1-800-Flowers Buys Scharffen Berger
...What's in it for the $2B company?
Chocolate company Scharffen Berger is changing hands again, this time in a sale to 1-800-Flowers. Terms of the deal have not been disclosed, other than the fact that the senior leadership team was not kept on.
The brand has struggled over the last decade to find its footing, so could this deal result in yet another change to the chocolate company’s sales strategy? And how does this fit into 1-800-Flowers’ strategy to build basket size while centralizing its manufacturing and distribution? Let’s take a look.
A Quick Chocolate History Lesson
Founded in 1996, California-based Scharffen Berger was purchased by the Hershey Company in 2005, part of an effort to build out a high-end chocolate division alongside the 2006 acquisition of Dagoba Chocolate. But in 2020, Hershey streamlined its business, selling Krave Jerky to Sonoma Brands and Scharffen Berger to former Concord Confections president Paul Cherrie.
What happened to Dagoba is fuzzy. While the company’s Instagram pages have not been updated in years and its website redirects to a Hershey’s owned property, Scharffen Berger’s website lists the address of Dagoba’s prior manufacturing facility. This last part could be key to the 1-800-Flowers pickup.
With financing support from Hampton Roads Capital, Cherrie planned to reinvigorate the brand, broadening the portfolio and targeting snacking. In 2023, it launched Chocolate Provisions, a line of portion-controlled “chocolate thins,” and BREAKS, a competitor to Bark Thins. According to a LinkedIn post by former Senior Director of Sales Nathan Dahlen, over the last 19 months, the team grew the business from less than 200 doors to over 2,500 doors, with accounts including Whole Foods Market, Publix, Giant Eagle, Albertsons, HEB, and Bristol Farms.
Executives did not return a request for comment about why the company was sold. Still, I wonder if rising cocoa prices played a role, making the company less financially appealing to Cherrie and his investors. The specialty chocolate industry has also seen many mergers and acquisitions, and I wonder how hard it is to be an independent company given the current supply chain challenges.
1-800-Flowers, Really?
Raise all the eyebrows you want but 1-800-Flowers has a fairly significant portfolio of food brands. Sure there’s gift basket stalwart Harry and David, but the company also owns The Popcorn Factory, Wolferman’s Bakery, Simply Chocolate, Vital Choice Seafood, Moose Much, and Cheryl’s Cookies – and its revenues from that segment are nothing to sneeze at.
According to 1-800-Flowers’ May quarterly earnings report, of its consolidated revenues of $379.4 million in the third quarter (down 9.1% from the prior year period), $131 million came from its gourmet foods and gift baskets division. That segment’s sales have dropped 11.4% from the prior year period, with e-commerce sales down 4.5%.
Still, gross profit margin for the division expanded 530 basis points to 29.9%, compared with 24.6% percent in the prior year period, and the segment’s contribution margin loss improved as well.
The company’s last food-related acquisition, Vital Choice Seafood, was purchased in October 2021 for $20 million, with revenues of $27.8 million for the prior year.
Fun Fact: 1-800-flowers owns the domains www.berries.com and www.greatfoods.com
What Does the Future Look Like?
The goal, 1-800-Flowers’ executives previously told analysts, is to offer an array of complementary products to drive up the average order spend (currently $79) that can utilize a centralized manufacturing and distribution network. As the company has several other chocolate brands already, with its Simply Chocolate website delivering over 4 million chocolates per year, Scharffen Berger easily plugs into 1800-Flowers’ supply chain and increases the company’s cocoa buying power. Furthermore, its Oregon facility could offer the company a West Coast chocolate manufacturing option and is less than an hour’s drive to Harry and David’s 52-acre Oregon headquarters.
But will Scharffen Berger remain in retail? Given that 1-800-Flowers seems focused on e-commerce; some wholesale holiday gifting; and a limited number of Harry & David’s and Cheryl’s Cookies branded stores, I don’t know how likely that is. Maintaining a grocery presence would require a significant investment, and 1-800-Flowers already underwent a reduction in force last quarter.
If I could argue for retail, I’d note that the channel could solve some existing pain points for 1-800-Flowers, including acting as a trial/sampling opportunity for (hopefully) larger online orders. It also would get the company’s products into the hands of what it calls “value” shoppers, who are turned off by higher price points.
Additionally, in its 2023 annual report, the company said sales were down for “everyday” gifting and I’d argue that many “everyday” gifting purchases are made on the spot in stores, versus in advance online. While 1-800-Flowers has tried to address this with more same-day delivery options via its BloomNet network, there’s something to be said for simply adding a product to your cart.
Other Notable Recent(ish) Transactions in the Specialty Chocolate Space:
2023: Theo Chocolate merges with American Licorice Company
2023: PE firm Levine Leichtman Capital Partners purchases Kilwin’s Quality Confections and Kilwins Chocolates Franchise
2022: Chocolate Works acquires substantially all of the assets of Moonstruck Chocolate 2019: The Abel Family, owners of Chocolate Chocolate Chocolate Company, buys Bissinger’s Handcrafted Chocolatier
2018: Ferrero International acquires the Fannie May Confections Brands and the Harry London chocolate brands from 1-800-Flowers.com
2018: Ezaki Glico purchases TCHO Ventures
2018: Kar's Nuts buys Sanders chocolate
2017: Nuts.com acquires Kopper’s Chocolate