Candy and flowers come to mind for Valentine’s Day gifting, with good reason. The Valentine’s Day candy market is about $1 billion in the U.S. — chocolate accounts for $750 million of that amount.
While it sounds like a lot, Valentine’s Day is only the third or fourth best-selling chocolate holiday, depending on the metrics. Seasonal and holiday sales make up 24% of the yearly $22 billion per year chocolate market in the U.S. For those taking bets at home, Christmas and Easter are first and second in sales by some accounts, and Christmas and Halloween are the top sellers by others.
Valentine’s Day roses, which are mostly grown abroad, have a supply chain with a narrow window, so the buds arrive in the U.S. in enough time for packaging and delivery, but not so far in advance that they wilt before enjoyment.
Chocolate is a different story. It doesn’t last forever, but the shelf life is longer, and the raw ingredients like cacao can be shipped far in advance of the holiday.
Producers plan for a steady flow of cacao
Chocolate producers plan their cacao procurement at least a year ahead, accounting for all sales. TCHO Chocolate, a Berkeley, California-based craft chocolate company, said its procurement, sales and marketing teams maintain a forecast for 12 months and can make sourcing and product planning decisions two to three years out. The company’s Plex Systems DemandCaster program applies statistical models to trends to project cacao and other ingredient needs, plus anticipated sales, further out than the planning and sales teams can forecast.
Hershey’s also plans more than a year in advance, a spokesperson told Supply Chain Dive via email. It forecasts based on historical trends and prior year results to anticipate needed cocoa supplies.
At the beginning of each year, TCHO sends a nonbinding letter of intent to its producer groups in various cacao-growing countries. The company starts the contracting process four months prior to the harvest, before the farmers begin picking the cacao pods. TCHO determines how much of different flavor profiles it needs to fulfill sourcing needs for that year.
Some, but not all cacao-growing countries have a main crop, when most pods are grown, and smaller subsequent crops, providing a second or third opportunity to purchase additional supplies.
“We want to be getting the majority of beans during the main crop,” Laura Ann Sweitzer, TCHOSource program manager, told Supply Chain Dive. That way, the company makes sure it has the right supply to create the right flavor profile for the year.
Commodity vs. craft cacao
And if they’re short in their projections? “The majority of our products are made with blends,” Sweitzer said. Milk chocolate products can be sourced from different regions. “That would allow us to gracefully move through a shortage. Single origin chocolates — that would be the worst to be short on. There’s no substitute for single estate or single community products.”
Single origin chocolates — that would be the worst to be short on. There’s no substitute for single estate or single community products.
Laura Ann Sweitzer
TCHOSource program manager
A shortage looks different depending on the manufacturer size. “The vast majority of cacao purchased to make chocolate is a commodity,” Sweitzer said. It’s evaluated by an industry standard, a set of physical characteristics. With the same characteristics, any shipping container full of dried cacao beans meeting those physical standards is interchangeable and can be traded like stocks on the stock exchange, she said. When buying commodity cacao, if you’re short, there are warehouses full of 25 metric ton containers of beans.
TCHO can’t use those beans. For craft chocolate producers, each cacao lot is different. “Our planning software has to track different flavor profiles of cacao. We’re focusing on different lots, which are not interchangeable. We’re getting a specific lot of beans prepared in a specific way,” Sweitzer said.
Single origin cacao liquor can be used alone or in a blend. Chocolate makers must be mindful when producing specific products, so they don’t run low on the liquors they may need for other products. “We have the visibility to understand by origin how much we need,” Jan Poeschl, TCHO’s senior vice president of supply chain and innovation, told Supply Chain Dive. They may withhold using a specific chocolate liquor (the roasted, ground cacao nibs in paste form) if they need that flavor profile for a select product. There’s a potential gap of several weeks to several months obtain additional supplies, so they may look at usage and the production lot to make decisions on what to use from that origin or flavor profile.
Source, test and build in delays
TCHO sources from farmer-owned estates or cooperatives, to specific standards. Before purchasing a shipment, the farmer sends a batch sample of dried beans for TCHO to test in its labs, before approving the purchase.
While rejection was more frequent before TCHO began intensive on-site training; “our rejection rate has gone down quite a bit,” Sweitzer said. The company has first right of refusal with some producers, and the producer can sell the rejected cacao to another customer, with enough time in the season for TCHO to still get product.
TCHO works with at least two or three suppliers in each region to protect against risk of pest infestation, weather crises and other problems.
It also has a generous sourcing timeline to account for cacao bean harvesting and processing and turning that into cacao liquor. That process includes harvesting, fermenting and drying the beans, and getting them to the processor who roasts them after removing the shell and husk, then grinding them into liquor. The liquor, a cacao paste that’s solid at room temperature, is then shipped by boat to TCHO.
“We build in the worst-case scenario into the timeline,” Sweitzer said. The best-case scenario includes no delays in transit, at the producer level or the processor level. There’s usually a delay somewhere along the line. They add at least a month buffer to the process, and in some cases two to three months, to the best-case scenario flow chart.
Matching standards to supply
Roasting and processing ideally takes place in the country of origin, but not always. Sometimes TCHO sends a 16 or 25 metric ton shipping container with dried cocoa beans elsewhere for processing and may need to wait a few weeks for a slot at the facility. TCHO then receives shipping containers of 20 metric tons of cocoa paste to the Port of Oakland.
If forecasting is off and TCHO needs more supplies, it can get shipments from Ecuador up to three times a year. “We can call at the end of harvest to beg for one more container, but it’s not going to yield the best flavor profile. If they’re low on supply, we’d have to be flexible with our standards,” Sweitzer said.
But if they need more Madagascar chocolate, they’re out of luck. Madagascar harvests once a year, and the boat leaves the port nearest the farm once a month.
Where are chocolate sales coming from?
An estimated 80% of Americans give candy and chocolate to others on Valentine’s Day, so who is selling the most chocolate?
Sweitzer thought it might be Hershey’s Kisses. A Hershey’s spokesman said that Valentine’s Day is not as big a holiday for them as Easter or Halloween, and there’s nothing special they do to anticipate the holiday’s needed cocoa supplies. “The flow of cocoa is steady and we are always prepared for our seasonal requirements,” they said.
Even if it’s not their top holiday, they’re so large that Hershey’s pops up in sales as a top brand for Valentine’s Day. According to Jet.com 2017 data, Hershey’s took two of the top three spots in their chocolate purchase data, for their full-size bars and nuggets. Candystore.com mapped 10 years of data by U.S. state, finding Hershey’s Kisses in the top of January to February 14 sales in five states. Godiva had the most social media mentions of Valentine’s Day, for any chocolate brand in 2015. They started pushing their chocolates at the end of the Superbowl.
Since ill-fated New England candymaker Necco sold its business, the famous conversation hearts aren’t on the scene this year. They needed 11 months to pump out enough hearts for holiday sales, and they accounted for 10.2% of Valentine’s Day sales. Will chocolate take their place?