Cocoa Craft Strategic Plan by Ruimou Chen

STRATEGIC PLAN: COCOA CRAFT

Strategic Managment PUDM.4030.B.Online.Fa12.2658 Ruimou Chen, Joy Kim, Jihyun Lee

INTRODUCTION Objectives of Cocoa Craft Our product of expertise is raw organic cocoa beans that are grown in Brazil and imported to the United States. In addition to our product offering, our company’s main function is providing a service to our customers by sourcing, importing and making the beans available to American cocoa processors. Cocoa Craft adheres to the highest in quality standards as well as only sourcing certified organic cocoa beans. We plan to sell these products and provide these services under the Cocoa Craft brand. MARKET ANALYSIS Market size and target market definition Cocoa Craft is will leverage the favorable market conditions of rising imports of cocoa beans. Since the 1990’s, worldwide cocoa imports increased an astonishing 14% from US$14.4 billion in the year 2000 to US$28.3 billion in the year 2007.1 According to the report for Organic and Fair Trade Cocoa, the import of cocoa beans was raised an average 3% annually between 1999 and 2008, totaling 1.1 million tons in 2008.2 The overall trend of the price charged for one ton of raw cocoa beans has been showing a rising tendency (Exhibit 1). The median price between 2006 and 2012 has been $2,517.98. The price in January of 2011 was noted as slightly over $2300 while still showing an upward trend, reaching an all time high of $3392 in March of the same year.3 The premium chocolate market accounts for less than 10% of total production.4 The organic cocoa market makes up for 0.5% of total production.5 In terms of tons, in 2005 the International Cocoa Organization (ICCO) estimated that total production of organic cocoa totaled 15,500 tons.6 Even though it such a small percentage, it is growing very rapidly due to rising demand around the world. The sale of organic high-end dark chocolate accounts for 18% of total chocolate sales in the United States. The market for organic chocolate was predicted to grow worldwide to US$12.9 billion; in the United States it was expected to grow to US$3.6 billion until 2011.7 Cocoa Craft sees great future potential in this niche market with it’s great growth opportunity. The report for Organic and Fair-trade Cocoa explains that an “increasing consumer awareness of premium chocolate and a growing interest from the world’s leading chocolate manufacturers in the premium chocolate segment” is the reason behind increasing market share and sales.8 We will target small processors who value the origin and the quality of certified organic cocoa beans.

Pay, Ellen. "The Market for Organic and Fair-Trade Cocoa." Food and Agriculture Organization of the United Nations. Web. 3 Mar. 2012. <http://www.fao.org/fileadmin/templates/organicexports/docs/Market_Organic_FT_Cocoa.pdf>. p. 3 2 Pay, Ellen. “The Market for Organic and Fair-Trade Cocoa.” p. 3 3 4

"ICCO | International Cocoa Organization." ICCO. Web. 30 Mar. 2012. <http://www.icco.org/>. Pay, Ellen. “The Market for Organic and Fair-Trade Cocoa.” p. 7

"Organic Fair Trade Chocolate." Chocolate School. Web. 01 May 2012. <http://www.ecolechocolat.com/organic-fair-tradechocolate.php>. 6 7 8

Pay, Ellen. “The Market for Organic and Fair-Trade Cocoa.” p. 7 Pay, Ellen. “The Market for Organic and Fair-Trade Cocoa.”, p. 7. Pay, Ellen. “The Market for Organic and Fair-Trade Cocoa.”, p. 7.

The cocoa industry was ranked as the fourth largest growth industry with $1.2 billion in the US in 2008.9 There are already extensive trading relations between the United States and Brazil, the United States spending a total of $19.5 billion on Brazilian exports in 2010.10 This, in conjunction with the rapidly growing import of cocoa beans into the American market, makes the import of cocoa beans a future growth segment.11 INTERNAL ANALYSIS Customer analysis Cocoa Craft starts as a business-to-business company. Our initial customers are cocoa bean processors in the United States, specifically Equal Exchange, Amano Artesian Chocolate and Cocoa Atlanta. Our business-to-business partners have a high specialization in organic and certified cocoa beans. Equal Exchange Equal Exchange has been in the chocolate business for over 25 years with a focus on organic and fair-trade chocolate since the very beginning. Equal Exchange continuously searches for new ways to enhance the customers experience and create a truly sustainable business.12 ● Amano Artesian Chocolate Located 40 miles south of Salt Lake City, this company has devoted itself to create the finest chocolate through traditional means of production. The name amano originates in the Italian language and combines the words ‘by hand’ and ‘they love,’ thus successfully communicating the company's message through one simple, yet sophisticated word. Amano buys raw cocoa beans from intermediaries but is highly dedicated to assuring high organic and certified quality of the cocoa beans by visiting plantations themselves.13 ● Cocoa Atlanta Founded in 2004, their expertise was handcrafted chocolates, which 4 years later lead to the opening of a laboratory and a boutique in 2008 in Inman Park. One year later, Cocoa Atlanta launched their first bean-to-bar operation. The special and unique characteristic of Cocoa Atlanta is their ability to have overcome entry barriers. As of today they are a small but successful business in the premium, dark chocolate market. 14 ●

EXTERNAL ANALYSIS Cocoa Craft has to look beyond the processors and understand economies of scale. The end customer of organic chocolate bars has embraced dark, organic, premium-quality chocolate as a small and affordable luxury.15 Society in general has become more health conscious, 9

"Top US Imports & Exports 2009." Suite101.com. 20 Feb. 2010. Web. 25 Feb. 2012. <http://daniel-workman.suite101.com/topus-imports--exports-2009-a204269>. 10 "Brazil's Top Trade Partners in 2010." Suite101.com. 20 May 2011. Web. 25 Feb. 2012. <http://danielworkman.suite101.com/brazils-top-trade-partners-in-2010-a372057>. 11 "Top US Imports & Exports 2009." Suite101.com. 20 Feb. 2010. Web. 25 Feb. 2012. <http://danielworkman.suite101.com/top-us-imports--exports-2009-a204269>. 12 Equal Exchange. Web. 30 Mar. 2012. <http://www.equalexchange.coop/>. 13

“Amano - Artesian Chocolate.” Amano. Web 01 May 2012. <https://www.amanochocolate.com/>.

"Cacao Atlanta - The Premier Southern Artisanal Bean to Bar Chocolate Maker." Cacao Atlanta. Web. 01 May 2012. <http://cacaoatlanta.com/>. 15 Bloomsbury House, 2-3 Bloomsbury Square, London WC1A 2RL. P.2

especially people living in an urban environment. Chocolate has potential health benefits such as preventing migraines, reducing the risk of heart disease and having a calming effect in stressful times.16 Cocoa bean processors as our customers highly emphasize the importance of a transparent supply chain and the use of certified organic cocoa beans. It is our utmost goal to abide by these standards as well as support our supplying farms in producing the highest quality product. Cocoa highly depends on customer demand â&#x20AC;&#x201C; even though we are an intermediary entity, our selling volume depends on how much our clients sell to the end consumer. However, the US market for confectionery products generated revenues of $34.7 billion in 2010 and shows a compound annual growth rate of 2.9% in the time period of 2006 to 2010.17 Our B2B clients all sell high-end chocolate, often the highest quality to be found in the market. It is very unlikely that chocolate sales will drop in the future as they have been generating the most revenue with 49.9% of the overall market value. The future growth between 2010 and 2015 is forecasted to be 2.8%.18 Even though there has been a health craze the past few years and a general tendency toward healthier living, chocolate consumption increased by 11% between 2000 and 2008 amounting to $14.1 billion in sales.19 Although the overall market growth for consumption was relatively slow at 1.3%, the important aspect to notice is the change in consumer taste. In light of healthier living, consumers are more aware of where their chocolate originates and how it was produced. They are willing to pay higher prices for better quality of premium chocolate. The economic crisis has caused many industries to see declining sales while premium dark chocolate is categorized as a small, but affordable luxury that continues to be purchased by consumers.20 It was expected that the market for premium chocolate would increase from $7 billion in 2007 to $12.9 billion in 2011.21 Consumers express concerns about ethical labor practices and desire for their chocolate purchases to benefit the cocoa farmers while most major producers benefit on high mark ups, allowing only a small percentage of it to go to the people doing the hard labor. Taking advantage of the growing segment for premium dark chocolate involves factors beyond our control, such as the effect of weather on crop yield as well as political unrest in producing countries. Brazil however is politically stable and has a favorable climate for cocoa growth. Competitive analysis As will be later mentioned, the barriers to entry in the cocoa industry are very high. Thus no other company like us is around; our competition exists of already well-established big companies. Cocoa Craftâ&#x20AC;&#x2122;s competitors are the major importers of high-quality, organic and certified dark chocolate. Often they have been in the business several years and established a 16 17

http://www.acu-cell.com/choc.html

"United States - Confectionery." Business and Company Resource Center. Gale, Nov. 2011. Web. 12 Mar. 2012. <http://galenet.galegroup.com.libproxy.newschool.edu/servlet/BCRC?vrsn=unknown&locID=nysl_me_newsch&srchtp=glbi&c= 13&iType=sic&mode=i&ste=87&tbst=tsIS&cind=2066++Chocolate+and+Cocoa+Products&tab=2048&mst=cocoa&n=25&docNum=A274335817&bConts=16163&finalAuth=true>. . 18 "United States - Confectionery." Business and Company Resource Center. Gale, Nov. 2011. Web. 12 Mar. 2012. 19

"Chocolate Consumption." Chocolate Consumption. Web. 25 Feb. 2012. <http://www.sfu.ca/geog351fall03/groupswebpages/gp8/consum/consum.html>. 20 Bloomsbury House, 2-3 Bloomsbury Square, London WC1A 2RL. P.2 21

Pay, Ellen. "The Market for Organic and Fair-Trade Cocoa. Web. 26 Feb. 2012. , p. 6

name in the confectionery industry as well as among customers.22 They include United Cocoa Processor, Ecom Agroindustrial Corp. and Global Organics. (Exhibit 2) ● United Cocoa Processor Founded in Delaware in 1992, United Cocoa Processor (UCP) is one of the biggest importers, processors and suppliers of cocoa beans. Their company philosophy is stated as, “Our knowledge of chocolate enables us to meet your supply needs. Our partnership philosophy drives our commitment to meet your deadlines and quality standards. Whatever your case, if you need a long-term supply programming or a one-time delivery of cocoa powder, we are here to meet your requirements.”23 UCP has the luxury to source only the best cocoa beans due to their worldwide presence. After receiving the raw cocoa beans, UCP processes them into cocoa liquor, cocoa butter, cocoa cake and much more.24 ● Ecom Agroindustrial Corp. Headquartered in Switzerland and with offices in the United States. They specialize in trading and processing coffee, cotton and cocoa. Their major expertise lies in coffee – they are ranked the third biggest merchant for coffee in the world and handled around 11 million bags of coffee in 2011. Cocoa is their third division, processing 250,000 tons in the same year. As cocoa is not their expertise, we have a great competitive advantage as Cocoa Craft can offer a higher level of personal attention in this area. Besides being recognized around the world, Ecom has existed for over 150 years and has proven knowledge in supply chain management and risk management.25 ● Global Organics (GO!) Global Organics was founded in 1992 and specializes in distributing organic products, such as certified organic cocoa, chocolate, dried fruits and nuts. Like Cocoa Craft, they use exclusive and reliable relationships with farmers to provide customers with reasonable prices. On the forefront of their mission is also excellent customer service and a focused attention on where they import products from. They choose their resources carefully and only admit the highest standards for quality and the right sustainable practices to do business with Global Organics. 26 Barriers to entry As the chocolate industry is dominated by a small number of large firms that have preexisting long term relationships with farms and processors, barriers to entry are high. In order to differentiate ourselves from our competition and avoid barriers to entry in the cocoa industry, we have chosen to narrowly focus our product offering on the highest quality organic cocoa beans as well as selecting target customers that specialize in producing high quality organic chocolate products for a niche market. In addition, we are committed to upholding superior standards in quality, service, transparency and building a trustworthy brand. L her

22 23 24 25

"Agricultural Marketing Service - Home." Web. 26 Apr. 2012. <http://apps.ams.usda.gov/nop/>. Organic Fair Trade Chocolate." Chocolate School. "UCP - United Cocoa Processor." UCP. Web. 30 Mar. 2012. <http://www.unitedcocoa.com/pages/aboutus.htm>. "About Ecom - Ecom Trading." Ecom Trading. Web. 01 May 2012. <http://www.ecomtrading.com/en/about-ecom.html>.

"Global Organics Ltd. Home." Global Organics Ltd. Home. Web. 12 Apr. 2012. <http://www.globalorganics.com/index.shtml>.

ORGANIZATION AND MANAGEMENT Management and staffing plan The management and staffing will be simple at the start of the business as there will be no physical office to be operated. • Management The main source of management will be done through COCOA CRAFT official website (www.cocoacraft.com) where potential consumers may view our services/products and contact via email or phone from the main website. • Staffing Plan Our business does not require much quantity in number of labor. Important staffs will perform frequent business trips to Brazil to maintain our exclusivity with partnering cocoa bean farms. The management team will have three main staffs for the business to get started. o Ruimou Chen o Joy Kim o Jihyun Lee § §

Background in Design and Management Studies in Business Development, Managing Creative Projects, Research Methods and International Business SALES AND MARKETING STRATEGY

Marketing plan Cocoa Craft’s promotion mix will be comprised of traditional marketing channels. According to statistics, B2B firms spent 28% of their marketing budgets on trade shows and 13% on advertising in magazines and trade publications.27 Brazil has two major trade fairs, some only taking place once a year, others several times a year.28 Similar fairs in the US will be attended on a regular basis. • Espaço Café Brasil International coffee fair located in Sao Paulo taking place every October. • Fispal Café International coffee trade show located in Sao Paulo every July. • Sweets and Snacks Expo Confectionary and snack food trade fair located in Chicago taking place every May. • PMCA International Association of Confectioners located in Pennsylvania from April to May. • Candy Industry Candy Industry Magazine is a business-to-business publication that covers the global confectionery industry from manufacturing to retailing. Through the above mentioned fairs in the United States and Brazil as well as industry publications, Cocoa Craft will make a name for itself in the industry and make contact with other 27

"Making Sense of the B2B Marketing Mix." Web log post. E-Consultancy. 01 Sept. 2011. Web. 8 Mar. 2012. <http://econsultancy.com/us/blog/7949-making-sense-of-the-b2b-marketing-mix>. 28 http://www.eventseye.com/fairs/st1_trade-shows_coffee-tea-chocolate.html

industry experts and potential partners. These trade fairs are attended by distributors, retail stores, wholesalers and international retailers. Fostering this network will allow Cocoa Craft to quickly become more than a new entrant to the market. Exclusivity with two farms in Brazil, Fazenda Nuova Aurora and Fazenda Lajedo du Ouro, will be achieved by frequent visits to assure compliance with international standards and regulations for organic cocoa as well as to understand operations of each farm and gain their trust and respect. The same is valid to say for the processors – as we are a new entrant, we will need to make extra efforts to achieve exclusive contracts and favorable prices. Vertical integration in the second year will be achieved by owning more segments of the chocolate production process, such as farms. Horizontal integration will consist of establishing a secondary revenue stream in the form of individual retail stores and targeting end consumers. Cocoa Craft will position itself as a company who is driven by the desire to sustain growth and uphold ethical business practices. Farming cocoa in coherence with nature is the utmost goal. We are dedicated to providing farmers with expertise and the ability to thrive in this competitive market while at the same time fostering community development. Strategic growth plan From day one on, Cocoa Craft will be the intermediary between the cocoa bean farms and the cocoa processers. Cocoa Craft will cater to a niche market, importing only high-end organic cocoa beans, which will be processed to premium chocolate. The market is very saturated – Cocoa Craft has a very limited number of customers who are already obtaining their beans from long established suppliers. The top cocoa bean processors are Archer Daniels and Midland, who process 15% of total cocoa beans.29 As the growth barriers are very high, Cocoa Craft will start by targeting smaller cocoa bean processors that value quality over quantity. On Brazilian territory we will focus on two farms, the cocoa export ban from early 2011 that caused prices to soar is over and is unlikely to occur again in the near future.30 Our farming partners include: ● Fazenda Nuova Aurora ● Fazenda Lajedo du Ouro We chose these two farms because they won first and second place in the Competition of Fine Cocoa Aroma of Brazil Chocolate Expo.31 In for our short-term growth plan, Cocoa Craft will expand by attracting more processors as our clients. In order to do this, we may need more partner farms to support our supply of cocoa beans. For mid-term and long-term goals, Cocoa Craft will target individual customers in order to achieve a horizontal expansion. We will have an online shopping website as well as brick and mortar stores in major cities such as New York City, Boston, Chicago and Los Angeles. 6. FINANCIALS Risk analysis

29 30 31

http://daniel-workman.suite101.com/top-cocoa-bean-processors-a26007 Price of Cocoa Soars Over Export Ban." Calgary Herald Jan 25 2011 http://www.ceplac.gov.br/restrito/lerNoticia.asp?id=1633

There are multiple risks that Cocoa Craft faces including risks from sources of cocoa beans, the farms, risks during transportation, changes for partners, and change in customers’ taste. In order to clearly identify the risks we face and the means to minimize, transfer or accept the risks, we have devised a few strategies. 1. Identify all the risk areas of your business and seek to eliminate or minimize them ● Risk: Failing to find cocoa farms as partners Solution: Cocoa Craft will find small farms and negotiate with them about the price in order to attract initial and stable cocoa beans sources. ● Risk: Failing to find customers Solution: Initially, when Cocoa Craft targets processors, we will advertise through trade fairs and online platforms such as Alibaba.com. For future plans, when we sell to individual customers, we will use social networks such as Facebook and Twitter, print ads such as Billboard and bus wraps. We will also offer a fair price and guarantee of quality to diminish customer uncertainty. ● Risk: Government regulations and law on cocoa trading with Brazil Solution: We will constantly research and monitor the cocoa bean market and the political relationship with Brazil, making adjustments to our business strategies accordingly. ● Risk: Natural disasters resulting in loss of cocoa production Solution: Natural disasters are inevitable and unavoidable. Thus, we can transfer risk to customers. In our contract, we will list that Cocoa Craft is not responsible for any decrease of cocoa bean supplies based on natural disasters. ● Risk: Damage of cocoa beans in transportation process Solution: Our company will purchase insurance to cover the damage which could take place during the transportation process or in the contract we can offer the option of processors are in charge of transportation and Cocoa Craft is not responsible for the damage. ● Risk: Cocoa bean demand decreases Solution: For the loss of demand, our company will constantly monitor the market and make changes on strategies accordingly. ● Risk: Customers are unsatisfied with the quality of beans Solution: We will clearly identify the quality of beans in contract. We will also send samples to customers in advance. Customers do not sign the contract until they have seen the sample. After the contract is signed, Cocoa Craft is not responsible for the dissatisfaction of customers if the beans meet the requirements on the contract. 2. Eliminate or replace a key supplier or raw material This may result the increase in our cost of goods sold. We initially plan to have exclusive partnerships with suppliers. It may also change the quality of cocoa beans. Our cocoa beans are a raw commodity and there are no substitutes for the product. 3. Change the target customer We mainly focus on a business-to-business model. However, since our products are available online through other websites there may be small orders from individual customers.

4. Identify all the basic assumptions and un-assume some Our customers will have access to computers and the Internet. For processors, they need to have all equipments for processing cocoa beans. For individual customers, they will also have a credit or debit card that can support their online purchase. Initially, all of our customers should live in the United States as we do not plan on offering international shipping on day one. 5. Eliminate all or most of your employees Our employees are really important to our company. Currently, all four company founders work in the company. We are in charge of communication with farms in Brazil, tracking shipping and inventory, marketing and customer service. Eliminating some employees would result in the workload for each individual to increase. If the remaining employees cannot ensure the completion of all tasks, the company will either reduce its size or go out of business.

Exhibit 1 Cocoa Price Development January 2006 â&#x20AC;&#x201C; March 2012

Average Price: US $2517.98 Current Price: US $2307.62 (Jan. 2012) Lowest Price: US $1529.63 (Oct. 2006) Highest Price: US $3392.97 (Mar. 2011)

Exhibit 2 Competitive matrix