Hershey's Push Into High-End Chocolate Is Bittersweet

Bad timing contributes to Hershey's continued struggles to play in the premium chocolate segment:

Hershey said Thursday that it will no longer be marketing the Starbucks Corp. (SBUX) brand of premium chocolate and is also winding down its high-end Cacao Reserve line. Sales of pricier chocolate have slowed as consumers have tightened their belts and retailers have been reluctant to give up shelf space to lower- performing products.

Before the recession began, Hershey's sales suffered because consumers had been turning toward pricier chocolates, an area that Hershey had been slow to get into. Privately held Mars Inc. and specialty chocolate brands gained share. That pushed Hershey to begin marketing more expensive chocolates. In mid-2007 it announced a pact with Starbucks to develop and market a premium line.

But that new line was badly timed because the economy started slowing soon after. Consumers slashed spending last year and early this year, turning away from most extravagances, including pricey chocolate. "The timing of the launch of the Starbucks proposition, frankly, we just missed the window," said Hershey Chief Executive David West during a Thursday conference call. "Our partner obviously had some other business challenges and the consumer at that price point wasn't sustainable."

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