Berkeley and the Chocolate Factory

Last week's acquisition of a Berkeley chocolatier by The Hershey Company has left some customers worried about the future of the local company's premium chocolates, but local business experts say the merger may make less of a impact than originally expected.

Hershey, the country's largest confectioner, announced last week that it had purchased West Berkeley's Scharffen Berger Chocolate Maker Inc., a unique factory with a reputation for quality and traditional methods of production.

In Berkeley, where many consumers make a point of avoiding chain stores in favor of local artisans and independent bookstores and coffee shops, the encroachment of a national corporation onto local turf was not welcomed with open arms by Scharffen Berger customers.

Cynthia Miyashita, a frequent Scharffen Berger customer, summarized the concerns of many premium chocolate fans in her first reaction to the sale:

"I thought, ‘Oh, no. I hope that they stay the same,'" she said.

Andy Ross, the owner of independent bookstore Cody's Books, said he believes the acquisition will change Sharffen Berger's character.

"Uniqueness is what gives independent businesses their charm," Ross said. "The problem is that because of (Hershey's) size, they have a certain formula which would change the business significantly. They're very commercial, very corporate."

Ross said that despite several offers over the years to sell his business, he hasn't given into the temptation.

Scharffen Berger seems aware of its customers' concerns. The announcement of Scharffen Berger's acquisition was followed almost immediately by promises from Scharffen Berger's founder that the product would remain the same.

"Not only is that our intention, but that's Hershey's intention," said Robert Steinberg, who founded the chocolatier nine years ago with UC Berkeley alumnus John Scharffenberger. "It's something they-well, now it's ‘we'-had no question or disagreement about. That was a given."

Though chocolate enthusiasts may fear that Scharffen Berger's distinctive products may be affected by Hershey's size, UC Berkeley adjunct professor Peter Sealey said Hershey will probably try to maintain the premium chocolatier's image.

"If they're smart, they'll keep the whole feeling of it," said Sealey, who teaches marketing at UC Berkeley's Haas School of Business. "They will not associate the Hershey name with it. They'll keep the Berkeley address."

Sealey likened the acquisition to Coca-Cola's 2001 purchase of premium juice company Odwalla Beverages. Though Coke already produces Minute Maid juices, the corporation can charge many times the price for its Odwalla drinks because it continues to promote the image of a small company with fresh products and doesn't label them with the Coca-Cola name.

In both cases, a larger company has used a smaller niche company to tap into a specialty market, Sealey said.

"There's a trend in ultra-premium products," he said. "People are going upscale and enjoying things that they would never buy cheaper."

Sealey said that some people may break a diet to indulge in a Scharffen Berger chocolate bar for the experience of eating

premium chocolate, but would never eat a sweeter and cheaper Hershey chocolate bar.

Divorcing the Hershey brand name from Scharffen Berger's may be key to the success of the purchase, said Miyashita, president of local furniture-maker Berkeley Mills, which sells handmade woodwork nationally from a Berkeley workshop.

"It would be smart if Hershey maintained the quality and integrity of the Scharffen Berger product. It is a good diversification strategy," she said. "The people who buy it are discerning customers and they want it to be that way."

It may also be easier for customers to forget Scharffen Berger's connection to Hershey because most people do not buy chocolate directly from a retail outpost of Scharffen Berger.

When Martin Kupferman, a co-founder of local chain Pasqua Coffee, sold his business to Starbucks Coffee Company in 1998, customers looked at it differently than they had before, he said.

"(Starbucks) redid all of the stores and they made them into Starbucks," Kupferman said. "They slimmed down the food offerings. There was not nearly the rate of innovation of food. The menu got really simplified and really dumbed down."

Kupferman added, "People still come up to me. They say, ‘We used to be customers of yours and we were so sad that you were sold.'"

But Dave Fogarty, who works in Berkeley's economic development office, said it is easier for manufacturers to maintain their products' integrity than retailers, who must rely on the whims of local consumers.

"Starbucks has a formula that they replicate across the country over and over again. Starbucks does impose a standard retail formula because customers expect it," he said. "If (Scharffen Berger) has established a niche as premium chocolate with a lot of customers, maybe it will remain the same. It's a successful formula."

However, a corporate deal need not always be a source of such trepidation.

Thor Scordelis, vice president of Peerless Lighting, which was bought by the lighting giant Acuity Brands, Inc. seven years ago, said that his company is happy to have a corporate parent.

Even Ross conceded that sometimes selling out makes sense.

"A decision of whether to sell a business is a very personal decision," he said. "At a certain point you get tired, or you need the money to send your kid to college."

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