Chocolate feels the bite

Chocolate may be a comfort in troubled times but even this affordable luxury is feeling the pinch of slower economic growth.

by: Alister Bull: Reuters | 18 Jul 2008

"Chocolate tends to be a recession-proof business but we're not immune to the consumer," said Bryan Merryman, chief operating officer of Rocky Mountain Chocolate Factory Inc, with 292 stores nationwide and 38 in Canada.

Chocolate may be a good barometer of the way many U.S. businesses probably feel about the current economic climate.

It is made from imported cocoa, whose price on world markets has surged as the dollar has weakened. It is costly to distribute, and those expenses have climbed with rising fuel prices. And it is a pure consumer good sold to customers feeling the pain of precisely the same pressures.

All of which adds up to a simple and sobering verdict about the real state of the U.S. economy.

U.S. retail sales rose only a disappointing 0.1 percent in June, despite billions of dollars of tax rebates siphoned to households in an emergency government stimulus package to prop up growth.

Serious slowdown in consumption
It was a worrying sign that the hitherto stalwart U.S. consumer was hesitating to spend. The service sector accounts for roughly 80 percent of U.S. economy and a serious slowdown in consumption would be a tough burden to shrug off.

The Kansas City Fed allowed several reporters to join its visit to the Rocky Mountain Chocolate Factory, like all of the 12 regional Federal Reserve banks, the Kansas City Fed conducts regular field trips to talk with local businesses, synthesizing the information and feeding it into the debate over interest rate policy back in Washington.

Anecdotal information from business contacts forged in communities all over the country is also systematically collected and published in the Fed's Beige Book, which gives policy-makers early warnings on changes in the real economy way before these show up in national data.

As a franchise-based operation that earns a royalty from retail sales, Merryman said Rocky Mountain Chocolate struggles to pass higher costs on to its franchise network.

But as a result, the chocolate maker has shrunk its workforce to 165 from 220 a year ago; a tough blow for the local community where Rocky Mountain is an important employer.

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