Responding to some emails about the chocolate industry and how prices for cocoa are affected due to climate changes, wars or even the Ebola situation in Africa. The data that is creating some to think that the shortage of chocolate will increase prices and that is true but only in some cases. Those who post that info as a means to detour others interested in GNGR into concerns know nothing about the chocolate industry.
The data that causes people to be concerned or create panic is solely based on the industries that use cocoa but who's margins are slim to none where any price increase can affect the selling price as well. I wrote a comprehensive report about this to the Confectioners Association but here I will post the simple facts as to how we are NOT affected by any shortage of chocolate.
|Why the media confusion about the cocoa prices|
In order to be competitive, companies that create mass produced items must have a relatively stable retail price to attract buyers and as such they also sacrifice profits. because the items sold can generate billions in sales, the profit margins are very close to actual costs (see charts below) and even a slight increase in cocoa costs can turn those products profit margins into losses unless a price increase happens.
In addition I choose to use cocoa from South America's rain forest region for our fudge and chocolates, not Ivory Coast. Ivory coast is the best cocoa available and is used in covertures and other decretive uses that GNGR does not require. by choosing cocoa from south America also helps save the rain forests. It would be similar (for example) to red wine from France gets destroyed by a grape virus but people still enjoy wines from Califorina and other countries unaffected by that virus. Same with cocoa. Plus I think the cocoa from South America is FAR better then Ivory Coast cocoa and easier to obtaine.
Now to compare the increase in cocoa prices when applied to our fudge.
Here is a breakdown of some costs to show why GNGR is not affected by the increase. A simple batch of fudge in our 35 pound kettle will yield 35 one pound fudges (high end gourmet) or 225 fudge minis (counter display items)
With out revealing ingredient's percentage or cooking times or temperatures, I will state that for each batch of 35 pounds of fudge, we use 3 pounds of dark red cocoa powder (highly concentrated and is the best cocoa for this use). My cost per pound is $2.18 so 3 pounds is $6.54. If for some reason the cost of this raw cocoa were to rise 4 fold to $26.16 per pound the increase of $19.62 in relationship to each item would be as follows.
35 one pound fudges would incur an increase cost of $.56 cents each
225 fudge minis would incur an increase cost of $.08 cents each
Our profit margins on the two items above are significant enough that we are un affected by even a 4 fold increase (400%). Companies who have margins of less than 2% WILL be affected on as little as a 10% increase in price because their margins are so slim that they have to either increase prices, cut profits or stop production.
The charts below show companies that operate on very slim margins but do big volume, the larger the volume and the need to be competitive also sacrifices profits. In the charts when the graph in the GREEN area, selling price and profits are steady, however any slight increase and the cost graph can rise out of the green into the RED zone causing the price increase or reduce profits or stop production.
Companies may weather the storm of higher prices to keep the retail the same but once the price increase is consistent for a period of time prices will be increased. In our graph below GNGR will need to see far more than 400% increase to warrant such increase in price and so GNGRs products are stable and can handle any cost increase with out increasing the retail price or having to reduce significant profits.
What is interesting is that, when our larger competitors cancel products due to poor sales like the admitted nestle wonka bar, only increases the availability for raw cocoa for our use. When the industry finds they cant compete due to very slight increases in costs, GNGR reaps the benefit by being able to continue to purchase the raw cocoa as it becomes more available as competitors reduce their product line to save money, those mass produced items can equate to thousands of tons of cocoa and raw materials.
GNGR benefits by the increase in price of cocoa!