Chocolate, wine and tea: Gourmet foods ride the recession into massive growth

While the recession has sent sales of most luxury items into a sharp tailspin, many upscale foods are transforming the downturn in consumer spending into an opportunity to increase market share. For purveyors of mid-market chocolate, tea, and wine, the consumer move from big spending to more connoisseur-based purchases is translating a recession into big business.
Tea, for example, offers many consumers a low-priced indulgence that can comfortably take the place of more expensive pleasures. For tea aficionados, the price point is pretty reasonable: gourmet teas only cost about 30 percent more than their non-gourmet counterparts. At upscale gourmet market Dean and Deluca, this translates into prices that range from $6.50 for a box of tea bags to $35 for 3.5 ounces of Lung Ching Jade tea. While the most expensive tea in the world, Tieguanyin, tops out at $1500 per pound, it is quite possible to amass a solid tea collection for the price of a few Starbucks venti lattes.
Over the past few months, tea producers and retailers have ridden the cheap gourmet trend to record revenues. For example, Palais de Thes, a French tea company, posted a 19 percent jump in revenues last year, and other tea houses have reported comparable growth. Meanwhile, Atlanta-based specialty tea store Teavana plans to grow from its current 110 stores to 500 outlets over the next five years.

Chocolate is another food that seems to be comfortably weathering the recession. While a $50 meal may be off the table, a $5 premium chocolate bar can convey a gourmet pleasure at a much lower price; added to this, it can also carry an endorphin rush whose mood-improving value can't be ignored.

With this in mind, it's hardly surprising that chocolate companies from Hershey's to Callebault have seen their sales soar over the past year. Hershey's (HSY) second-quarter earnings, for example, were up 71 percent from 2008, and overall US chocolate sales in 2009 are expected to increase by two percent over last year. A large part of this can be tied to Hershey's move into premium chocolate with its Cacao Reserve line and its ownership of top chocolate company Scharffen-Berger.

The move toward recession gourmet items has also impacted wine, although the outlook there is a little more complex. In 2008, wine consumption rose for the fifteenth year in a row as Americans downed 294.7 million cases of the stuff. In spite of this, however, wine sales dropped precipitously. The first reason for this apparent contradiction is that many heavy wine drinkers have cut back on expenditures by consuming bottles of wine that they previously stockpiled. As many experts have noted, the dual moves toward eating in and saving money have conspired to empty many a private wine cellar.

More broadly, many wine drinkers are trading down to less expensive bottles. This is borne out by the comparison between domestic and foreign wines: while imports have dropped by 1.8 percent, sales of US wines have increased by 1.9 percent. While domestic wines can be pricey, they tend to cost less than imports.

Another side of this change is the recent improvements in the wine bottom line. Revolutions in jug and box wine are bringing a level of respectability to a market segment that used to be dominated by Franzia and Carlo Rossi, and decent mass-production wines fill the aisles at Wal-Marts from coast to coast. While not extraordinary, these brands -- like Kendall-Jackson, Yellow Tail, and Ecco Domani have employed consistent quality and low prices to become the best selling wines in America.

The growth in the bargain gourmet market seems to be predicated on a few key elements. The first is price: While it is possible to spend a fortune in each group, one can also find a wide variety of first-rate options for $10 or less. Although a $4 bar of chocolate or a $10 can of tea is not a bargain by any stretch of the imagination, these are also not particularly huge expenditures. What's more, given the level of self-indulgence that they represent, they are actually extremely cost-effective, particularly when used as a substitute for a restaurant meal or a pricey bar drink.

Another key element is that these gourmet treats all require -- or at least encourage -- a certain level of knowledge. In addition to being familiar with certain key brands, consumers of these treats also benefit from knowing about things like grape variety, terroir, proper preparation, curing techniques, cocoa percentage, and so forth. For each of the gourmet items in question, this knowledge heightens the experience, and encourages greater involvement with the food.

In many ways, then, the movement from expensive fine dining to cheap gourmet foods represents a movement from money to knowledge capital. After all, while a $100 plate of truffle-laden mac and cheese is guaranteed to be good (or at least truffle-y), finding a $10 red that perfectly balances a marinated rib eye steak is far harder and more knowledge-intensive.

With that in mind, it's worth noting that these cheap gourmet options only represent the tip of the iceberg on a vast expanse of reasonably-priced foods that are poised to benefit from strapped consumers. Upscale spices like Penzey's, all-natural drink mixers like Stirrings, gourmet sodas like Virgil's, and all-natural ice cream are all doing quite well as cash-strapped consumers seem to be demonstrating that their ability to spend broadly can, perhaps, be translated into an ability to spend wisely.
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