Darrell Lea collapse shouldn’t deter sweet-toothed start-ups: Analyst

An IBISWorld analyst says there are still opportunities in the chocolate industry, despite the collapse of Darrell Lea, but new entrants must determine their market position from the outset.

It was announced yesterday Darrell Lea has been placed in voluntary administration after nearly 85 years. Darrell Lea was a highly regarded manufacturer and retailer of confectionery products.

Its products are sold through 69 company-owned and licensed stores and 1,800 retail outlets across Australia, New Zealand, and the United States.

The company employs around 700 people across its Sydney-based manufacturing plant and its retail network, although their future is now unknown.

Jennifer Dowell, national secretary of the Australian Manufacturers and Workers Union food and confectionery division, told SmartCompany all 700 employees could lose their jobs if the company is liquidated.

“We don’t really know a great deal at this stage. We spoke to the administrator yesterday and we are waiting for them to confirm that they have signed off on funding to pay the workers’ wages –we are still waiting on that,” Dowell said.

“They are saying they need a couple of days to ascertain the financial situation of the company and it does not look good.”

“We are trying to find out if there is enough money to cover the employee entitlements and we are not sure if there is at this stage.”

While Darrell Lea was considered an iconic Australian brand, it has become increasingly overshadowed by high-end chocolatiers and chocolate cafés such as Haigh’s and Max Brenner.

IBISWorld analyst Naren Sivasailam says despite the collapse of Darrell Lea, there are still opportunities for new entrants.

“Do opportunities exist? Absolutely,” Sivasailam says.

“In the chocolate bar segment, you’re going up against heavyweights – the Nestlés and Cadburys of the world. It’s going to be very hard to compete with those given their brand recognition.”

“But in the premium high end – fine chocolates made experientially by expert chocolatiers – that market has been growing by about 14-15% a year.”

According to Sivasailam, the market has also witnessed the rise of fair trade chocolate.

“Fair trade chocolate is the biggest growth segment – it has experienced growth of about 11,000% in the last five years but that’s going off a base close to zero,” he says.

“It doesn’t mean it’s premium, but it’s appealing to certain ethical stances of consumers. Consumers care about this, and producers will lose out if they don’t tap into it.”

Sivasailam says the rise of chocolate cafés highlights the importance of creating a meaningful retail experience.

“The idea of experiential retail has been around awhile. It’s not as prevalent with chocolate but a lot of retailers are trying to get retailers through their doors,” he says.

“[The chance to] have a coffee and a chocolate will certainly help… I don’t think it would hurt.”

Alternatively, Sivasailam says start-ups could follow in the footsteps of brands such as Ben & Jerry’s and Krispy Kreme, which distribute their products through existing venues.

“Krispy Kreme was such a hoopla when it launched here… In less than three years, we see them in 7-Elevens. People were just losing interest,” he says.

“Whether that will work for chocolate depends on where you position yourself. Chocolate can be quite an impulse purchase so it could work, but I doubt people would buy good chocolate when they’re buying petrol or whatever.”

“A lot of consumers out there are looking for value. If that’s the market you’re seeking, there are opportunities there too.”

Sivasailam says it comes down to where you position yourself because “the more niche you are, the easier you will make life for yourself as a producer”.