Beyond the Ball Mill – Scharffen Berger and the Luxury Chocolate Market

Managing Director of Scharffen Berger, Jim Harris, discusses the premium segment of the chocolate market and the company’s acquisition by Hershey during his recent visit to HBS, sponsored by the Marketing Club.

Relax, you are not about to read anything about melangeurs, conches or ball mills. If you are keen to learn about those, I refer you to the TOM case or to any RC student still deeply scarred by Friday’s TOM midterm. This article is about a market for chocolate bars so irresistible that an audience of HBS students devoured the samples even before the speaker started his presentation, a feat quite akin to emptying the bottles before the start of a wine-tasting session. How were we to conduct the chocolate taste test without chocolates?

Jim Harris, managing director of Scharffen Berger and the protagonist in our beloved TOM case, was genuinely worried as he pondered this question at the start of the event hosted by the Marketing Club on October 6.

Luckily, we were saved from our sad state of massive chocolate deprivation by the discovery of several boxes of remnant chocolate squares that somehow survived the initial onslaught. A sigh of relief. Now it was time to address the serious business of unwrapping those precious squares, placing them carefully at the back of your tongue and resisting the temptation to chew as you savor each melted drop of liquid pleasure.

Fruity, a touch of raspberry perhaps? That would be the 70% cacao dark chocolate square. A hint of honey and vanilla? That would be the 62% cacao semi-sweet dark chocolate. A smooth caramel like finish? You just had the milk chocolate.

It is the attention to such detail that keeps the quality of the Scharffen Berger product high. Jim and the founders of the chocolate company replica watches uk, Robert Steinberg and John Scharffenberger, conduct hundreds of taste tests each year as they seek to refine their product offerings and introduce new varieties.

Scharffen Berger competes in the premium segment of the chocolate market, accompanied by the likes of Godiva and Joseph Schmidt (which Harris also runs). The premium chocolate market is growing at 5% a year, growth largely driven by the media reports of the health benefits of dark chocolate, as well as the phenomenon of “trading up,” as discerning consumers move upward from mass market luxury products to true luxury products. Competition however is stiff, with mass premium brands like Lindt and Ghirardelli kicking at the heels of the premium and super premium segments (Nauhaus, Marie Belle, etc).

Scharffen Berger, which was acquired by Hershey in 2005, clearly needs to maintain its exclusive, luxury brand image to keep its market position. However, as Harris explained, the pressure from the parent company to increase sales by expanding the distribution channels can be overwhelming replica breitling. Having sold their chocolate bars through specialty food stores, Whole Foods and Trader Joe’s to date, Scharffen Berger recently decided to sell its chocolate bars at Target, despite Harris’ deep-seated worry about diluting the brand. Although this was somewhat mitigated by the decision to keep sales to only the top ten percent of Target stores, it is a fine line to cross, as Scharffen Berger fights for shelf space with the likes of Cadbury and Hershey. However, the acquisition by Hershey has proved to be fruitful for Scharffen Berger in other ways. Hershey brought deep technical know-how to the manufacturing process and deep pockets for investments required.

The Scharffen Berger story is perhaps the familiar one of a small craft company fighting the temptation to expand beyond the limits that would protect its exclusivity and its luxury positioning. Will Scharffen Berger move down market? Find out as you pass the chocolate aisle at your nearest Target the next time you are there. Oh, and for your information, Harris did add the ball mill.

(Note to future presenters: Feeding us on a Friday afternoon is always a good idea. It keeps us munching happily and less inclined to ask long, convoluted, awkward questions. Keep those chocolates coming.)