Koko Black, Godiva Australia on driving sales in a cost of living crisis

Premium chocolatiers, much like other companies specialising in discretionary goods, are facing challenges brought about by current macroeconomic conditions.As cost of living pressures continue to rise, a large proportion of their consumer base is pulling back on non-essential items to ensure they can afford to pay bills and other essentials.Meanwhile, the cost of key ingredients such as cocoa continues to soar, with commodity prices up over 25 per cent year-over-year. As a result, chocolate confectionery prices in Australia have surged, with companies targeting both ends of the market to stimulate sales.The situation is unlikely to improve anytime soon, with the International Cocoa Association flagging further cocoa price rises, amid production shortfalls which are set to worsen with adverse weather conditions, including a potential El Niño weather event. This on top of other supply chain disruptions, including higher-than-usual fertilisation costs, and the war in Ukraine.However, during tough economic periods, customers have been known to treat themselves as a coping mechanism. This phenomenon – known as the ‘lipstick effect’ – sees customers downgrade the luxuries they partake in, rather opting for affordable luxuries rather than higher-end products.This can arguably be seen with the financial results of Swiss chocolatier Lindt and Spruengli, which was able to pass on price increases without seeing a significant dampening of sales. The brand reported that organic sales – less the impact of acquisitions and currency swings – increased by over 10 per cent year-over-year to over $3.6b in 1H, FY23.The company upgraded its sales growth and profit margins forecast – to 7-9 per cent up from 6-8 per cent, and to 30-50 basis points, up from 20-40 respectively – as part of its full year outlook.So, how are premium chocolatiers positioned to navigate these economic pressures, and are they set to benefit from customers on the hunt for small moments of pleasure?Koko BlackNicolas Georges, former CEO and now head of growth and innovation at premium Australian chocolatier Koko Black told Inside Retail that the company had experienced strong growth over the last financial year. He noted that its five new stores, all of which opened this year, have contributed to over 60 per cent growth for the year.In challenging economic times –  when people have to forgo a big holiday, new car or the latest phone – Georges observed that customers turn to small, everyday treats to lift themselves up, and find a moment of escapism.“More and more, consumers are looking for an alternative to cheap, sugary chocolate from the supermarket. They care about value, and are choosing treats and gifts that are handmade [and] natural, made in Melbourne and [that] celebrate local ingredients,” he said.He explained that Koko Black has been on a journey of continual improvement with regard to its efficiencies and processes – such as its 24-hour production cycle and investment in its warehouse – which have enabled the brand to absorb cost increases, such as freight and the supply of raw materials.Georges also said that roughly half of the brand’s sales come from gifting, which has been resilient to customer cutbacks. “At this point, we are yet to see any significant changes,” he said.Godiva AustraliaHaley Koo, national retail manager for the Australian division of Godiva, told Inside Retail that the brand is experiencing “remarkable growth” compared to the previous year.Across shopping centres – where many of its Melbourne, Sydney and Canberra stores are based – she said that the brand has seen a consistent recovery in foot traffic.Koo added that greater brand awareness, as well as more intent from customers to make purchases when entering the stores – is helping to drive growth. “By expanding to interstate stores and strengthening our digital presence, we’ve enhanced our reach and amplified customer engagement,” she said.However, Koo explained that Godiva Australia has not been immune to cost of living pressures and rising business expenses, which have forced the company to reassess its pricing structure.“In recent months, the cost of doing business has been affected by rising logistics and import costs. These increased expenses [have] necessitated increased pricing,” Koo said.“This decision has been carefully considered to balance the need to maintain our product quality while acknowledging the economic realities.”She also observed the lipstick effect taking place, with a “trend toward self-indulgence” helping the brand sustain sales, and connect with its customers, many of whom see Godiva’s products as a special treat.“Nothing seems to comfort our customers in challenging times more than biting off a piece of delicious Belgium chocolate,” she said.Plans in the worksAccording to Koo, Godiva has upcoming collaborations in the works – including an Easter collection with children’s apparel brand Fleur Harris – which is set to launch in 2024. It also has plans to further expand its store network across Australia next year.Meanwhile, Koko Black is keeping its next collaboration close to its chest with Georges stating that the brand has been energised by opportunities to work with like-minded innovators.“We are staying focused on our core strategy of making sure our products and experience continue to meet or exceed our customers’ expectations,” he said.