee of Ghirardelli Chocolate Co. and a deep abiding passion for consistent quality shines through.

Talk to a consumer of Ghirardelli’s chocolate and you tap into a near fanatical recognition of that quality. 

The San Leandro, Calif., company claims to be one of the oldest continuous chocolate makers in the U.S. – since 1852 – but has only become widely recognized by consumers in the last 15 years or so. That, in part, is due to its ever-increasing product presence at retailers like Wal-Mart, Target and Walgreens.

The offerings at those stores have expanded in recent years because retailers have realized the growth potential in premium chocolate, said Steve Blair, director of sales for national accounts for Ghirardelli Chocolate.

The total U.S. chocolate confections market is estimated to be between $9 billion and $10 billion. The premium market, where Ghirardelli is a player, is about 8.5 percent of total chocolate sales in the U.S. But it’s between 25 percent and 30 percent in much of Europe, Blair said. Since food trends frequently follow European patterns, it means there’s plenty of opportunity for whatever chocolate maker is positioned to drive that segment in America – and deliver product, strategy and brand. 

Ghirardelli (pronounced gear-ar-deli) wants a reasonably sized slice of that chocolate pie (recipes for which can be found at the company’s Web site). It currently holds between a 2 percent and 2.5 percent share of the total U.S. chocolate market.

“[That’s] very small in the grand world of chocolate,” Blair said. “In quick order we want to be a five share.”

“Quick order,” he explained later, is in the next three to five years.

That’s ambitious for a relatively small company. Ghirardelli has only 550 employees on average, with as many as 800 during peak seasons.

It seems Blair and the Ghirardelli team are on to something. Ghirardelli started 2009 with flat sales at its Wal-Mart and Sam’s Club business. But even in the doldrums of the second half of 2009, the company finished the year with a 17 percent increase in sales through the Bentonville retailer. Wal-Mart even recognized Ghirardelli as its “fastest growing” confections supplier at the end of the year.

Industry estimates are that Wal-Mart has about 100 suppliers in that category.

Blair attributes Ghirardelli’s successful swing to an unwavering commitment to quality product first, followed by a close second with its relatively new focus on developing strategic partnerships with all its retail customers, aimed at growing the premium segment.

Luke Briggs, Wal-Mart team leader for Ghirardelli, said aligning with his customer’s objectives “allowed us to truly, collectively put together a promotional strategy and item strategy that was able to deliver very nice growth for both us and the customer. Specifically in our everyday confection business.”

About 75 percent to 80 percent of Ghirardelli’s business is branded confections and baking items, with the remainder in foodservice and company-owned restaurants and stores. The company is one of 14 operating units of the Swiss company Lindt & Sprüngli AG, and declined to share its annual revenue.

Blair said his company is moving to a more long-term strategy with Wal-Mart and all of its retail customers. A strategy that is about delivering the next three years as opposed to just closing Christmas of this year.

“We want to show up at Wal-Mart and Target and Costco and Walgreens as being more talented and more capable than our share would indicate,” Blair said. “That’s our strategy.

“It worked wonderfully in 2009 and it is continuing to work wonderfully in 2010.”

 

The New Model

Blair has only been with the company since May of 2009, but he’s made a significant impact in that short time.

Coming from a 16-year stint at Procter & Gamble Co., Blair was looking for something different, yet the same. He found it when he was recruited by Ghirardelli Chocolate. The company has been evolving its focus on its retail customers over the past five years, he said, but has really ramped that up in the last 24 months.

Blair is based at the company’s Bentonville office, which also services Wal-Mart Stores, but he oversees Ghirardelli’s national accounts teams. About 50 percent of his time is spent traveling to other markets and attending trade shows. He counts himself as fortunate to work for a company that has allowed him to manage national accounts from the relative center of the country.

He’s had the pleasure to hire seven of the company’s nine retail team leaders that service accounts across the country and points to them as moving the needle for Ghirardelli and the premium chocolate segment in the last year.

“We’re selling a great brand and we’re doing it with the proven business strategy and commercial strategy of larger companies,” Blair said. “Recently, in the last 24 months, we’ve made a conscious effort to staff that way. To staff those kinds of people and to build an organization that looks like – on a whole different scale – but looks like how a major top five supplier goes to market with a retailer.”

Briggs, who was hired by Blair, was previously with the Dr Pepper Snapple Group, so thinking on a large scale on behalf of his company and his customer is a natural.

As Blair was building his national team, he said it was important for him to identify people who were not only committed to driving business for the retail customer, but who were also committed to giving back to their communities.

Blair himself is involved in WorkMatters and the Joseph Project, which helps provide encouragement and some mentoring for people between jobs. Likewise, Briggs has been actively involved in the American Heart Association and the team, which includes category analyst Katrina St. Columbia, is involved in the Ozark Affiliate of the Susan G. Komen Race for the Cure, among other organizations that have personal significance.

 

Premium Growth

But what about that darn recession?

Words like “luxury,” “upscale” and “premium” are frowned upon these days as consumers continue to curb spending on nonessentials.

“We’re finding that people are giving up the new leases on BMWs and they’re giving up the Disney vacations … but $3 for a bag of Ghirardelli squares at Wal-Mart is a great investment,” Blair said. “It makes them feel a little better about what is going on around them.”

Retailers do a “tremendous” business with the likes of Snickers bars and Reese’s Cups, Blair said. But trading one person, or adding one purchase of a premium chocolate to the other chocolate purchases has significant top line benefits to any retailer because the dollar ring is higher and the margin is higher.

“There’s all kinds of good commercial benefits for a retailer doing that, but there’s also share benefits for them, of closing that gap between only 8.5 percent of the business here and 25 percent globally,” he said.

“The quality is unbelievable … at every single step along the way there are no compromises, which drives up the cost, which is why we play the premium segment.” Blair said.

“Because we wouldn’t even consider downgrading the quality of the product.”

Ghirardelli is hands-on from bean-to-bar, which is about 15 steps, and it actually rejects up to 35 percent of the cocoa beans that are presented as raw materials.

“Wal-Mart understands the potential of premium chocolate. They understand the power of the [Ghirardelli] brand to help them get there. And then we have backed that up with innovation plans, merchandising plans, to grow the business and to close more consumers who were in the stores already,” Blair said.

“Our intention is to be right there to then help them close that gap and help them meet consumers’ needs and delight more consumers at a time when spending is being dialed back on almost everything.”