Cocoa Pete’s Chocolate Adventures

For
Dr. Ravjiv Shah
Cocoa Pete’s Chocolate Adventures

1. Background, Context, Overview

 On the later part of 2002, Pete Slosberg launched his newfound chocolatey passion
product in a $13 billion dollar U.S chocolate market.
 Solsberg’s strategy for his new business, Cocoa Pete’s Chocolate Adventures was
heavily based off of his previous experience molding and building the company known
as Pete’s Brewing Company.
 Identified opportunity in gourmet category of chocolate brands that was substantially
smaller estimated at around $1.5 billion.
 In 1998, after selling his beer company to Gambrinus and recovering from an illness he
took a factory tour of Burlingame, a U.S based Chocolate Company. He instantly saw
parallels within the chocolate and beer industries and a light twinkled in both his and his
partner’s eyes.
 After the tragedy of September 11th, he decided life was too short and resolved to
become a chocolate virtuoso and with a market opportunity and brand in mind, he
rounded up $750,000 worth of capital in his first round contributed by friends and
family.
 He built a team comprised of Stanford Graduate School of Business students, Wes
Hawk, Doug Scott, and Tad Glauthier.
 Armed with a Sales and Distribution plan, a producer, and a solid marketing plan catered
towards educating the public about this new market and brand.
 Soon after, however, he ran into real production problems regarding his business.
 While it seemed like a good idea and business venture in many ways, at the end, the
production issues resulted in Cocoa Pete’s turning town many orders for their product
and they could not deliver.

2. What industry is Pete entering? Who are the dominant players in this industry
and who is the target market? What are the characteristics of the market?
 Chocolate, as a mass-market category was primarily purchased as ‘daily snacks’ or
‘holiday gifts’ and was consumed, on average, within fifteen minutes of the purchase at
supermarkets and convenience stores.
o Dominated by two companies and a handful of others
o Hershey’s (32.6%) market share
o Mars (29.6%)
 Cocoa Pete’s, however, decided to enter the more niche gourmet market.
 o Dominated by two companies and a handful of others
o Ghiradelli (29%)
o Lindt (20%)
 Targeted what they called ‘chocoholics and flavor mavens.’ These are people who are
completely and totally invested into chocolate. People who are really emotional about
it. People that bring more people to them. He classified it into two groups.
o ‘Flavor Mavens’ – People who know about the best restaurants in town and
strong influencers
o ‘Flavor Fans’ – People who sought more flavor in their diet but were less
enthusiastic. These people were second phase adopters but were crucial to the
success of the long-term strategy.
 The domestic gourmet chocolate market was primarily comprised of upper-class
females with high levels of education.
 At the time, the chocolate production process was both capital and labor intensive as
well as requiring a large sum of capital especially if done in-house.
o Because of this reality, it was extremely common for competitors to seek
outsourcing during this phase.

3. Is this an attractive industry? Use the Porter Framework and the two Porter
articles to analyze the industry.
 Competitive Rivalry
o Several niche domestic gourmet brands such as Sharffen Berger of Berkley, but
there were no dominant domestic gourmet brands
o The chocolate market, however, did have European brands that would compete.
o Slosberg sought to establish the brand as both approachable and irreverent.
 Supplier Power
o Cocoa Pete’s decided to outsource to a bakery in New York. They found out,
however, that the facility was not kosher. They stopped production and
desperate searched for a facility that could bake at 180 degrees for four hours
which was too long for most bakeries.
o Cocoa Pete’s products used unconventionally ingredients and so the “one shot”
machine could not ‘automatically deposit the hazelnut paste into the milk
chocolate shell’ (P19)
 Buyer Power
o Not that large of an issue as there were no dominant competitors in this
category, especially because it was a premium product.
o Had retail prices above $10 per pound.
 Threat of Substitution
 o Not a notable issue either because Slosberg intended to create his own brand
from the bottom up. He basically planned to create a need for his product and so
this was solved by an assumption made by the business plan in play.
 Threats of New Entry
o Little to no protection for rivals to enter, and eventually occurred because Cocoa
Pete’s couldn’t keep up with orders.

4. Use SWOT analysis and Barney’s framework to analyze the industry. What is
the positioning of Pete’s company versus that of the competitors?
 Strengths
o Successful business prior to Cocoa Pete’s for which the many facets of the
business plan was based on
o Slosberg as a business man and a individual and brand
 Charismatic
 Driven
 Educated
o New emerging market
 No dominant domestic player
 Weaknesses
o Successful business prior to Cocoa Pete’s may skew the view of the business
o Very intentional, unique product that needs specific equipment in order to
produce.
 Had to quickly find bakery because previous was not kosher
 Malted milk process was problematic for most bakeries
 ‘One-shot’ machine aforementioned
 Irregular packaging had to be packed by hand.
 Opportunities
o Familiar situation
 Identified a near-identical match to the beer industry of the 1980s in
market dynamics and composition which he succeeded in.
o In their analysis, Slosberg identified a gap in the domestic market for premium
gourmet chocolate.
 Threats
o European competitors
o Bakery and supplier complications

5. What allowed Pete to pursue the strategy he was perusing? What similarities
do you see between the industry that Pete is entering and the industry he came
from? Will he have a sustainable competitive advantage?
  Much like Pete’s Brewing Company, they targeted a gap in domestic premium
chocolate. In his words, “it was almost a complete match”.
 Again, similar to his previous business endeavor, he sought to brand the company with
characteristics such as ‘approachability, irreverence, and humor.’ (p9)
 It proved not to be a surefire competitive advantage and European gourmet brands
would end up competing with Slosberg.

6. What are some of the major issues he is running into? What do we know about
the manufacturing process for his new industry and what are some of the issues?
 Slosberg was very intentional in his chocolate recipes. Much like a scientist, he mixed
combinations of sugar, cocoa, butter, and vanilla and settled on four final flavors.
 This sort of became an issue, however. One flavor, in particular, The Nut So Serious
flavor needed to be manually made even into December of 2002. Although this was
resolved fairly peacefully, it would indicate issues further down that they did not
recognize in advance.
 Production issues in the learning curve
o Slosberg assumed Brown & Haley would know everything about manufacturing
the product but apparently the uniqueness of the product was new to them.
o Brown & Haley is not kosher
 Halted production and had to find a replacement
o Malted Milk baking issues
 Most bakeries would not bake at 180 degrees for four hours
o Production equipment
 Irregular ingredients caused additional problems

7. Assess Pete Slosberg as an entrepreneur. What recommendations would you

make to Pete going forward from the time of the case?
 In my opinion, Slosberg was by and large a more than successful entrepreneur.
Sometimes you fail, and sometimes you make the wrong assumptions. In this case, his
chocolate business was a failure, but he was an entrepreneur in every sense of the
word. He identified a need, an opportunity in the market, and a plan to deploy a
business within the confines of the market that he identified. Even though it wasn’t a
success, the blue print was there, the effort was there, and an attempt was made.
o Side note, I really appreciated the way he trusts his gut and just goes with it, but
is still able to listen to others. It is admirable. To have such conviction, direction,
and vision but to still be able to hear.
 Moreover, he already successfully created a multi-million beer business before his
chocolate adventure so I am not quite sure how to discredit him.
 The biggest takeaway from this case is to be more cautious of the manufacturer. In this
case, Slosberg made a few key assumptions that were incorrect regarding production. It
was a rather unique product that needed a unique production process and it was not
fleshed out properly. If, in fact, the production process was better fleshed out
beforehand and the products came out as Slosberg intended I do believe they were well
suited for success.
o Be more cautious on assumptions that rely on other people and are essentially
out of your hands
o Create an emergency production plan
 Have a backup in mind
o (Opinionated)
 Make it less unique, but still premium and gourmet
 Pros
o Easier to product
o Cheaper
o More efficient
o Less risk
 Cons
o Vision is somewhat lost
o Uniqueness is lowered
o Diffusion of branding to some extent