See's Candies Moves East

This week Fortune features an article about the planned eastward expansion of See's Candies.  For folks on the west coast, you are quite familiar with the See's chocolate shops and airport kiosks that sell fresh delicious chocolates.  The company does not have any shops east of the Mississippi though.  That will change over the next few years, according to plans described in the article.  The company, owned by Warren Buffett for the past forty years, aims to expand with up to 30 new stores in the eastern part of the United States in upcoming years. 

The See's expansion offers some interesting challenges.  First, the company will have to introduce themselves to those on the east coast and deal with existing luxury chocolate brands such as Godiva that have a significant share in that region.  Second, the supply chain will be a challenge.  The chocolates do not have preservatives.  Thus, they have a short shelf life.  The company will need a factory close to its east coast locations.  Third, the firm must expand its appeal young mothers, according to its new head of marketing, Tracy Cioffi.  She notes, "We can't focus on great-grandma anymore." 

As I read the article, I kept thinking that the company could learn a great deal from another highly successful California retailer that expanded eastward after many years of focusing on the west coast.  That company would be Trader Joe's.  The firms have much in common:  fiercely loyal customers, longtime employees who enjoy working there, strong profits, and a reputation for quality products.   Trader Joe's found success on the east coast through a careful and methodical expansion strategy, rather than rushing to open tons of new stores all at west.  It appears that See's will do the same.  The article mentions that See's uses pop-up stores to test new locations before committing to a new store.  That makes a great deal of sense too. 

Still, the company will face challenges.  On the west coast, the firm generates a great deal of revenue through on-line and phone orders.  The stores help build the brand, and they encourage people to try the product.  Yet, the company depends on on-line sales to achieve strong profitability.  It will need to do the same on the east coast, but without the long-time customers who know the firm well and have been ordering particular chocolates by phone or on-line for years.

One final note: I learned in the article that Lucille Ball trained at See's plant for her famous chocolate factory scene on the hit show, I Love Lucy.  Here's that classic clip:

Katrina Markoff and Vosges Haut-Chocolat

Katrina Markoff made Fortune's list of 40 under 40 this year (just announced this week).  Markoff is the founder of Vosges Haut-Chocolat.  Markoff creates exotic truffles using fine ingrediennts which she personally from around the world.   She developed her skills at Le Cordon Bleu in Paris, where she began to create her unique chocolates, which involve infusions of rare spices and flowers combined with premium chocolate.

Her growth exploded when she began selling her chocolates at Neiman Marcus.  She also has grown her catalog business substantially and operates eight boutique retail locations of her own. 

According to Fortune, Markoff now has agreed to develop a lower-priced line of chocolates for Target and Wal-Mart. Naturally, she follows a long list of designers who have gone this route, creating popular lines at affordable prices ("affordable luxury" if you will).   The move always comes with some risk though.  How does one manage the brand so as not to dilute it?  Beyond that, though, "designers" such as Markoff have to think about how they manage their retailer relationships.  How does one continue to please Neiman Marcus and maintain that strong relationship, while selling lower-priced items at Target and Wal-Mart?  To thrive, designers have to create products of clearly different quality and positioning for the different retailers.  They must really understand the differences in the consumer at each retailer to do that effectively.   Some cannibalization always will occur, but a designer can avoid that if they continue to innovate and first bring exciting new products to their high-end luxury retailers.  Without that "reward", they risk damaging the relationships with those retailers who first helped them build their brand.  They also have to think carefully about WHICH mass merchandisers with which to partner.  Some would question whether it makes sense, for instance, to sell to both Wal-Mart and Target, given Vosques' positioning.