In 1926, a Belgian boutique began selling smooth, indulgent chocolates in a luxe gold box. The upscale approach has worked well: Godiva has grown into a $500 million product sold at more than 10,400 stores around the world. Now the chocolatier is going mass market. While adhering to its original recipes, Godiva is selling lower-priced bags of candies in supermarkets such as Publix (PUSH.OB) and Safeway (SWY), joining the likes of M&Ms and Hershey's Kisses.
Godiva executives forecast that the new Gems line of chocolates, as well as baked goods soon to be available on the company's recently redesigned Web site, will help double revenue by 2014. Already, Gems, which start at $5 for a metallic pouch of 12 to 18 truffles, solid chocolates, or caramels in supermarkets, have grown to 10% of sales in its 423 company stores since their early-September introduction. But as Godiva chocolates become more common—Gems will be in 2,000 supermarkets by yearend—will the brand become commonplace?
James Goldman, president and CEO of the former Campbell Soup (CPB) subsidiary, says Godiva can have its chocolate and eat it, too. "The gold boxes, and the chocolates in them, are a major part of the equity, but that's a one-dimensional offering for Godiva," he says. ""We're trying to play a different game."
Although Goldman has run Godiva since 2004, he says the expansion became possible only with the support of the confectioner's new owner, Yildiz Holdings, a privately held food company based in Istanbul that paid $850 million for Godiva last year. Since then, Yildiz has dished out $62.5 million for new stores, IT systems, advertising, Web site redesign, and entry into emerging markets such as China.
The down-market move seems to fit today's times. While consumers have sworn off many luxury goods, they are still treating themselves to lower-priced impulse purchases like chocolates. Revenue for U.S. chocolate manufacturers will increase 2.2%, to $16.47 billion, this year and overall U.S. demand, including domestic and imported chocolate, will rise by 4.3%, forecasts IBISWorld, a market researcher in Santa Monica, Calif. Its research also shows that 60% of chocolate consumers would buy premium chocolates, often defined as costing $15 a pound and up.
Godiva isn't abandoning the high-end market. Even as Gems began showing up on supermarket shelves, the company added Legacy Truffles, which retail for $54 for 20 pieces. "We're pulling [a number of] levers we think will be responsive today and set us up for success in the future," Goldman says.
One well-established brand in the grocery channel for everyday luxury is Lindt & Sprüngli, a Swiss chocolate company that first came to the U.S. in 1925. Lindt has about 70 stores in the U.S., but mainly relies on other distributors, which accounted for over two-thirds of its $2.6 billion in global sales in 2008. Thomas Linemayr, CEO of Lindt & Sprüngli (USA) notes that people from all classes shop at the same stores today. But he says makers of premium-priced products have to be careful about cutting corners. "It can't be premium in price," he says, "but not premium in quality or delivery."
But there's a risk in maintaining premium quality, too. Clark Wolf, founder and president of a New York food and hospitality consultancy that bears his name, equates Godiva's grocery-aisle chocolates to Starbucks' (SBUX) new instant coffee. If the instant version tastes good and costs less, he says, consumers will no longer need to go to a Starbucks cafe. Similarly, if Godiva's widely available Gems are as good as its gold-boxed truffles, he adds, Godiva could end up cannibalizing itself.
"Are we risking the brand?" Goldman asks. "We have not compromised the quality of the chocolates—this is just more everyday."
For a global perspective, check out this slideshow of the most popular candies around the world.