Business Is Sweet – How Godiva is expanding into China

Godiva Chocolatier is enjoying double-digit growth, thanks in part to innovative chocolates and expansion in Asia, says CFO Dave Marberger.

Marielle Segarra, Growth Strategies | September 01, 2012 | CFO Magazine

If anyone knows brand loyalty, it’s Dave Marberger. He witnessed it firsthand as the former finance chief of Tasty Baking, the Philadelphia-based maker of Tastykakes, a line of packaged baked goods beloved in that city. And he sees it now as CFO of Godiva Chocolatier, the famous purveyor of premium chocolates. Godiva operates more than 600 retail stores around the world, and it has no trouble selling its gold-boxed offerings in a variety of other channels as well. The company’s sales have grown more than 30% since 2008, to $650 million in 2011.

Now, Godiva is trying to grow its fledgling presence in a potentially vast market: China. The company so far has 24 stores in that immense country, where per-capita consumption of chocolate lags far behind that in Europe and the United States. But Godiva is nothing if not adaptable, priding itself on being a bit of an innovation machine. About 30% of its sales growth comes from products rolled out in the last 18 months, such as its Ultimate Dessert Truffles, which provide bite-size versions of popular desserts like red velvet cake, crème brûlée, and chocolate soufflé.

To capture its share of China’s market, Godiva has introduced several product lines specific to Chinese culture and customs, such as dragon-themed chocolates for the 2012 Chinese New Year. Recently, Marberger talked with CFO about Godiva’s focus on innovation and its reach into China.

How important is Asia to Godiva?
Asia is a priority market for us. We have a sizable business in Japan, which we’ve been in since the early 1970s. Three years ago, we started opening stores in China. By the end of this year we’ll have around 30 stores, in Shanghai, Beijing, and some tier-two cities. We’re pleased with how quickly the business has grown. Our same-store sales are very strong.

How are you building brand loyalty in China?
We don’t have the brand awareness there that we have in the U.S. or Japan. But one thing that has helped us is that we have a global travel retail business, what we used to call duty free. You will see Godiva in any airport around the world, and that helps build awareness. People who live in China will start to see the Godiva brand as they travel.

Where is Godiva seeing the most growth now?
We’re seeing strong growth in all of our retail stores, in every region. We had double-digit growth in 2010 and 2011, both in North America and international. We attribute that to the investment we’re making in the brand through innovation. We have great chocolate, but you have to continue to surprise consumers with new products that excite them to come back to the brand. We’ve also had a lot of success in the U.S. with our customer loyalty program, and now we’re rolling that out globally as well.

So you’re seeing strong growth in retail stores. What other channels do you have?
A big focus for us in terms of strategy is to be more accessible and relevant to the consumer. Particularly in the U.S., we have decided to go into certain grocery stores, drugstores, and mass merchandisers. We go where we think it makes sense for the brand. Also, we have a new platform of products — individually wrapped chocolates — that has allowed us to get into some grocery stores and drugstores.

What other kinds of product platforms does Godiva have?
We have a dessert platform that we continue to innovate against — for example, our Ultimate Dessert Truffles and our Parfait Chocolates. Our Ultimate Dessert Truffles are outstanding pieces of chocolate, but you associate them with a dessert, so it’s broader than just pieces of chocolate. We have different seasonal items and platforms, and when they do well, they can become part of the core [lineup of products].

When you introduce new products, do you get rid of older ones?
You can’t just keep adding products faster than you take them away, because you’ll build so many SKUs that [the product lineup] will become too complex. A big part of our focus has been, what products are going to go away? It comes down to a lot of different factors.

For example, you have minimum thresholds around sales. Strategically, what’s the role of a particular item? Has it been around for a few seasons, and is it time to refresh it? If so, you might take that one away and build on it with the next generation of that type of item. There’s a whole process of innovation that drives those decisions.

Can you give an example of a new product that didn’t perform that well?
When we launched Gems in 2009, we had three varieties: truffles, caramels, and solids. We found that our consumers were buying the truffles and caramels because they were what Godiva was known for, and they resonated better with them. If consumers wanted plain chocolate, they would buy one of our large tablet bars, not the solid Gems. We discontinued the solids and continue to innovate the flavors of truffles and caramels.

Godiva is owned by Yildiz Holding, a Turkish conglomerate. How often do you interact with them?
I talk frequently to the CFO of our parent company. We have a lot of interaction in a lot of different functions. We’ve been able to leverage their expertise in operations and supply chain, research and development, quality, and procurement. They’re a very large and profitable company, so that gives us strength to obtain more-attractive financing [in the capital markets]. When we procure cocoa and chocolate for the business, we talk to them on a daily basis about how they see the markets.

Cocoa prices have been dropping for months. How do you cope with the ups and down of commodity costs?
We don’t have a crystal ball, but we try to understand what’s happening in the market. If we have an opportunity as the price comes down to lock in future purchases, that’s what we try to do. That’s where we really benefit from Yildiz and its understanding of the market. Obviously, cocoa is one component — the critical component — of total cost. As we grow the business, we have to look at where all costs are going.

As CFO, what is your top concern right now?
Since we’ve been owned by Yildiz, it has done a tremendous job investing in Godiva. Now we’re seeing the benefits of that investment, growing at double-digit rates. So a big thing that I think about all the time is making sure that we have the right infrastructure to support that growth. It could be supply chains; if we’re in China, we have to get the product there. It takes a lot of work to do that.

What metrics do you monitor?
We follow a lot of internal metrics. Obviously, growth is important. On the cost side, we look at our cost per pound and per kilo [of cocoa and finished chocolate]. How much growth is driven by innovation is key. We have been very successful at innovating; about 30% of our growth in sales comes from new products, which are products introduced in the last 18 months.

One great thing about Godiva is that we have strong chef credentials. Our chef chocolatiers follow trends in the chocolate industry, and they’re always looking to introduce new recipes and combinations. So when I talk about innovation, it’s not just about getting the product in a package. It’s all of that expertise.