Toblerone Chocolate Bar History, Economics and Business Strategy
The life of the Toblerone chocolate bar began in 1908 Switzerland when two men, Theodor Tobler, and Emil Baumann, began to develop a milk chocolate made from nougat, almonds, and honey. They gave it a unique triangular shape that was rumored to represent the Swiss Alps. It was later clarified by Theodor’s sons that the distinctive design was inspired by a human pyramid shape formed by dancers at the finale of a Folies Bergeres show. By 1909 a patent was filed and the Toblerone brand received its trademark. Toblerone remained an independently owned company until 1970 when it joined with Suchard. It merged one more time before Modenlez International picked up a majority of the company in 1990.
Toblerone’s signature ingredients are milk chocolate with almonds and honey but the complete list of ingredients that go into making this chocolate are
“Sugar, whole milk powder, cocoa butter, cocoa mass, honey (3%), milk fat, almonds (1.6%), emulsifier (soya lecithin), egg white, flavoring (vanillin). Milk chocolate contains: Cocoa solid 28% minimum. Milk solid 14% minimum” (Toblerone)
According to the Toblerone website, the milk is sourced from within Switzerland, the almond nougat is from California, and the honey is from Mexico. The main ingredient cocoa is purchased as beans from different parts of the world to produce the perfect flavor unique to Toblerone.
The Ivory Coast and Ghana make up the majority of the cocoa beans exported out to wholesalers for resale or large chocolate producing companies for production. Sourcing the bean begins with individual farmers who plant cocoa trees on their farms; 70% of who are in West Africa. These West African farmers live in extreme poverty and use their small farms to produce most of the world’s chocolate. The working conditions are cruel and inhumane with an estimated 40% of the work being done by slaves; 500,000 of them children. The motivation behind slave labor is driven by greed as it’s cheap, easy to come by and poorly regulated. Separated from their families these children are beaten, starved and forced to work 80-100 hours a week. Any attempts of escape are punished by more brutal beatings. Work performed by these children includes planting the trees, taking care of the land, and when ready for harvesting opening the pods to remove the beans inside. Once the beans have been harvested they are sifted and sorted by grade type. They are then fermented and roasted to enhance the flavor and darken the bean making them ready to be put into sacks and sold on the market.
According to the International Cocoa Organization (ICCO), there are 2 ways for the cocoa beans to reach the market. One route is with the assistance of traders who purchase the beans from the farmers and then sell them to wholesalers where they are resold to exporters. Another way is for exporters to purchase the beans directly from the farmer. Prior to being exported, all beans pass through a grading process following standards set by the agencies that regulate the cocoa trade; the Federation of Cocoa Commerce Ltd (FCC) and the Cocoa Merchants’ Association of America, Inc. (CMAA). After grading is completed they can be sold and shipped.
Determining the price of the cocoa beans comes down to supply and demand. Supply is the availability of the product while demand is the number of buyers in the market and what they are willing to pay. These 2 key factors are affected by a multitude of outside influences which in turn drives the price up or down. Environmental conditions such as tropical storms, floods, the number of fruiting trees and drought will impact the level of supply available to buyers. Increasing demand for chocolate and global concern surrounding ethical production practices affects the amount of product a buyer would want to purchase. As a result, contracts on cocoa beans are often secured prior to the beans being produced. The ICCO refers to this as “Cocoa Futures Contracts” where the goal isn’t to guarantee the continued supply of cocoa to the buyer but instead it protects against a fall in the price of the cocoa market. This contract is a promise that a certain amount of product of a particular quality will be delivered and accepted by seller and buyer despite fluctuations in market price. The locations where the exchanges of these contracts take place are in New York and London at what the ICCO calls the “Exchange Clearing House”. On their website, they explain,
“…all bids and offers must be made through the Exchange’s “Clearing House”, via the exchange’s electronic order-entry trading system. As a result, the Exchange’s Clearing House acts as the buyer to all sellers and the seller to all buyers.” (ICCO 2015)
This process of buying and trading through these regulatory channels means the beans retain their value proportionate to supply and demand while keeping the market full of buyers ready to pay.
The buyers’ market for cocoa beans is heavily dominated by several major cocoa processing corporations; Cargill, Barry Callebaut, and Blommer Chocolate, just to name a few. They account for more than half of all cocoa beans sold in the world. They source their product directly from the farmers and then resell them to production companies like Hershey’s. Upon arrival the beans have their outer shell removed exposing the cacao nibs inside. The nibs are then made into a paste called chocolate liquor. At this point, the liquor is still very bitter so to make it palatable ingredients like sugar, cocoa butter, vanilla, and milk are added. With sweetness added creating the texture is done by a process called “conching”. This mixes, crushes, and aerates the chocolate providing a creamier experience to the consumer. Increasing or decreasing the length of this step is what gives a chocolate the manufacturer’s signature texture. Fine chocolates go through this refining stage longer than their cheaper competitors.
One company that has mastered this practice is Lindt. Rodolphe Lindt “revolutionized chocolate making” when he invented the conching technique, as stated by the company website. They use their standings as a luxury brand to set themselves apart from the rest. According to an article by Anna Townsend and Sabrina Tjang titled ‘Targeting Chocolate’, this approach is referred to as “Psychological segmentation”. The feeling of luxury and allowing oneself the temptation of fine chocolate is Lindt’s marketing strategy. Lindt uses sophisticated packaging to broadcast class and a smooth chocolate texture to give the consumer a premium chocolate experience. This marketing strategy is only one approach among many in the chocolate world. The article goes on to discuss other strategies that include a depth strategy, used by Home brand, which portrays themselves as the right choice for price-savvy shoppers and the Tailored Strategy used by Cadbury that means they have an option for all age groups and genders. (Townsend & Tjang 2015)
A quick google search on Toblerone targeting strategy reveals one that is comparable to Lindt Chocolates. Toblerone uses their unique shape, its rumored origin, and history coupled with their reputation as a premium Swiss brand to stand out from among their competitors rather than commercialized advertisements similar to those used by lower class chocolates. To uphold the image of a luxury high-class product the pricing of a Toblerone bar follows a premium strategy plan as well. This premium pricing approach was clearly seen in Rite Aid where I purchased my Toblerone bar. The retail price of a 3.52 oz Toblerone bar is $3.19 placing it at around $0.90 per ounce whereas a Hershey’s chocolate bar is priced at $0.48 per ounce. Based on its bottom shelf placement and available quantity I would have to assume that this fine chocolate is not profitable for the franchise.
Individual Franchises do not purchase their products directly from the manufacturer. Instead, companies like Rite Aid have large distribution centers that ship inventory to the retail stores. Costs to fund this intermediate step add additional expenses to the overall price of business. Distributors pay export fees and taxes to receive the shipments of international products, transport cost to and from the warehouses, tolls throughout the route and salaries of all the employees during every stage of the process. Once the inventory arrives at the retail location additional expenses must be factored in too. After deducting overhead costs like facility rent and utilities, employee salary, distributor fees, taxes…etc., the net profit margin per bar of Toblerone chocolate is low. Although the exact monthly cost is unknown I applied the overall net profit margin recorded on the macrotrends website to the cost of the chocolate bar. As of August 31, 2018, Rite Aid reported a 3.26% net profit margin. When applied to the cost of a Toblerone chocolate bar, the net amount earned is around $0.10 per 3.52 oz bar.
If my estimated amount is correct then that would explain why little importance was placed on the psychological placement of the product. While a Hershey’s bar was placed within viewing range of the customer, the Toblerone bar was on the bottom shelf unseen unless the customer was looking for it specifically. Toblerone doesn’t seem concerned about smaller sales to retailers like Rite Aid. Marketing is aimed at the higher to middle-class, most of who would not make a trip to a large convenient store for premium chocolate. But with chocolate being largely an impulse purchase and potential shoppers in the store being of all social classes there is always a benefit to offering a wide range of options; even if the profit is only $0.10 per bar.
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