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How A California Chocolatier Is Going National

by Jeremy Caplan, UPSVoice, November 29, 2012

When the Venezuelan Antonorsi brothers opened a chocolate boutique in Encinitas, California, in 2002, they lavished attention on tiny truffles, not large distribution networks. But in the decade since, Chuao (pronounced chew-WOW), has exploded into a national player in the super-premium chocolate-bar market.

This fall, chef Michael Antonorsi and his brother Richard are relaunching their collection of 10 chocolate bars with new packaging and streamlined distribution. They’re taking advantage of strong demand from a variety of outlets — including Whole Foods, Wegmans and other specialty markets — for products like their Maple Bacon Bar and the Firecracker, filled with popping candy, chipotle and sea salt.

Named after a cacao-rich region of central Venezuela, Chuao Chocolatier morphed from a single location retail outlet in 2002 into a specialty food up-and-comer in 2005, shipping 2,000 bars per flavor every month. That monthly number has since grown tenfold. Consumers now buy the pricey, swanky bars, often for $5 and up, at some 2,500 spots around the country. The company has begun discussions about eventually shipping to Japan and Hong Kong.

To reduce costs, CEO Sergio Alvarez is consolidating Chuao’s distribution network to work with fewer distributors. Alvarez is banking that fewer, more robust partnerships will yield economies of scale: As each distributor carries more product into stores, the overall per-unit cost of distribution will drop.

One thing Chuao can’t change is the weather. The company generally trucks its product cross-country. In a hot region, that means paying a 40% premium for refrigerated trucks when delivery routes cross desert areas. Though there’s not much the company can do about that now, in the future — should plans call for expansion — Chuao could consider adding regional distribution centers, so that trucks wouldn’t have to drive long distances in chocolate-melting weather.

Even as Chuao focuses on larger-scale logistics, managers keep an eye on little details. Chuao staffers crush chips by hand for the Potato Chip Bar so the chocolate is interspersed with chunky potato chip pieces rather than salty dust. For other bars, Chuao staffers inspect every shipment of nuts for shells, debris or other imperfections.

CEO Alvarez, who came to Chuao from Hewlett-Packard, said one of Chuao’s challenges is dealing with shortsighted industry practices. “There are a lot of newcomers in the chocolate space because the barriers to entry are so low,” Alvarez said. “It’s easy to start a local shop; but when they start to grow regionally or nationally, newcomers naively comply with what distributors and retailers push for, including big discounts and free product up front.”

The big break for Chuao came in 2005, when it won a coveted award from the National Association for the Specialty Food Trade, helping put the then three-year-old chocolatier on the culinary map. That same year, Chuao shifted from wrapping bars by hand to semi-automated packaging.

Rapid growth thereafter required occasional improvisation. Communications director Brooke Feldman remembers once driving an order to a customer’s home after he called to ask about the status of his shipment. “When I showed up at his door he was shocked,” Feldman said. “I told him that we make the chocolate with care, so we want to make sure it’s delivered that way, too.”

Logistical leaps help small companies go global

By Kabir Chibber BBC Business News, 9 December 2010

Even a decade ago, it would be difficult to imagine eating fresh camel-milk chocolates in other parts of the world

Making expensive chocolates in the middle of the Arabian Desert seems foolhardy enough.

But how do you get them from there to the rest of the world without delivering a sticky mess?

Al Nassma Chocolate is based in Dubai, and makes its luxury sweets from the milk of camels, which are of course found only in some of the hottest places on Earth.

"Most of the demand for chocolate is from Europe, Asia and the U.S., so we are challenged getting our products to the consumer," says Martin van Almsick, general manager at Al Nassma.

"Our biggest challenge is just getting the chocolates from the factory to the airport, when the temperature is at 50°C (122°F)."

And these include delicate hollow chocolate camels, which are extremely difficult to transport.

But, using light aluminium packaging and layered ice-packs made by a German firm and a dedicated route to the runway devised by the shipping giant UPS, it is being done.

UPS guarantees Al Nassma that its chocolates will arrive almost anywhere in the world in perfect condition in 48 hours.

'Very modern'

What Al Nassma is doing would not have been possible even 10 years ago. Evolutions in technology and packaging mean a company can send its products – even perishable goods like sweets – anywhere in the world.

Donna Longino of UPS Technology says paperless technology has reduced the likelihood of customs hold-ups by up to 41%.

"UPS Paperless Invoice allows shipments to clear customs in 92 countries using electronic data. Because information is prompted and stored electronically, manual errors when filling out customs documentation are greatly reduced."

Mr van Almsick was on his way to the factory to check on a 40ft container full of chocolate to be shipped to Yokohama.

"It's a very modern product," says Mr van Almsick, who used to work at Stollwerck, the German chocolate giant that dates back to 1839.

Al Nassma – which means a cooling desert wind – benefits from globalisation as well, using vanilla from Madagascar and honey from Hungary.

The company's chocolates are sold in Mitsukoshi department stores in Japan, as well as shops in Washington DC and San Francisco.

Big companies are embracing technology like never before. U.S. giant Wal-mart, for example, is the world's largest user of radio-frequency ID (RFID) tags, which allow for real-time tracking. In August, it moved from using RFID tags on container shipments to tracking individual pairs of jeans and underwear.

But now, developments in logistics allow small firms to plug themselves into the supply chains of large international retailers, and compete with the big boys.

Wine Innovations did just that, getting its unique product into Marks and Spencer (M&S), which has 650 stores in the UK and also operates in 30 countries.

James Nash, the founder of Wine Innovations, visited the Glastonbury music festival and saw wine being poured from glass bottle to plastic cup. Sensing a market, he developed a resealable wine glass already filled with red, white or rose.

Rubbished on UK television show Dragons' Den, where entrepreneurs pitch their products to a panel of investors, he continued to believe in the product. M&S agreed with him, and the Froglet and the Italian Job are some of the wines now available in 500 stores in the UK, as well as Hong Kong and Singapore.

But he had to invest hundreds of thousands of pounds of his and his backers' own money into machinery.

This included two machines that fill 2,000 to 4,000 cups an hour, which gives a production run of up to 30,000 goblets a day. And they built another machine – costing £350,000 – that seals 2,000 goblets an hour.

"With a bespoke machine, you can't find finance because you can't sell it on," Mr Nash says. "You've got to have faith in your product, and prove it works."

Margin of error

Wine, like most food, degrades as soon as it is exposed to oxygen. The innovation that Mr Nash has come with, which his team have patented, is that the goblets are filled with nitrogen to displace the oxygen, and a special machine sucks out the last remaining oxygen just before the seal is applied.

There is less than 1% oxygen left in each goblet, giving the wine a shelf-life of one year.

"The bigger the volume of wine, the longer it keeps," Mr Nash says. Which means that they hold vats of 23,000 litres of the different blends of wine.

M&S had to come and inspect all of this machinery themselves to see if it all worked as stated, and Mr Nash could account for the glasses it made, and keep up with the requirements of labelling the products correctly.

This is because they are making an alcohol product, so it is a legal measure they are putting in the cup. "And the chancellor is looking for 42p (66c) of duty for every glass, and there's only a 1% margin of error on that," he says.

Mr Nash had to prove all of this before he would even be considered by a retailer like M&S.

Entering the system

To actually get plugged in to the supply chain, Wine Innovations was invited into M&S's annual innovation week, where start-ups pitch ideas to its regional managers in the hopes of being considered.

The teams liked Mr Nash's product, and it went through what the company calls Stage Gate, five steps where M&S checks out a small firm's credentials and background.

M&S sent quality control inspectors to check out all of its machinery.

The retailer, for example, tested the seal on the wine glasses by taking a case of the goblets, putting them in its lorries and sending it up and down the country.

M&S has been selling its own wine since 1973, and that was the appeal of Wine Innovations' products. Its own-brand Shiraz, Le Froglet, is processed in France and shipped to the UK to be poured into Mr Nash's goblets.

Mr Nash has orders for 400,000 goblets every four months, which are then taken from its factories to the central warehouse and dispatched to its stores.

Wine Innovations gets weekly updates, and the small firm and retailer confer on quantities for each order.

"We have seen seasonal ups and downs, such as more red being drunk in winter than white, as you would expect," Mr Nash says.

He says that M&S have recently shown them a new inventory management system, bought from the NHS, that shows orders as they come in and allows Mr Nash to track his products to same level of detail as the retailer.

Whether you are a camel-milk chocolate maker in Dubai, managing your own supply chain, or a innovative wine seller becoming part of a larger company, the developments in logistics mean it has never been easier for a small company to achieve scale.

UPS Technology's Ms Longino sums it up: "It's all about making a shipment from Birmingham to Bangkok as easy to process and track as a shipment from Birmingham to Bristol."

Not that Mr Nash is celebrating too hard.

As a teetotaller and self-described "non-wine person," he rarely samples his own product.