Chocolates El Rey

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ROHIT DESHPANDÉ GUSTAVO HERRERO REGINA GARCÍA CUÉLLAR

Chocolates El Rey The divine drink which builds up resistance and fights fatigue: a cup of this precious drink permits a man to walk for a whole day without food. — Hernán Cortés, 15191 In late November 2006, Jorge Redmond, CEO of Chocolates El Rey, called a meeting with senior management to discuss the company’s growth strategy. A relatively small firm with sales of around $14 million,2 El Rey produced top-quality chocolate made with single-origin Venezuelan cocoa beans.3 The firm sold its chocolates in four different sectors—food services, industry, retail, and beverages4—and exported 17% of its production, mostly to the United States, Europe, and Japan. El Rey needed to grow, but Redmond wondered how to achieve growth and how to market the El Rey brand to its different target segments and international markets. With only 0.5% of cocoa’s world production, was it worth the effort to try to establish a country-of-origin image for Venezuelan chocolate? If so, how should El Rey go about it? And was this wise for a small company with scarce resources for marketing?

El Rey In 1929, José Rafael Zozaya and his father-in–law, Carmelo Tuozzo, introduced chocolate bars under the El Rey brand, founding Venezuela’s second-oldest chocolate company. The company, called Tuozzo Zozaya and Co., was funded with a 15,000-Bolívares (Bs) loan from Pius Schlageter. Tuozzo Zozaya produced mainly chocolate bars for hot cocoa (chocolate de taza) for customers in the food services business. In 1971, Jorge Redmond, Mr. Schlageter’s great-grandson, returned from his studies abroad to attend to the family’s real estate business. In 1973, Redmond became a partner with the Zozaya family in Tuozzo Zozaya; in 1976, he bought them out and changed the name to Chocolates El Rey. Redmond’s vision was to build a world–renowned business spanning cocoa production to the marketing of the chocolate. Initially, the company focused only on the domestic market, producing intermediate cocoa products (cocoa mass, cocoa butter, and cocoa powder) used in the food industry. Realizing that their excellent quality and rare value rendered Venezuelan cocoa beans among the highest priced in the international market, Redmond changed El Rey’s strategy. Since intermediate chocolate products made from Venezuelan cocoa were priced similarly to others made from international beans, he decided to produce finished chocolate exclusively from Venezuela’s high________________________________________________________________________________________________________________ Professor Rohit Desphandé, Executive Director of the Latin American Research Center, Gustavo Herrero, and Senior Researcher Regina García Cuéllar prepared this case with the collaboration of Antonio Francés. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2008, 2010 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-5457685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

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quality cocoa and leverage the El Rey brand. Redmond commented, “I wanted to sell a very special chocolate to a select niche.” He envisioned that the most important segment would be the food services industry, where chocolate was sold as raw material to restaurants, bakeries, patisseries, and chocolate shops. In 1995, El Rey opened a new plant in Barquisimento that allowed the company to expand its production to different chocolate types. El Rey also started to focus on the international food services industry, exporting first to the United States. Two years later, El Rey diversified exports, selling to customers in other parts of Latin America and eventually expanding to Japan. As sales to the international food services markets increased and the firm’s domestic presence widened, El Rey introduced a new line for the retail market called El Rey Carenero, which took advantage of El Rey’s brand image as a top-quality gourmet chocolate. In 2001, El Rey was awarded the ISO-9002 certification, ratifying the company’s high-quality manufacturing standards. By 2002, however, the company faced economic difficulties. Capital investments put a strain on the company’s cash flow and led it to incur substantial debt (see Exhibit 1 for El Rey’s historic income statements). Interest rates were high and the debt charge represented a serious drain on the firm’s finances. Moreover, the company had machinery constraints for packaging and molding that limited its production. By 2003 the company started to recover, and in 2004 it realized more than $1 million in profits. The fast recovery owed in part to a debt restructuring with banks and suppliers. El Rey’s presence in their target segments had also begun to grow. In the domestic food services segment, El Rey controlled more than 70% of the Venezuelan market. It dominated the industrial segment with a 75% share, serving as the main chocolate supplier for large multinational firms that used chocolate in their product lines. In beverages, the firm’s Taco brand was the second-ranked chocolate beverage brand in the country. El Rey had become the exclusive chocolate provider for Venezuela’s premium chefs and chocolatiers. Exports had also grown in both the food service industry and the retail market. However, El Rey’s management was still not satisfied with these results; they wanted to grow at a much more aggressive pace.

Venezuela By 2006, Venezuela had 26.5 million inhabitants and a GDP of U.S. $140 billion (see Exhibit 2). A former Spanish colony, Venezuela had gained its independence in 1823 and had been ruled mainly by the military or caudillismo (strongman politics) until 1958, when a civilian democracy was established. In 1988, Carlos Andrés Pérez was elected president and for 10 years his administration pursued stabilization and austerity measures along with political reform. Unfortunately, economic conditions remained difficult and popular resentment spread. In 1992, Hugo Chavez led two failed military coups and established himself as a popular hero. In December 1998, Chavez won the presidency with 56% of the vote. He promised radical economic and political reforms benefiting the poor. After almost seven years as president, Chavez controlled all branches of government (executive, legislative, and judiciary). Opposition to his regime was weak. Elections for Chavez’s first reelection run were scheduled to take place on December 3, 2006. Manuel Rosales, governor of the populous state of Zulia, was the opposition’s main candidate. Projections as to which candidate was ahead were mixed. However, even if Rosales lost, the opposition was expected to gain strength during the following presidential term.

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Venezuela’s Economy At the turn of the 21st century, Venezuela was Latin America’s fourth–largest economy in absolute terms and third largest in per capita GDP. As in most Latin American countries, income distribution was unequal. The top 20% of the population accounted for 53.4% of total income, while the poorest 20% received only 3% of the country’s income. Venezuela owned the seventh–largest oil reserves in the world and the ninth-largest gas reserves. The surge in oil prices allowed the government to maintain an artificially low official exchange rate of Bs 2,150 per U.S. dollar to help control inflation. The Foreign Exchange Management Commission (Comisión de Administración de Divisas, CADIVI) controlled all foreign-exchange transactions. Venezuelan importers had to buy foreign currency from CADIVI in order to pay for their imports, and exporters were obligated to sell 90% of the foreign currency obtained from their sales abroad to CADIVI at the official exchange rate. Nonetheless, a “real” black market foreign exchange rate emerged, and the U.S. dollar traded at Bs 3,400 by late 2006. Furthermore, inflation in Venezuela was one of the highest in the region. Prices increased 16% in 2005 and were expected to rise around 13.4% in 2006.5

Food of the Gods The Kakaw, or cocoa plant, cultivation originated in Central America under the Mayan Empire around 300 B.C.6 Cocoa beans were cultivated by the Toltecs and the Aztecs by around A.D. 900, receiving the name Cacahuatl (bitter water) for the thick, bitter beverage the Aztecs made out of it. Christopher Columbus was the first to take cocoa back to the Spanish kings, but it was not very popular. Moctezuma, the Aztec king, then paid homage to Hernán Cortés, offering him xocolatl.7 It was said that the Aztecs claimed that consuming chocolate gave strength, health, faith, and passion to those who drank it. Moctezuma himself was believed to drink xocolatl before all his romantic encounters.8 Cortés realized that cocoa was a real treasure and reintroduced it in Spain in 1528. This time it spread widely. In the Aztec Empire, and later in Spain, cocoa drink was reserved for the kings, nobility, and clergy. In the 18th century, cocoa was as important as oil would be in the 20th century, and comprised the main trade between the new Spanish colonies and Spain. In 1875, a Swiss chocolate producer was the first to add milk, inventing the popular milk chocolate. Since cocoa trees grew only between the Tropics of Cancer and Capricorn, popular chocolates from developed countries such as Belgium, France, and Switzerland were made from cocoa beans imported from cocoa-growing countries (see Exhibit 3). Of the various types of cocoa beans, the most common, forastero, had a mild taste and smell and was easy to cultivate and highly resistant to disease. Originating in the Amazon basin, forastero cocoa was planted in other parts of the world. As a result, it came to account for 80% of the world’s production, including the entire African cocoa production. Criollo beans, by contrast, were more complex in flavor and aroma but had very little resistance to disease. For this reason, they came to comprise only 10% of world production. Although other countries produced criollo cocoa, its quality was allegedly inferior to that produced in Venezuela. As Godiva’s Thiery Muret explained, “It’s the flavor delivery; when you taste chocolate made with Venezuelan cocoa beans you have a much more combined flavor. It has a flowery aroma, like violets.”9 As a cross between criollo and forastero, trinitario comprised an intermediate cocoa quality. Trinitario offered excellent taste and aroma and was also highly resistant to disease. Trinitario and criollo cacao were both considered to be premium cocoa. Venezuela’s entire cocoa production was either criollo or trinitario. Cocoa’s quality corresponded strongly with the land where it was planted. To describe chocolate, connoisseurs often resorted to the same term used to describe wine, goût de terroir, which denoted the individual flavor characteristics created by local soil and climate. Bernard Duclos of Valhrona 3 This document is authorized for use only by Yuxiao Wang in International Marketing Fall 2015 taught by Abdolreza Eshghi, Bentley University from September 2015 to December 2015.

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remarked that “[j]ust as for wine, the land has a big influence on the finished product [chocolate]. Venezuela has a combination of temperature, soil and rainfall that creates ideal conditions for cultivation.”10 John Scharffenberger of Scharffen Berger Chocolates noted that “90% of the quality of a given chocolate is in the beans: where they’re from, what variety they are, and how they’re blended.”11 The variety and country of origin of cacao beans were just as important to the flavor of finished chocolate as that of coffee beans to brewed coffee.12 During the early 19th century, Venezuela was the world’s leading cocoa producer, accounting for nearly half of the world’s demand (see Exhibit 4). By the beginning of the 21st century, however, Venezuela lost its leadership position in the cocoa trade to a number of African nations. According to El Rey’s Kenneth Miller, “Venezuela before the 1920s lived on coffee and cocoa crops. But after that, oil was discovered and it was the country’s perdition. People destroyed trees and crops were left unattended. A country with easy money turns to easy spending, and this has been the story of Venezuela.” By 2005, Venezuela was the 15th-largest cocoa producer; its market share accounted for less than 0.5% and 0.1% of the world’s cocoa production and exports, respectively.13 Cesar Guevara, executive vice president of El Rey, observed that “[c]ocoa harvesting is a long-term investment. Plants take anywhere between five to seven years to be productive. In an oil-dominated economy there is a shortterm orientation; people do not want to wait seven years to reap benefits from their investment. Moreover, in a country with unstable politics where ministers change frequently, policies change suddenly. This deters long-term investments such as in cocoa plantations.” Around half of Venezuela’s cocoa bean production was exported as beans, while the other half was slated for domestic use. Of the latter portion, El Rey bought around 10%. Nestlé was the largest domestic buyer; and its needs were so great that it also imported a large percentage of its total consumption from Ecuador. Although Venezuela’s cocoa production was small, Venezuelan beans commanded a 30% premium on the world market. This premium had increased over time (see Exhibit 5); among other things, it rose due to the creation of a ''chocolate appellation controlé.'' As in the wine industry, appellation controlé obligated chocolate producers all over the world to state which type of cocoa beans were used in their chocolate.

Producing Chocolate Chocolate production was a complex process that began with the cocoa pod. Upon maturation, the cocoa pod was cut straight from the tree and broken with machetes to form a white, tart pulp. To eliminate tartness, the cocoa was then fermented in wooden boxes for five to seven days. During this time, the cocoa was turned daily and temperature was strictly controlled. Fermentation was critical for the chocolate’s final flavor, aroma, and color. However, it was also a very expensive process that only premium cocoa could sustain. Next, beans had to be dried under direct sunshine until they contained at most 8% water. Continuous shuffling and reshuffling of the beans ensured a complete drying process. At the end of the drying period, the cocoa beans were transported to a chocolate factory, where they were shelled to expose the cocoa pulp inside and then roasted carefully. Roasted beans were ground in high-speed mills, resulting in cocoa mass, a dark brown, viscous liquid with a fat content of between 50% and 60%. Cocoa mass was pressed to extract the extra fat, known as cocoa butter. The remaining solids were ground to produce cocoa powder, the main ingredient in chocolate. Cocoa mass, cocoa butter, sugar, and different amounts of milk were added to chocolate powder in different proportions, depending on the chocolate to be produced. Bitter and extra-bitter chocolate were not mixed with milk and contained between 27% and 80% cocoa mass. Milk chocolate contained milk 4 This document is authorized for use only by Yuxiao Wang in International Marketing Fall 2015 taught by Abdolreza Eshghi, Bentley University from September 2015 to December 2015.

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and a lower cocoa concentration. White chocolate was produced with cocoa butter and milk; it contained no cocoa mass. After the chocolate was mixed, it was “conched,” a process that removed humidity and volatile acids and gave the chocolate its characteristic texture, flavor, and viscosity. A tempering process then gave the chocolate its sheen and velvety texture. Finally, the chocolate was molded into different shapes, packed, and shipped. (See Exhibit 6.)

A Decadent Indulgence Although cocoa bean cropping and chocolate production bore many similarities to coffee production, consumption patterns were different. Chocolate was seen as decadent, possessing a sensuality and seductiveness that coffee did not have. Chocolate did in fact produce many physiological effects in the human body. Both chocolate and coffee contained theobromine, an addictive substance that elevated positive mood by stimulating the brain’s pleasure centers. The two also contained caffeine, although this was present in very small amounts in chocolate.14 Phenylethylamine, another compound found in cocoa, was reported to enhance mood and serve as an aphrodisiac.15 Chocolate intake had also been linked to the release in the brain of serotonin, a substance that produced feelings of pleasure. Studies showed that serotonin along with phenylethylamine were mild sexual stimulants. Research had also shown that dark chocolate, like red wine, contained polyphenols that acted as antioxidants.16 The amount of antioxidants contained in chocolate was larger than that in spinach and about the same as that in a glass of red wine.17 Polyphenols were reported to be good for the heart, lowering blood pressure and improving blood flow.18 The higher the cocoa concentration in chocolate, the higher those health and mood benefits were.19 Thus, dark chocolate was supposedly more beneficial than milk or white types. According to many fans, chocolate’s particular appeal derived from the fact that cocoa butter stayed solid at room temperature and melted very slowly under the influence of the body’s slightly higher temperature. Thus, eating chocolate produced a delicious, melt-in-your-mouth sensation. It was believed that chocolate was consumed more by women than by men. According to Adam Drewnowski, director of the University of Michigan’s Human Nutrition Program, chocolate was the food most commonly craved by women.20 Italian research showed that women who ate chocolate regularly had a better sex life than women who denied themselves the treat. “Women who have a daily intake of chocolate showed higher levels of desire than women who do not have this habit. Chocolate can have a positive physiological impact on a woman’s sexuality,” said Dr. Andrea Salonia of the San Raffaele Hospital in Milan. “Women who had a low libido could even become more amorous after eating chocolate.”21

El Rey’s Business El Rey’s products varied according to the cocoa bean used in their production, the different combination of ingredients, and the size and type of chocolate produced. Cocoa beans possessed different flavor, aroma, and texture according to the region where the bean was planted. Chocolates also varied in the amount of milk they possessed and in the cocoa concentration. El Rey produced chocolate bars, drops, and discs as well as a sugar-free line for diabetic and health-conscious clients. The firm’s production was directed to four different market sectors: food services, beverages, industrial, and retail (see Exhibit 7 for share of sales, Exhibit 8 for margins, and Exhibit 9 for exports).

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Food Service The food service division sold different types of chocolate molded in chips, bars, or discs for wholesale use. Chocolates were sold through distributors in both the domestic and international food service industries. In the food service market, El Rey also offered a line of chocolates that were used for pastry, ice cream, and cake decorations. In Venezuela, El Rey controlled 70% of the food services market. The company had agreements with domestic distributors that serviced restaurants, bakeries, pastry shops, bomboniers, and chocolatiers. El Rey’s largest distributor was Pandock. Unlike other distributors, Pandock provided its customers with value-added services such as consultation with food technicians and free cooking classes for homemakers who sold their cooked products informally. Pandock also had retail stores where they sold their product line to the informal bakery industry, which accounted for 33% of the formal bakery business. Pandock covered 5,200 of a total of 6,000 bakeries in Venezuela and around 50% of all restaurants. Pandock’s sales of El Rey chocolates had increased significantly in recent years. The firm started carrying El Rey’s products in 1999; by 2001, El Rey sold 8 tons of chocolate to Pandock per month, and by 2006, its monthly sales had increased to more than 40 tons. To expand into the international food service markets, Redmond had pitched El Rey’s chocolates to top chefs and restaurants all over the world. Publicity targeted to this group of people was very expensive, as advertisements in each magazine cost $10,000 per issue. Redmond realized that it would be cheaper and more effective to invite top chefs and writers of gourmet magazines to visit what would later be known as the “Cacao Route.” At cocoa haciendas, top chefs witnessed how cocoa was planted, harvested, and processed and were exposed to folklore, dancing, and other cocoa traditions. To further impress these influencers, El Rey would take them to visit extraordinary beaches as well as El Rey’s plant at Barquisimento, where chocolate was produced from the beginning to the end. The visit would end with a stay in Caracas, where chefs would be taken to top chocolatiers who used El Rey’s chocolates exclusively. The purpose of these visits was not just to sell El Rey chocolate but also to sell Venezuela, a country with an exquisite cocoa bean production and extensive cultural traditions around the cocoa harvest. This marketing program was costly but effective. Gourmet food writers returned home and wrote in specialty magazines about El Rey, which in turn allowed the firm to penetrate the food service market (see Exhibit 10 for some comments of chefs and gourmet writers that came to the Cacao Route). Likewise, top chefs would create recipes using El Rey chocolate, their creations serving as de facto advertisements for the company. In addition to sponsoring the Cacao Route, El Rey offered annual booth tastings at international food fairs in New York, San Francisco, and Barcelona. After sampling the firm’s chocolates, connoisseurs again wrote about El Rey, while the chefs cooked with the firm’s products. As a result, export sales as a percentage of total sales in tons of chocolate increased from 3% in 1996 to 27% in 2005. About 60% of total exports went to the United States, 25% to Japan, and 15% to Europe (see Exhibit 9).

Beverages The beverage production line was dominated by Taco, a chocolate powder used to produce instant chocolate milk. Targeted at children, Taco powder was sold through the same distributors that distributed El Rey’s retail products. Taco’s consumer sale points were supermarkets, restaurants and bakeries. Taco was the second-largest chocolate milk powder in the country, with 30% of the market, behind Nestlé’s Rock-o-late.

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Industrial El Rey sold tailor-made chocolate products to domestic industrial clients for use in their commercial products. Chocolate tailor-made products included raw material for ice cream, chocolate chips for cookies, and chocolate for cereal frostings, among others. Some examples of products made by El Rey were chocolate bars used by McDonald’s to produce their chocolate ice cream, chocolate covertures for Nabisco’s cookies, and chocolate chips for Kellogg’s choco-muesli. Although El Rey claimed 81% of Venezuela’s industrial chocolate market, the high cost of raw materials such as Venezuelan cocoa beans and sugar prevented the firm from competing in this market abroad. El Rey’s industrial clients were mostly multinationals that bought their products from El Rey in Venezuela but that had other suppliers in the United States or Europe.

Retail El Rey’s retail division was created almost by accident. Restaurants, pastry shops, and chocolate shops that used El Rey’s chocolates to produce their products started to sell the chocolates at retail. People who liked the bombons or pastries in the shop ended up buying El Rey chocolates (the same as the ones sold to the food services industry, but in smaller packages). An international market for retail products was emerging, but as of 2006 it represented only 8% of exports. Chocolates in small packages could be consumed as confectionery or as raw material for cooking. El Rey had contracts with national distributors that sold the chocolates in gourmet shops, airports, luxury hotels, and high-end supermarkets. The company did not pay for any publicity or advertisements; El Rey’s quality spoke for itself and clients knew the chocolate from bomboniers, restaurants, and pastry shops in the country. In recent years, the amount of chocolate sold through retailers had grown 20% without the use of any publicity. Since El Rey’s chocolates were perceived as luxury products, the firm had difficulty competing with mass chocolate producers (see Exhibit 11). To grow its retail division abroad, El Rey was using the same strategy that it had used at home, relying on word of mouth and eschewing advertising. El Rey’s distributors in the United States put the firm’s products on the shelves of certain specialty food stores (such as Whole Foods) and also sold the chocolate online via El Rey’s own web page or specialized gourmet chocolate web pages such as seventypercent.com.

Venezuela’s Retail Chocolate Industry By 2005, Venezuela’s retail chocolate market represented U.S. $45.3 million in sales and a volume of 5.6 thousand tons. Chocolates were gifted on a number of holidays, including Mother’s Day, Secretary’s Day, Valentine’s Day, and Christmas. Seasonal chocolate was the fastest-growing market subsegment, followed by boxed chocolate. The retail chocolate market was dominated by Nestlé, with more than a 65% share (see Exhibit 11). Selling medium-quality chocolate made with Venezuelan cocoa, Nestlé benefited from a strong distribution system and brands that addressed consumers at multiple price points. Far behind Nestlé, in second place, was Effem. While Nestlé imported items mainly from Colombia and Ecuador, Effem imported from the United States and thus faced a number of difficult trading conditions.22 As a luxury good, chocolate in Venezuela was sensitive to changes in disposable income. Confectionery and chocolate volume sales dropped significantly from 2002 to 2004 as disposable income in the country decreased.23 By 2004, the purchasing power of the population’s poorest segment increased by around 30% because of subsidized social programs and increased government 7 This document is authorized for use only by Yuxiao Wang in International Marketing Fall 2015 taught by Abdolreza Eshghi, Bentley University from September 2015 to December 2015.

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spending. By 2005, confectionery and chocolate sales started to increase, but chocolate sales were not expected to reach their pre-2002 level until 2008 (see Exhibit 12). In general, low-income consumers did not buy a lot of chocolate; instead, they purchased sugar confectionery. For this reason, chocolate companies were starting to promote chocolates in more affordable, smaller-sized packages. Notwithstanding the small market, a large array of imported or national premium brands offered high-end gift chocolates shaped as flowers, hearts, and other objects.24 More than 50% of all chocolate sold was in the form of chocolate bars or tablets. Consumers preferred milk or filled chocolate bars to plain dark or white bars. Chocolate sales in Venezuela also showed a gender bias; according to an exclusive chocolate bombonier in Caracas, around 60% of sales were to women and 40% to men. Of that 40%, most represented gifts given by men to women.25

The U.S. Retail Chocolate Industry By 2005, the U.S. chocolate market represented $14.9 billion in sales and shipments of 1.6 million tons.26 The top four producers controlled 62.2% of the domestic market and were gaining market share due to the prominence of their brands. The remainder of the market belonged to 140 firms, each of which possessed no more than 3% of the market. A major challenge facing the industry was finding high-quality raw materials. On average, the industry’s main manufacturing cost was raw material purchases (44%), while profits represented 33% of revenue, on average.27 Per capita U.S. chocolate consumption was low compared to Europe (4.8 kg compared to 7 to 10 kg yearly). Most chocolate was consumed in the colder months and on holidays such as Easter, Christmas, Valentine’s Day, and Halloween.28 The U.S. chocolate consumer had become more sophisticated in recent years. According to Sylvie Douce, founder of the annual Chocolate Show in New York, “As Americans become more and more sophisticated (10 years ago, most Americans had never heard of foie gras), their taste buds are reaching for more complex, more refined chocolate. The American public was experiencing the same epiphany about chocolate as they did with wine and coffee.” Bernard J. Duclos of Valrhona said, “I’ve been in the United States for 10 years and in that time I’ve seen an evolution in the American palate and a strong appetite for food knowledge that just keeps growing. Americans today are willing to pay more to get only the best.”29 In keeping with the trend toward sophistication, the American palate tended increasingly toward dark chocolate of premium brands that offered consumers a choice of cocoa content, organic varieties, and exotic flavors (see Exhibits 13 and 14). Fair-trade and single-origin chocolates (i.e., those that stated the terroir where the beans were grown and harvested) were increasingly used to offer stories behind production, encouraging consumer education and appreciation comparable to that surrounding wine or coffee. Significantly, the fraction of Americans that preferred dark chocolate had increased with time. Lee Mizusawa, president of Lindt USA, observed that “a few years ago, a 70% cocoa dark chocolate would have been considered baking and not eating chocolate (the cocoa content in popular candy bars was between 20% and 25%). The higher cocoa content is for sophisticated palates. It’s a sharp, clean, intense taste.”30

The U.S. Premium Chocolate Market 31 In 2004, U.S. sales of premium chocolate exceeded $1.5 billion. Consumption of premium chocolate was not pegged to the amount of disposable income, since premium chocolate was considered an affordable luxury. However, premium chocolate sales differed by gender. Men mostly 8 This document is authorized for use only by Yuxiao Wang in International Marketing Fall 2015 taught by Abdolreza Eshghi, Bentley University from September 2015 to December 2015.

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bought chocolate to give as gifts during Christmas or Valentine’s Day. Research suggested that 89% of men who bought premium chocolates had done so as a Valentine’s Day gift, compared to 69% of women. Godiva launched a line called Diva that targeted young, food-savvy, working women in their twenties. “Women are key to chocolate advertising,” said Rita Clifton, the chair of the branding agency Interbrand. “They are not only important consumers in their own right but they also act as gatekeepers to the rest of the family, so it’s important to get the approach right.” Advertisements for women emphasized themes such as taking time for yourself and health. “If women are going to indulge, they want to make sure it is with a high-quality brand.”32 (See Table A.) Table A

Survey on Premium Chocolate Consumption (% of those surveyed)

Do you eat premium chocolate? Purchase premium chocolate for self Eat chocolate or hard candy Mean portions of chocolate eaten in the past month In gourmet chocolates, taste is very important In gourmet chocolates, packaging is really important

Total (%) 14 38 78 7.8 81 42

Men (%) 11 35 72 7.6 79 38

Women (%) 16 40 83 7.9 83 45

Source: “Premium Chocolate Confectionery,” U.S. Consumer Intelligence, Mintel International Group Limited, February 2005.

In recent years, perceptions of exclusivity had brought about a major shift in brand preferences among American consumers. Whereas Kraft, Hershey’s, and Russell Stover premium chocolate sales had declined, sales by smaller brands available at food, drug, or mass merchants were on the rise. An example was Hershey’s $62 million acquisition of Scharffen Berger, an exclusive California chocolate maker with sales of $11 million. A Mintel survey revealed that 62% of Americans had bought specialty or premium chocolate, as compared to 57% that had bought specialty cheese, 75% that had bought coffee, and 43% that had bought cookies. A full 65% of respondents agreed that they preferred to have a little bit of premium chocolate rather than a lot of average chocolate.33 As a result of increasing demand, premium chocolate was receiving more shelf space in the mainstream food, drug, and mass merchant outlets, whereas previously they had been found only in specialty or health food stores. The following table shows retail prices of premium dark chocolate bars (3.5 oz.) made with 100% Venezuelan cocoa beans: Company

Name of Chocolate

Company's Country Cacao percent of Origin

Felchin Pierre Marcolini Amadei Pralus Scharffen Berger Neuhaus Bonnat Venchi Domoir Michael Cluizel Bernard Castelein Valhrona Valhrona L'Artisan du chocolat Chocovic Guittard Chocolates El Rey

Maracaibo Clasificado Pure Origin Venezuela Chuao Venezuela Cacao Cuyagua Occumare Venezuela Chuao Cru di Cacao Carenero Superior 1er Cru d'Hacienda de Concepción Maracaibo Caraibe Chuao Carupano Occumare Sur del Lago Gram Samán

Switzerland Belgium Italy France United States Belgium France Italy Italy France France France France United Kingdom Spain United States Venezuela

65 72 70 75 75 71 75 60 70 70 70 66 65 70 71 65 70

Retail Price ($) 11.25 9.65 8.75 7.99 7.00 6.95 6.95 6.49 5.99 5.50 4.95 4.89 4.63 4.34 3.99 3.50 2.99

Source: www.seventypercent.com and www.scharffenberger.com (last viewed March 12, 2007).

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Chocolates El Rey

Limits to Growth A major problem impeding El Rey’s growth plans was the limited supply of top-quality cocoa beans in Venezuela. At the end of the 1990s, El Rey, along with Palmaco (a subsidiary of the national oil company PDVSA), ventured into producing cocoa at an experimental hacienda called San Joaquin. San Joaquin was a research project devoted to finding ways to accelerate the cocoa production process. Unfortunately, as Venezuela’s political environment became more uncertain, San Joaquin was invaded by pisatarios, revolutionaries supporting President Chavez. El Rey lost its crops and its investments in San Joaquin. After that experience, El Rey decided to stay out of cocoa production and concentrate on chocolate production only. In 1991, given the difficulties in buying cocoa beans, 11 cocoa-processing companies under El Rey’s leadership joined forces to create a not-for-profit organization named Aprocao. Aprocao ran an industry research institute and furthered industry-government relations. Buying cocoa beans directly from producers, Aprocao sold them to its partners, charging them an 8% commission to cover operating costs. With each partner specifying the amount and quality of beans needed, Aprocao negotiated a price for each type and quality, bought the beans, and sold them to the partners. Aprocao bought around 38% of the cocoa beans produced in the country. El Rey was virtually alone in buying the more expensive and scarcer fermented beans (only 25% of cocoa beans produced in Venezuela were fermented).34 The political climate and its implication for economic policy also concerned El Rey. With annual inflation projected to be more than 13% and with the fixed official exchange rate eating into earnings, exporting was becoming more and more difficult. Policies changed constantly, and El Rey’s management was worried that attitudes toward producers of luxury goods could worsen as President Chavez’s policies became more radical.

Growth Options Jorge Redmond was convinced that El Rey needed to grow. One of his greatest ambitions was to make Venezuelan cocoa in general—and El Rey’s chocolate in particular—world famous. Redmond was convinced that El Rey’s chocolate was comparable, if not superior, to most international premium chocolate brands. But how do you get people to recognize it? Some premium brands were starting to advertise the type or origin of the cocoa beans used in their production. But as many brands used blends of different cocoas, it was not easy to claim the quality of the beans used. Some brands used a large percentage of the less expensive forastero beans, incorporating only a small percentage of criollo or trinitario beans to give the chocolate a superior taste and aroma. El Rey was virtually the only chocolate producer to use only single-origin beans of the finest qualities available. However, El Rey was still a relatively small company with only 11 years of experience in the food service and retail lines. By contrast, most chocolate companies had decades in the business and their brands were well recognized by chocolate connoisseurs. By 2006, El Rey employed 200 people, with only 8 staff dedicated to domestic sales. Its advertising and marketing team was almost nonexistent. To handle exports, El Rey had sales representatives in Japan and the United States. Even if Redmond decided to pursue growth through sales abroad, he needed to decide which regions to target, what segments to tackle, and with what marketing strategy. One option was for El Rey to grow in the U.S. industrial market using its own brand name. To do so, however, El Rey would have to use cheaper raw materials for its products, as the cocoa beans and sugar it used were top quality but also very high priced. Rather than use criollo fermented cocoa 10 This document is authorized for use only by Yuxiao Wang in International Marketing Fall 2015 taught by Abdolreza Eshghi, Bentley University from September 2015 to December 2015.

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beans, El Rey would need to use lower-cost, lower-quality Ecuadorian beans. Redmond was not sure he wanted to compromise the quality of El Rey’s chocolates. Another option was to scale up the retail segment. Growth in this segment had been strong and had been achieved by word of mouth alone. Yet Redmond was not sure how much more growth could be achieved without investment in marketing. El Rey did not have the personnel, the money, or the expertise to devote to advertising, and Redmond was worried that significant investments in advertising would burden the company’s finances. If El Rey did go this route, it was unclear how its brand would be positioned in the U.S. retail market. Could El Rey put its product on shelves and expect sales to grow by word of mouth, as was the case in Venezuela? What would El Rey’s management have to do to transform El Rey into a globally recognized brand? Finally, growth could come by greater focus on the food services segment. El Rey had capacity to increase production in the same lines they were already producing. However, if different products were needed, additional machinery would have to be bought. El Rey already had 70% of the Venezuelan food services market, so was further growth likely? If El Rey tried to grow the food services exports segment, it would need to think about its brand’s role in that segment. Could the firm use the same brand in retail as in food services? Could a viable country brand be created even if Venezuela was a small country with a limited supply of cocoa beans? Redmond had a lot to consider that afternoon as he pondered what to present to his management team.

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Exhibit 1

Chocolates El Rey

El Rey Income Statement (‘000 U.S.$, fiscal year June to May) FY 2000 7,773 173 7,600 4,721 60.74% 2,101 27.03% 778 10.01% 653 8.40% 125

FY 2002 7,341 492 6,850 4,600 62.66% 1,856 25.28% 394 5.36% 360 4.90% 34

FY 2003 6,336 152 6,183 4,129 65.16% 1,189 18.76% 866 13.67% 637 10.06% 229

FY 2004 10,342 484 9,857 6,764 65.41% 1,376 13.31% 1,717 16.60% 682 6.59% 1,035

FY 2005 11,840 576 11,264 7,264 61.35% 1,929 16.29% 2,071 17.49% 464 3.92% 1,607

Annual Indicators

2001

2002

2003

2004

2005

GDP (US$ bn)

122.9

92.9

83.5

109.8

140.2

Gross sales Returns and discounts Net Sales Sales costs Administration costs Gross profits Financial costs, others Profits

FY 2001 8,680 512 8,168 5,582 64.31% 2,433 28.03% 153 1.76% 786 9.05% -632

FY 2006 13,585 542 13,043 8,775 64.59% 2,104 15.49% 2,164 15.93% 519 3.82% 1,645

Source: Company information.

Exhibit 2

Venezuela’s Annual Indicators

Real GDP growth (%)

3.4

-8.9

-7.7

17.9

9.3

Real oil GDP growth (%)

0.9

-14.2

-1.9

11.6

1.7

Consumer price inflation (avg. %)

12.5

22.4

31.1

21.7

16.0

Population (m)

24.5

25.0

25.5

26.0

26.5

Exports of goods FOB (US$ m)

26,667

26,781

27,170

38,748

55,487

Imports of goods FOB (US$ m)

-19,221.0

-13,360.0

-10,687.0

-17,318.0

-23,955.0

Current account balance (US$ m)

1,983

7,599

11,448

13,830

25,359

Foreign exchange reserves excp. gold (US$ m)

9,239

8,487

16,035

18,375

23,919

Total external debt (US$ bn)

36.0

34.0

34.8

35.6

38.9

Debt service ratio paid (%)

24.7

25.4

29.7

16.0

10.7

723.7

1,161.0

1,607.0

1,891.3

2,089.8

Exchange-rate average Bs:US$ Source: Economist Intelligence Unit country indicators.

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508-052

Cocoa Bean Production, Trade, and Consumption by Country (2005)

Exhibit 3

Country Africa Cameroon Côte d'Ivoire Ghana Nigeria Rest of Africa Total Africa North America Canada United States of America Total North America Latin America and Caribbean Brazil Colombia Dominican Republic Mexico Peru Venezuela Rest of Latin America and Caribbean Total Latin America Europe Belgium France Germany Italy Netherlands Spain Switzerland United Kingdom Rest of Europe Total Europe Total Eastern Europe Asia and Oceania China Guinea India Indonesia Japan Malaysia Rest of Asia and Oceania Total Asia and Oceania WORLD TOTAL

Production (1,000 tonnes)

178.5 1,286.3 599.3 441.0 74.6 2,579.7

%

Imports (1,000 tonnes)

%

Exports (1,000 tonnes)

%

Total Consumption p/day p/capita Consumption (avg. grams)

%

(1,000 tonnes)

Export Unit Value* (US $ /MT)

6.9 49.9 23.2 17.1 2.9 68.6

0.4 0.6 0.7 0.9 110.4 112.9

0.3 0.5 0.6 0.8 97.8 1.5

191.8 1,351.4 659.4 313.2 69.0 2,584.9

7.4 52.3 25.5 12.1 2.7 36.0

0.1 1.2 0.1 0.1 0.5 0.5

0.4 8.2 0.9 3.8 63.3 76.6

0.5 10.7 1.1 5.0 82.6 3.5

1,355.0 1,583.0 1,707.0 1,225.0

0.0

14.2 85.8 19.7

198.0 210.8 408.8

48.4 51.6 5.7

0.7 4.1 2.4

7.8 445.6 453.4

1.7 98.3 20.9

2,458.0 1,961.0

0.0

211.7 1,275.8 1,487.6

235.8 37.1 31.4 36.4 25.3 17.0 18.9 495.4

47.6 7.5 6.3 7.3 5.1 3.4 3.8 13.2

64.9 13.2 1.5 96.6 2.9 11.4 96.2 289.6

22.4 4.5 0.5 33.3 1.0 3.9 33.2 3.8

153.4 16.7 34.4 18.5 7.8 9.5 32.8 372.5

41.2 4.5 9.2 5.0 2.1 2.5 8.8 5.2

0.8 0.8 0.6 0.6 1.0 2.8 2.4

12.5 2.6 23.6 6.3 9.5 47.6 104.3

11.9 2.5 22.6 6.1 9.1 45.6 4.8

0.0 0.0

0.0

343.2 516.5 574.5 194.8 900.6 242.5 49.5 382.0 567.5 3,770.9

9.1 13.7 15.2 5.2 23.9 6.4 1.3 10.1 15.0 50.0

375.0 253.0 386.2 58.1 996.1 89.5 26.1 107.6 247.2 2,538.7

14.8 10.0 15.2 2.3 39.2 3.5 1.0 4.2 9.7 35.4

8.2 2.8 2.7 0.5 3.0 8.3 7.4 7.5 6.4

182.0 85.7 57.5 3.0 46.5 22.0 162.7 189.3 748.8

24.3 11.4 7.7 0.4 6.2 2.9 21.7 25.3 34.5

0.0

0.0

877.0

11.6

380.6

5.3

3.9

342.2

15.8

N.A.

17.0 10.4 610.0

2.5 1.5 89.3

27.9 18.0 683.4

4.1 2.6 18.2

91.1 0.2 11.6 52.2 173.7 349.0 190.9 996.6

9.1 0.0 1.2 5.2 17.4 35.0 19.2 13.2

25.0 21.1 1.5 451.1 5.9 308.4 61.4 892.1

2.8 2.4 0.2 50.6 0.7 34.6 6.9 12.4

0.1 0.6 0.0 0.3 3.7 3.5 2.0 1.9

58.9 2.1 11.7 21.6 173.0 32.2 84.6 445.1

13.2 0.5 2.6 4.8 38.9 7.2 19.0 20.5

N.A. 1,223.0 N.A. 1,343.0 N.A. 2,019.0

2.9

2,170.3

3,758.6

7,534.6

7,177.5

N.A. 1,281.0 1,470.0 N.A. N.A. 2,079.0

1,746.0 2,403.0 1,706.0 N.A. 1,725.0 2,221.0 N.A. 1,573.0

* Data for 2004

Source:

FAOSTAT, FAO Statistics Division 2007, www.fao.org (last viewed March 21, 2007).

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Chocolates El Rey

Exhibit 4

Historical Venezuelan Cocoa Bean Production

25000

Production (metric tonnes)

20000

15000

10000

5000

20 00

19 85

19 70

19 55

19 40

19 25

19 10

18 95

18 80

18 65

18 50

18 35

0

Source: Company information

Source: Company information.

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508-052

Regular and Premium Cocoa Bean International Price

Exhibit 5

5,000 4,500 4,000 3,500

$ per Kg

3,000 NYSE price

2,500

Premium cocoa international price

2,000 1,500 1,000 500

Apr

Jan-07

Jul

Oct

Apr

Jan-06

Jul

Oct

Apr

Jan-05

Jul

Oct

Apr

Jan-04

Jul

Oct

Apr

Oct

Jan-03

0

Source: Company information.

Exhibit 6

Chocolate Production Process

Powder milk

Flavors or aromas

Sugar

Cacao mass

Cacao butter

Emulsifying

Mixing

Refining

Conching

Tempering Molding

Packaging

Source: Company information.

15 This document is authorized for use only by Yuxiao Wang in International Marketing Fall 2015 taught by Abdolreza Eshghi, Bentley University from September 2015 to December 2015.

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Chocolates El Rey

El Rey’s Business Segments (% of total sales)

Exhibit 7

Retail 8%

Industrial 18%

Beverages 34%

Food services 40% Source: Company information.

Exhibit 8

El Rey’s Profit Margins by Segment Sales in kilos

Exports

Domestic

Retail Food service Total Exports Retail Food service Industrial Total domestic

Total El Rey

Sales in Bs

Cost of Sales

Profit

%

2,471.94 54,995.00 57,466.94

44,438,965.20 646,522,782.60 690,961,747.80

35,360,253.07 619,243,849.57 654,604,102.64

9,078,712.13 27,278,933.03 36,357,645.16

120,313.28 169,622.00 5,792.00 295,727.28

1,686,877,962.61 2,495,946,666.60 75,692,422.29 4,258,517,051.50

1,308,060,795.01 1,942,251,088.28 59,596,654.81 3,309,908,538.10

378,817,167.60 553,695,578.32 16,095,767.48 948,608,513.40

22.46% 22.18% 21.26% 22.28%

353,194.22

4,949,478,799.30

3,964,512,60.73

984,966,158.56

19.90%

d20.43% 4.22% 5.26%

Source: Company information.

Exhibit 9

El Rey’s Domestic and International Sales (tons of chocolate) Fiscal Year

(June–May) 2000 2001 2002 2003 2004 2005 2006

Domestic market

%

Exports

%

981 981 1.266 1.583 1.808 1.967 2.190

91 90 89 88 83 77 73

99 109 156 215 370 587 810

9 10 11 12 17 23 27

Source: Antonio Francés, “Caso Chocolates El Rey,” IESA, Caracas, Venezuela, November 2006.

16 This document is authorized for use only by Yuxiao Wang in International Marketing Fall 2015 taught by Abdolreza Eshghi, Bentley University from September 2015 to December 2015.

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Exhibit 10

508-052

Comments from Chefs after the Cacao Route

“Their milk chocolate is the best I’ve had in my life. When I tasted it, I fell in love.” —Serge Decrauzat, chef, Vong restaurant, New York “This chocolate is complex and really different, almost as if it had spices in it.” —David Garrido, chef, Jeffrey’s restaurant “We use all El Rey chocolate because of the bean they use and the way they manufacture it. When you become accustomed to eating and working with a high-end chocolate like El Rey, it’s very noticeable when you use a lesser quality. You can just taste the difference. Someone recently brought me another brand of chocolate and, while the chocolate looked fine, they didn’t realize the bean was moldy.” —Nancy Silverton, co-owner and pastry chef, Campanile restaurant, New York “I use chocolate every day, but now that I’ve seen the farmers, touched the trees and the pods, and understand fermentation, it is all different to me. When you use something all the time, you take it for granted. But now, I think of those kind people who are so proud of their work. It matters to them the way it does to me. And the way they let us look at everything. That meant the world to me.” —Serge Decrauzat, pastry chef, Jojo, Vong, and Lipstick Café, New York “When you get chocolate, it’s so expensive, so wrapped, and so fancy. But it is really so simple, from the earth. I can see those cacao beans lying right in the middle of the road, drying. And seeing the fruit in real life, the tiny flowers, the piles of pods—all the little steps you learned in a text 20 years ago come to life. It’s astonishing. Until El Rey came along, Swiss chocolate was my standard—smooth, balanced, technically correct. El Rey is a roller coaster of unexpected, long, thick flavors. If you think of Swiss chocolate as the smooth autobahn, El Rey is a backcountry trail. You follow turns, ups and downs, all interesting, but you don’t know where you’re going.” —Markus Farbinger, head baking/pastry instructor at the Culinary Institute of America, Hyde Park, New York (former chef, Le Cirque) “I recently tasted it against a Swiss chocolate back home, away from amazing Venezuelan hospitality, and was surprised at how identifiable it is. The Venezuelan is so aromatic and thick and flavorful that you can actually use less chocolate in the recipes.” —Mark Severino, magazine test cook “Customers look to chefs to learn about food and its sources. Our responsibility is to introduce and to inform. We need to be able to trust the source firsthand, which we can do happily now that we’ve seen Venezuelan production… It is [done with] the same kind of care we put into our work, and our work is what our life is about. They seem to care the way we care.” —Bill Yosses, pastry chef, Bouley, New York “I am from Belgium, and there we are known for our chocolate. But we also know that the best cacao comes from Venezuela. Venezuelan cacao is the Rolls Royce of cacao. I think it is the flavors and aroma that are so unique. You can open a box of chocolates made from good cacao, and the aroma is just overwhelming. That is what Venezuelan cacao is.” —Ludo Gillis, owner of La Praline, an exclusive chocolate and bombonier in Caracas, Venezuela

Source: “Holy cacao!” Texas Monthly, May 1996; Sandra Hernandez, “The Soul of Chocolate,” www.latimes.com, February 23, 2000; “Cacao El Dorado,” Food and Arts, September 1995.

17 This document is authorized for use only by Yuxiao Wang in International Marketing Fall 2015 taught by Abdolreza Eshghi, Bentley University from September 2015 to December 2015.

57.8 9.0 5.0 2.6 2.0 2.0 1.2 1.2 0.9 0.6 0.4 0.1 17.2 100

Nestlé Venezuela SA Effem Venezuela CA King David Delicatessen CA Chocolates El Rey CA Beka CA Chocolates St Moritz CA Fiesta CA CTI Cía Tecno Industrial Francisco Dorta A Sucrs CA Chocolates Kron CA Molina Cía CA Dinavica CA Others Total

60.6 8.3 4.2 2.6 1.8 1.9 1.0 0.9 0.8 0.5 0.5 0.2 16.8 100

2002 61.5 8.1 3.6 2.4 1.7 1.8 1.0 0.9 0.6 0.5 0.4 0.2 17.4 100

2003 65.8 6.8 3.0 2.5 1.7 1.7 1.0 0.9 0.5 0.5 0.4 0.2 15.2 100

2004

Chocolate Total confectionary

44.08 167.38

50.65 199.34

2001 6.54 23.53 68.7 238.57

2002 6.09 20.62 89.51 290.3

2003 5.43 18.33

92.41 300.24

2004 5.53 18.59

97.47 335.58

2005 5.65 19.88

102.22 353.74

a

2006 5.76 20.54

a

106.64 371.2

2007 5.87 21.16

Source: “Confectionery in Venezuela,” Global Market Information Database for UBS Warburg by Euromonitor International, March 2006.

a/ Euromonitor International forcast.

Value Bs billion

2000 6.18 21.54

Venezuela’s Confectionary Retail Market

Volume '000 tonnes Chocolate Total confectionary

Exhibit 12

Source: “Confectionery in Venezuela,” Global Market Information Database for UBS Warburg by Euromonitor International, March 2006.

2001

Venezuelan Chocolate Confectionery Company Shares (% of retail sales)

% retail value

Exhibit 11

110.73 387.97

a

2008 5.97 21.75

114.78 404.47

a

2009 6.07 22.32

118.79 420.26

a

2010 6.18 22.87

508-052 -18-

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40.0 2.0 6.0 52.0 100 45.0 28.0 12.0 15.0 100

Plain milk Plain dark Plain white Filled Total

Plain milk Plain dark Plain white Filled Total

44.2 30.1 12.2 13.5 100

41.9 1.8 8.9 47.4 100

2005

43.7 33.0 12.1 11.2 100

2006

Chocolate Confectionery Market in Venezuela and the United States (% of total sales)

Source: “Chocolate Confectionary—US,” Euromonitor International, Country Sector Briefing, November 2006, and “Confectionery in Venezuela,” Global Market Information Database for UBS Warburg, March 2006.

Exhibit 14

Source: “Chocolate Confectionery—US,” Euromonitor International, Country Sector Briefing, November 2006, and “Confectionery in Venezuela,” Global Market Information Database for UBS Warburg, March 2006.

2004

% retail value

Sales of Chocolate Tablets in Venezuela and the United States (by type)

Venezuela

United States

Exhibit 13

508-052 -19-

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For the exclusive use of Y. Wang, 2015. 508-052

Chocolates El Rey

Endnotes

1Morton, Marcia. Chocolate, an illustrated history / Marcia and Frederic Morton. New York: Crown Publishers, c1986. 2Unless

stated otherwise, the sign $ stands for U.S. dollars.

3Venezuelan

cocoa beans were reputedly of the highest quality by world standards. “Venezuela was blessed with a combination of temperature, soil and rainfall that created ideal conditions for the cultivation of cacao giving it a very special flavor and aroma.” Source: “The Chocolate Revolution,” Life magazine, February 2001. 4Food

services comprised bakeries, chocolatiers, and restaurants, whereas the industrial segment encompassed food manufacturers that used chocolate as an ingredient for ice cream, cookies, cereal, and so on. 5Economic

Intelligence Unit forecasts. “Country Report Venezuela,” EIU, London, 2006.

6The

cocoa plant was first seen around the Lake Maracaibo basin in Venezuela long before 200 B.C. Source: Reyes Humberto and Liliana de Reyes, “El Cacao en Venezuela. Tecnología para su cultivo,” Caracas, Venezuela, Chocolates El Rey, 2000. 7The

word chocolate comes from the Nahuatl language of the Aztecs of Mexico. The word is derived from the word xocolatl, which is a combination of the words xocolli, meaning "bitter," and atl, which is "water." It is associated with the Mayan god of fertility. Source: Morton, Marcia. Chocolate, an illustrated history / Marcia and Frederic Morton. New York : Crown Publishers, c1986. p. 5-9. 8Source:

http://www.fieldmuseum.org/Chocolate/ (last viewed March 12, 2007).

9“Chavez 10“The

Puts Chocolate Factories Back on Maps,” Financial Times, FT.com, September 27, 2005.

Chocolate Revolution,” Life magazine, February 2001.

11Johen

Willoughby, “Chocolate,” Martha Stewart Living, January 1998.

12Corby

Kummer, “Where Chocolate Grows on Trees,” The Atlantic Monthly, October 1995.

13FAOSTAT,

Fao Statistics Department; www.fao.org (last viewed March 21, 2007).

14Bruinsma, Kristen and Douglas L. Taren. “Chocolate: Food or drug?” Journal of the American Dietetic Association 99, 10 (1999). 15Phenylethylamine

was shown to relieve depression in 60% of patients. It also improved mood as rapidly as amphetamine but did not produce tolerance. Source: www.chocolate.org (last viewed March 7, 2007). 16Antioxidants

were any substance that prevented the oxidation, and hence the creation of damaging free radicals, of substances like proteins, lipids, and carbohydrates. Antioxidants were thought to be effective in helping prevent cancer, heart disease, and stroke. Source: www.chocolate.org (last viewed November 19, 2007). 17Joe

Vinson, professor of chemistry at the University of Scranton in Pennsylvania, in Linda Joyce Forristal, “The Chocolate Revolution,” Life magazine, February 2001. 18“Dark

Chocolate Might Reduce Blood Pressure, Study Suggests,” Associated Press, August 26, 2003.

19“In Chocolate, More Cocoa Means Higher Antioxidant Capacity,” USDA/Agricultural Research Service, April 23, 2005. 20“Prescription-Strength 21“Women

Chocolate,” Science News, February 10, 2004.

Are Really Hot for Chocolate,” The Times, November 14, 2004.

22CADIVI

restricted dollars for buying imports that were classified as premium products. Confectionery from the United States was given a premium product category and thus importing it was expensive. 20 This document is authorized for use only by Yuxiao Wang in International Marketing Fall 2015 taught by Abdolreza Eshghi, Bentley University from September 2015 to December 2015.

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508-052

Confectionery imports from Andean countries, and Colombia in particular, benefited, as many trade agreements with those countries allowed duty-free imports. 23The

confectionery industry was composed of industries producing gum, sugar candy, and chocolates for the retail market. 24“Confectionery

in Venezuela,” Global Market Information Database for UBS Warburg by Euromonitor International, March 2006. 25Casewriter

interview, Caracas, Venezuela, November 2006.

26“Chocolate

Confectionery—US,” Euromonitor International, Country Sector Briefing, November 2006.

27“Chocolate

and Confectionery Manufacturing from Cacao Beans in the United States,” IBISWorld, July

2006. 28Source:

http://www.chocolate.org (last viewed March 7, 2007).

29Pascale

Le Draoulec, “Chocolate!”, The Journal News, December 1, 1999.

30Cathy

Hainer, “America’s Adult Chocolate Lovers Decide Bitter Is Better,” USA Today, October 16, 1997.

31“Premium

Chocolate Confectionery,” U.S. Consumer Intelligence, Mintel International Group Limited,

February 2005. 32Glenda

Cooper, “Women and Chocolate: Simply Made for Each Other,” The Times, March 13, 2004.

33NASFT/Mintel 34

survey of 1,526 Americans, December 2004.

Fermentation removed the tannin contained in cocoa, and it affected the flavor of chocolate.

21 This document is authorized for use only by Yuxiao Wang in International Marketing Fall 2015 taught by Abdolreza Eshghi, Bentley University from September 2015 to December 2015.