ACCOUNTING

Update: When Prices on Raw Materials Rise

Faced with a spike in wholesale chocolate prices, gourmet chocolate company Choco-Logo raised prices and reexamined its entire cost structure
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The Problem

In late 2006, wholesale chocolate prices began a 35 percent rise. Chocolatier Dan Johnson, who built a lucrative business selling chocolate bars emblazoned with corporate logos, had to cut costs quickly to keep his Buffalo-based Choco-Logo profitable. He switched suppliers, began using cheaper packaging materials, and cut the package weight of some products. Johnson also redoubled efforts to build up his high-margin corporate-logo business.

What the Experts Said

Gary Karp, executive vice president of Chicago-based Technomic, suggested opening mall kiosks. Katrina Markoff, CEO and founder of Vosges Haut-Chocolat of Chicago, warned against sacrificing quality for growth. Julius Walls Jr., CEO of Yonkers, New York—based Greyston Bakery, urged Johnson to focus future growth on corporate sales.

What's Happened Since

Choco-Logo has managed to remain profitable. A little good fortune helped: Johnson's former employer, desperate to dispose of 20,000 pounds of extra milk-chocolate inventory, offered Choco-Logo a 30 percent discount. The company also raised prices about 10 percent and purchased its own four-color printing press, which cut its label printing costs as much as 50 percent. Most important, Johnson says, people still crave chocolate in hard times. "I think we're in a very, very lucky marketplace," he says. "The chocolate industry isn't entirely recession-proof, but it seems to have a much stronger footing than most industries."

What's Next

Healthy growth has convinced Johnson that it's time to open a second, and maybe a third, retail shop. Likely locations are Pittsburgh and Cleveland. Johnson says the company will also continue building the high-margin corporate-logo business.

Last updated: Jun 1, 2009




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