Dear Silicon Valley: Chocolate Entrepreneurs Wanted

When most people think of the word “entrepreneur”, they usually think of a person who works in the startup/ technology space, but entrepreneurs are best characterized by their willingness to disrupt established industries with innovations. Most theoretical economic reasoning would assume that the market for chocolate is an established and outdated market that cannot be disrupted by new ventures, but by examining the history of modern chocolate two things become clear: 1) the industrial revolution lead to a oligopoly in the Chocolate Market and 2) lucrative opportunities are currently present that would help bring chocolate back to its original roots.

Chocolate, in one of the oldest candy products known to the human race, with its origins dating beyond 1,000 BC (Coe 35), but the rise of modern chocolate has created a product that greatly differs from how our ancestors of the human race viewed Cacao. Along with the obvious differences between a processed candy and an organic food, one thing that most people do not realize is that “during nine tenths of its long history, chocolate was drunk, not eaten” (Coe 12). Even once European explorers “discovered” chocolate, it was still enjoyed as a drink throughout Europe. “The sixteenth-century Spanish conquest of Central America diffused chocolate around the world, as a hot, sweet, and mildly addictive stimulating beverage” (Clarence-Smith 6.1). Unlike most beverages, the chocolate beverage is unique insofar that “no product has ever been discovered to match the subtle taste of cocoa powder” (Clarence-Smith 6.3). Originally, the costly measures of producing the chocolate beverage were so high that it was not a drink that was enjoyed by the masses, but rather it was a drink enjoyed by the social elites. In Europe, the consumption of chocolate would take place publicly and privately by the wealthy, but in North America, the drink was less prevalent in the public. Even though chocolate was not available outside the home “despite the rarity of places of public consumption in British North America, drinking chocolate was available and was consumed by the well-to-do” (Clarence-Smith 6.9). This long history of chocolate as beverage and its scarce availability quickly changed with one man: Milton Hershey.

Milton Hershey was the first person to successfully produce candy by using technology from the industrial revolution. “The industrial revolution… changed chocolate from a costly drink to a cheap food” (Coe 232). Hershey’s success had two major implications. First, his mass production of chocolate candy allowed for chocolate to have a lower price. At this lower price, the average person was able to experience chocolate for the first time. Secondly, by being the first kind of mass produced chocolate, Hershey set a standard for the market of chocolate.

The major issue with Hershey’s industrialization of chocolate is that it created a new form of chocolate that dramatically shifted Cacao away from its original roots. The graph below depicts the complicated process in the making of chocolate.

chocolate.PNG

This complicated graph shows how far chocolate went from its origins. Chocolate was produced in this multi-step process because the industrial revolution technology could not produce a more simple method, but with our current technology, it could be possible to more easily mass produce a chocolate beverage that is closer to Cacao.

 

The tale of oligopoly is best seen from the makings of Mars company. Forrest Mars met his father, Frank Mars, in the summer of 1924 while selling cigarettes in Chicago. At the time, Frank was making $60,000 per year, which is the equivalent to $837,336 in today’s dollars (Brenner 54). Frank used his large income to start mass producing chocolate candy, which his son helped market across the country. If Frank did not have such a large income, it would have been impossible for him to invest in creating a chocolate candy bar. Since such large amounts of money were needed to buy the technology used in the industrial revolution, only a small number of firms were able to seize the opportunity to mass produce chocolate. The dramatic amounts of money made it nearly impossible for anybody else to enter this market. “The Hershey Food Corporation…. and… its arch-rival the M&M Mars Company, controls about 70 percent of the American candy market” (Coe 253). The result of the oligopoly in the Chocolate Market, produced as a consequence of the industrial revolution, is that a few firms enjoy control of the market and have produced chocolate candy instead of chocolate beverages.  The graph below depicts the global market for candy, and it is clear that a small number of firms, dubbed “the big 5”, control a majority of market share. Since technology has advanced and Venture Capital is now available to entrepreneurs, a new company that brought back the chocolate beverage could be commercially successful by penetrating the oligopoly and this could be achieved at a relatively low cost.

 

candymarket.png

Entrepreneurs should now enter the market for chocolate with a new manufacturing process that is now possible since there have been increases in technological knowledge. By disrupting the chocolate market, entrepreneurs could be successful in producing an organic chocolate beverage that is closer to Cacao, altering the real cost of chocolate so that farmers receive a larger portion of sales, and challenge the oligopoly in the market for chocolate.

realcostofchocolate

 

 

Works Cited

Brenner, Joel Glenn. The Emperors of Chocolate: Inside the Secret World on Hershey & Mars. New York: Broadway, 2000. Print.

Coe, Sophie D., and Michael D. Coe. The True History of Chocolate. New York: Thames and Hudson, 2013. Print.

Swinnen, Johan F.M., Mara P. Squicciarini, and William G. Clarence–Smith. The Economics of Chocolate. Oxford: Oxford UP, 2016. Print.

 

The Real Cost of a Chocolate Bar and Pie Graph comes from a slide show in the African Americans Studies Class 119x at Harvard College.

 

The Chocolate for the Masses image comes from the Coe book.

 

 

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