NEW THINKING IN INTERNATIONAL TRADE? A CASE STUDY OF THE DAY CHOCOLATE COMPANY Bob Doherty Senior Lecturer Social Enterprise & Corporate Social Responsibility School of Management, Liverpool John Moores University Sophi Tranchell ( Managing Director) The Day Chocolate Company Abstract Set within the context of fluctuating commodity prices this paper explores an alternative fair trade business mode called The Day Chocolate Company (Day). This unique UK fair trade company connects smallholder cocoa farmers more directly into global markets by making the farmers significant shareholders and therefore equity owners of The Day Chocolate Company’s Fairtrade chocolate brands Divine and Dubble (Tiffen 2002). This article examines how such an organisation can combine both social and business goals in a highly competitive market and thus provide a sustainable alternative model to conventional international trade. The Day Chocolate Company (Day) set-up in 1998 shares with its partners a mission to improve the livelihoods and opportunities for small-scale cocoa farmers in West Africa. These farmers who are joint owners in DCC are members of a co-operative called Kuapa Kokoo (Kuapa), which means “Good cocoa farmer” in local language Twi (see figure one). The paper investigates the positive impacts that this model has achieved on Kuapa members in Ghana from the Fairtrade relationship coupled with the equity stake and explores how the Day Chocolate Company have achieved their business goals in what is a highly competitive UK chocolate market. Each person on average in the UK eats a sizeable 16kg of chocolate per year, which is the second largest consumption per capita in Europe just behind Switzerland. This appetite for chocolate results in a UK chocolate market valued at nearly £3.6 Billion (Mintel 2003). The paper concludes that Day is achieving its social and business objectives. The company has developed an excellent range of quality Divine Fairtrade products, a wide and diverse distribution network through the UK, and consumer awareness far in excess of that expected for new entrants to this market. Day represents the interests of those who wish to demonstrate that it is possible and desirable to grow an alternative model of doing international trade. Day’s success shows that consumers are engaged and delighted by a trading vision that delivers high quality products in the UK to the tangible benefit of the least powerful and most vulnerable people in the trading chain. In the cocoa and chocolate business, this means lowincome, small-scale African cocoa growers. As a result Day’s sales have grown from £103,500 in 1998/1999 to £5.5 million in 2004. Methodology Both authors were recruited as senior managers to the positions of Managing Director and Head of Sales & Marketing (Sophi Tranchell MD, Bob Doherty Head of Sales & Marketing) to the original commercial team of Day in 1999. This team consisted of five employees none of whom possessed any specific experience in the UK confectionery industry. To facilitate understanding of the UK chocolate market the team right from the inception adopted a research philosophy as a way of helping themselves to make practical decisions based on research findings. Data for this paper is drawn from both qualitative and quantitative research carried out by the authors over a five-year period, some of the data collection approaches are listed below: A thorough analysis of the UK chocolate market its size, products, dynamics, suppliers and consumers over a five-year period. Consumer trend and tracking studies carried out for Day as part of Monitoring and Evaluation reports in 2001. Survey work in schools in collaboration with Comic Relief as part of Fair Measures School Survey. An in-depth analysis of Day’s performance over a five-year period as participants in company operations and strategy. Personal interviews with senior confectionery buyers in key UK retail supermarkets. In addition senior personnel in charge of responsible trading and retailer brand marketing are also interviewed over a five-year period from a number of key retailers. Personal interviews with a number of key stakeholders including members of The Day Chocolate Company team and Board of Director’s, the Fairtrade Foundation and Twin Trading. This paper will first explain the background to the unique governance structure of DCC, the rise of fair trade and how Day has combined both social and business goals. The Day Chocolate Company and Kuapa Kokoo The Day Chocolate Company is a private company limited by shares. Its 99 ordinary shares are owned by three parties; 52% is owned by the Fairtrade NGO Twin Trading (see figure one below), 33% is owned by Kuapa Kokoo farmers co-operative and 14% is owned by the international retailer The Body Shop International. In addition the international NGO Christian Aid also own preference shares and the leading UK charity Comic Relief enthusiastically support the company and are also partners in the Dubble Fairtrade chocolate bar (see figure one). The board of directors includes two people from Kuapa (Managing Director of KK Ltd and the Farmers Union President), two people from Twin and one person each from The Body Shop, Christian Aid and Comic Relief (see figure one). This governance structure is unique in both the UK Fairtrade and confectionery markets and in 1999 was awarded “Millennium Product “ award status from the Design Council for its innovative organisational model. (Duncan 1999). Key to the initial set-up and launch of Day was a loan guarantee facility provided by DfID (Department for International Development) to a commercial bank (Ronchi 2001). The DfID White paper on international development (1997) identifies a more equitable trading environment is key to reducing poverty and states new structures are necessary. Figure 1. The DCC/KKU Value network Figure 1. The DCC/KKU Value network Cocoa farmers Village Societies (900+ in 2004) LEGEND: • Ownership • Flow of goods and cash • One way cash flow Kuapa Kokoo Farmer’s Union (KKFU) Village societies elect a Society Executive from these 7 member Regional Executive Councils elected, and from these a 13 member National Executive Council (NEC) is elected. Kuapa Kokoo Ltd (KKL) • 97% of shares held by KKU (founders hold rest) • Board of Directors: -6NEC farmers - 1 Managing Director -4 Senior managers • Staff of 26 Society Development Officers PROFITS Independent retailers (UK) PROFITS Day Chocolate Company KKFU (33% shares, 2 seats) Twin Trading (52% shares, 2 seats) Body Shop (14% shares, 1 seat) Comic relief (1 seat) Cocoa Marketing Company (CMC) Christian Aid (1 seat) Monopoly exporting Subsidiary of the Parastatal cocoa marketing board (COCOBOD) Chocolate Manufacturer Kuapa Kokoo Farmers’ Trust Disburses FT premiums, DCC/KKL profits and other funds as decided by board of trustees: - 4 NEC farmers - 1 KKL manager - 4 local professionals Wholesalers Storage and distribution Supermarket distribution depots UK Supermarkets (Tesco’s, Sainsbury’s, Co-op) FLO approved Cocoa Processors FAIRTRADE Sole European Importer PREMIUMS Adapted from Ronchi (2001) This coalition of partners was no accident. Twin Trading who’s mission to build better livelihoods for the poorest and most marginalized in the trading chain was already known for setting up the Fairtrade hot beverages company Cafédirect, The Body Shop uses Kuapa’s cocoa butter in more than twenty of its products as part of its Community Trade Programme. Christian Aid had a membership of over 250,000 people and Comic Relief has 96% brand awareness in the UK. In addition both Christian Aid and Comic Relief have mission’s to alleviate poverty. The overall strategic aim of Day is to improve the livelihood of smallholder cocoa producers in West Africa by establishing their own branded proposition in the UK chocolate market thus putting them higher up the value chain. To achieve this mission a range of clear intermediate objectives are set-out (Tiffen 1998): To take a quality and affordable range of Fairtrade chocolate into the UK mainstream market. To pay a Fairtrade price for all the cocoa used in the chocolate sold. To raise awareness of fair trade issues among UK retailers and consumers of all age groups. To be highly visible and vocal in the chocolate sector and thereby act as a catalyst for change. The Day structure represents a genuine business partnership with those least powerful and most vulnerable in the trading chain. How Kuapa became partners in Day is now discussed. The Kuapa Kokoo Story During the last 45 years cocoa prices in real terms have shown both a significant decline and have been subject to a high degree of volatility, see figure 2. In fact between 1986 and 1996, Ghana exported nearly 80% more cocoa but received just 2% more income (Robins & Roberts 2000) Figure 2 Cocoa Prices 1970 - 2001 (ICCO website- www.icco.org/) Cocoa world market price 1970- 2000 3500.0 Price per tonne 3000.0 2500.0 2000.0 1500.0 1000.0 500.0 0.0 1965 1970 1975 1980 1985 1990 1995 2000 2005 Year Cocoa prices reached a 27- year low in November 2000 of $714 per tonne but have since recovered to average $1500 per tonne. However this does illustrate the volatile nature of world commodity markets which make’s it difficult for farmers to plan ahead. Ghana in West Africa produces 15% of the world’s cocoa which is grown by 265,000 small-holder farmers owning between 1-2 hectares of land (Robins & Roberts 2000). From 1947 until 1993 the Government in Ghana operated a state run buying system called COCOBOD, which interfaced with millions of cocoa farmers. The cocoa price was determined by the state who bought all the cocoa in Ghana. In 1993 the Ghanaian Government agreed to liberalise the cocoa market within the framework of the World Bank’s Structural Adjustment Program (SAPs1). According to Tiffen (2001) "the introduction of the structural adjustment program by the World Bank (WB) and International Monetary Fund into Ghana was a major precondition to Kuapa Kokoo being born” (per coms). Liberalisation whilst making farmers more vulnerable to international market forces, also enabled them to set up their own organisations and hence was vital to the formation in 1993 of the first co-operative licensed buying company (LBC) Kuapa Kokoo. 1 SAPs are agreements whereby countries receive new loans from the World Bank in return for cutting public spending and liberalising trade and exchange controls. This usually involves an agreement to break -up certain state marketing boards dealing with key export commodities. This initial group of 2000 small-scale cocoa farmers lead by cocoa farmer Nana Frimpong would collect and sell its own cocoa for the member farmers' own benefit (Tiffen 2002). The start was very challenging as Kuapa Kokoo (Kuapa) was seen as high risk for finance. However Twin Trading (Twin) provided start-up finance plus operational and financial advice. Also SNV a Dutch Development Organisation offered village level development and training. The mission of this farmer- rooted response to liberalisation (Kuapa Kokoo 2001) was to: increase power and representation within the market for the farmers promote social, economic and political empowerment enhance women's participation in all its affairs encourage environmentally sustainable production processes Established in 1994 by the Kuapa Kokoo Farmers Union (KKFU) the Kuapa Kokoo Farmers Trust (KKFT) was set-up to receive premiums from the sale of cocoa to the fair trade market (see figure one). These funds are prioritised for developing a successful business coupled with the provision of clean water, education and health facilities for village communities. Some examples of village projects are: Boring of water wells Income generating projects for women including nut crackers, palm oil machines, soap making, corn mill machines Medical programmes using student doctors to carry out health programmes at village level using mobile clinic Set-up of credit union using village based infrastructure Farmers training and education By 1997 Kuapa had repaid their start-up loan and today Kuapa is a successful cooperative in its own right with 45,000 farmer members across 1000 village societies in Ghana and is responsible for 10% of Ghana’s cocoa supply. At Kuapa’s annual general meeting in 1997 the farmers voted to set up their own company in partnership with Twin and The Body Shop International. The aim of this venture was to increase profits from their cocoa, increase their knowledge of the western chocolate market and to produce their own, branded Fairtrade chocolate bar for sale in western markets. Mr Ohemeng Managing Director of Kuapa explains that ‘‘we wanted to increase the value we were receiving from the supply chain, the real value is in the finished branded chocolate product’ (Mr Ohemeng interview 2001). After several years of preparatory work with partners, Kuapa and a product development process of more than one year, the first product of The Day Chocolate Company, Divine Fairtrade milk chocolate, was launched in October 1998 (Day Chocolate Company 1998). Kuapa farmer's representative said on record after the launch "we want people to feel good about our chocolate, not guilty about the poor farmer in the Third World" (Guardian Newspaper 1998). Page and Slater (2003) argue that access to markets and the understanding of these markets is key route for small-scale producers out of poverty, the governance structure of Day appears to facilitate these conditions. Before we examine the enormous challenge faced by Day in the UK confectionery market the paper will briefly explain the rise of fair trade as an alternative to conventional international trade. The rise of fair trade “If the world is serious about changing sustainable development … then new thinking is required on how international trade can become a positive motor for change stimulating sustainable trade” (Robins & Roberts 2000 p3). “Sustainable trade takes place when the international exchange of goods and services yields positive social, economic and environmental benefits “ (ibid p6). Eagles (2001) reports that since the Rio Summit in 1992 large companies have increased their control of basic commodity markets. The United Nations Committee on Trade and Development report that between 1997-2001 the price index of all commodities fell by nearly 50% (www.unctad.org). Despite mounting evidence of the negative impact of these factors in developing countries, according to Oxfam (2002) the World Summit on Sustainable Development in Johannesburg delivered no international plan to address low commodity prices. We have discussed cocoa but also Coffee has seen a spectacular decline in price leaving 25 million coffee farmers living in poverty. Robusta beans (used in instant coffee) have decreased from 180 cents per Ib in the early 1990’s to 17 cents per Ib by 2000; higher quality arabica beans have also shown a similar decline in value. The abandonment of the International Coffee Agreement in 1989, which helped to regulate supply and maintain stable prices, is seen as a key factor in this decline. (Fairtrade Foundation 2002). Civil society has responded to the plight of marginalized producers by the rapid emergence of the fair trade market, both within the UK and internationally. The UK market for Fairtrade Marked goods has grown significantly in 2003 to an estimated retail value of over £92m, 46% up on 2002 when £63m was spent by UK shoppers (Fairtrade Foundation 2003). Consumers can now choose from over 250 UK Fairtrade products which include a range of fresh fruit, coffee, tea, sugar, fruit juice, honey chocolate, preserves, snacks, flowers and footballs. The Fairtrade Foundation is the UK national body who, by an independent social auditing system, verify the Fairtrade supply agreement and code of conduct on products that meet internationally recognised standards of Fairtrade (Crane & Matten 2004). Products from companies, which meet these strict controls, are awarded the Fairtrade Mark, which is shown in figure 3 below. The rapid growth in Fairtrade Marked sales to approaching £100 million has also corresponded with an increase in the awareness of the Fairtrade Mark. According to MORI (Fairtrade Foundation 2004) 39% of UK population now recognise the Fairtrade Mark (see figure three) compared to 14% in 1999 (Fairtrade Foundation 2004). So what does the Fairtrade Mark mean, the widely accepted definition of Fairtrade is: “Fairtrade is a trading partnership based on dialogue, transparency and respect, that seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to and securing the rights of, disadvantaged producers & workers- especially in the South” The Fairtrade Foundation Annual Review (2003) The Internationally recognised Fairtrade standards that are a part of the Fairtrade supply agreement and code of conduct include: Fairtrade minimum price paid to producers must cover cost of sustainable production & living. In the case of cocoa this is $1600 per tonne (Ronchi 2001) Pay a social premium on top of the minimum price that producers can invest in community infrastructure projects which could include providing clean water supplies, building schools, income generating projects for women, medical programmes and credit Union finance just to name a few. The cocoa social premium is $150 per tonne (Ronchi 2001) Making of partial advance payments at key periods Sign contracts that allow for long-term planning & sustainable production practices (see Crane & Matten 2004 for details) The fair trade movement comprises a vast body of organisations, from NonGovernmental Organisations (NGOs), producers, importers and wholesalers to cooperative groups and retail outlets, who all share broadly common aims. There are two main routes to market for Fairtrade products (Brown-Barratt 1993); the first is via the so called “alternative trade organisations” represented by International Federation of Alternative Trade (IFAT) and through labelling initiatives such as the Fairtrade Mark. Figure 3 The New Fairtrade Mark The Fairtrade Foundation along with other national labeling initiatives are responsible for both certifying Fairtrade products but also for continuing to monitor producers, importers and retailers qualifying to use the Fairtrade Mark to ensure that the criteria are strictly respected (Brown- Barratt 1993). One of the first Fairtrade Marked product’s launched into the mainstream was Cafédirect Roast & Ground Coffee in 1993. Cafédirect is now the 6th largest coffee company in the UK with a £13million annual turnover (CD Annual Report 2002) and is sold by most major retailers in the UK. Cafédirect Roast & Ground holds a market share of between 4-5% in this sector of the UK coffee market. The sale of these Fairtrade products in the UK now provides a better standard of living for over one million farmers and workers throughout Latin America, Africa and Asia. Worldwide sales of Fairtrade Marked products are now thought to total over £500m a year with products being available to consumers in 17 different countries (Guardian 2003). Author’s Doane (2001) and Nichols (2002) report that ethical factors are increasingly important in influencing consumer-buying behaviour. Nichols proposes that the exploitation of developing countries is high on the list of consumer issues. This appears to be supported by recent consumer research carried out by NOP for the Co-operative Group, which ranks Fairtrade in a top ten of ethical consumer concerns (NOP Survey 2003). This growth of consumer interest in Fairtrade is being driven by the interaction of a number of political, cultural, academic and informational factors, which has resulted in recognition of fair trade in some of the developed world (Nichols 2002). Consumers are now not only concerned with in the intrinsic properties of the product but also on supply chain and production issues. This work is further supported by recent articles in Marketing (Gray 2003 and Clarke 2003) which discuss the proposition that consumers take notice not only of product content and performance, but also labour exploitation, environmental issues and financial transparency. It’s a world where food marketers have had to take radical action to protect their brands in the face of increasing consumer interest in nutrition and fair trade. Despite this growing consumer interest in fair trade the challenge for Day in the highly competitive UK chocolate market is enormous. The Head of Co-op Brand & Technical David Croft at the Co-operative Retail Group (CRG) explains that “ the chocolate sector is hugely dominated by the major brands and therefore creates a significant challenge, you would have questioned whether it was worth entering at all” (pers comm. 2004). Ian Bretman Deputy Director at the Fairtrade Foundation explains “chocolate is also a low priced market made possible by huge economies of scale. The major brands are long established, at the outset of Day in 1998 it appeared a huge challenge and it was felt that Day Chocolate could be “biting off more than they could chew”(pers comm. 2004). Cafédirect had been successful in coffee so why not Day Chocolate in confectionery, Ian makes the point that the UK chocolate market is more competitive than coffee “more players exist in the coffee market, and a wider range of both tastes and prices prevail “. To add to this David Croft also explains that Fairtrade goods also had a reputation for poor taste. The overall aim of improving livelihoods is indeed dependent on selling chocolate and establishing a brand successfully in the UK chocolate market. It is therefore essential that an overview is needed of the UK chocolate confectionery market to illustrate the scale of the challenge. UK CONFECTIONERY SECTOR Market Trends The chocolate market appears to exhibit a number of characteristics associated with highly competitive markets (Johnson & Scholes 1999). Both Mintel (1999-2003) and Euromonitor (1999-2003) confirm that chocolate is the largest pre-packaged food market in the UK and is relatively static despite a proliferation of new product variants. The retail market size in 2003 is recorded at £3,586 compared to £3.6 billion in 1999 illustrating the markets mature nature (Euromonitor 2003). Milk chocolate with on average 20-28% cocoa content) dominates the UK market, in the block chocolate category in which the Divine range competes over 90% of the sales are represented by milk chocolate. However Simms (2004) reports that sales of block chocolate containing between 70% and 80% cocoa solids rose by about 15% in 2003 and now account for nearly £20m of a £512m block chocolate segment. Barriers to market entry are high and the cost of brand development and promotion is significant (Mintel 2003), consequently with a few exceptions new brand launches have been rare in the past 4 years. The highly competitive nature of this sector exhibited by its concentration of power, is outlined in the next section. Competitive Conditions The chocolate confectionery sector is particularly concentrated between the three leading manufacturers who possess long established brands. Cadbury, Nestlé and Mars (Masterfoods) accounted for a combined value share of 77.5% in 1999; by 2002 this had increased to 80%. In the block chocolate segment Cadburys are the most successful with a market share of 53.1% primarily due to the leading brand in this segment Cadburys Dairy Milk (Simms 2004)). The economies of scale afforded by the international resources of these leading firms make it increasingly difficult for smaller national players to compete in terms of price, distribution, range of products and marketing spend (Euromonitor 2003). For example Nestle UK spent £9million on the launch of Kit Kat Chunky (Mintel 1998). To compound these competitive conditions Green & Black’s were already in the UK chocolate market with the first ever Fairtrade chocolate product Maya Gold launched in 1994 which contains 70% cocoa solids and tropical spices creating a specialist flavour. This concentration of power is also exhibited at retail and independent distribution level, according to Mintel (2003) approaching 43% of all chocolate confectionery is now sold in the UK is purchased via multiple supermarkets compared to 39% in 1998. Euromonitor (2003) attribute this rise to the leading retailers working in conjunction with confectionery manufacturers on large national in-store discounted price promotions of branded chocolate products. Buying decisions for entire UK supermarket store networks are made centrally by category buyers and not at individual store level. David Croft Head of Co-op Brand & Technical at CRG argues that gaining any distribution in this sector is incredibly difficult “retailers are not going to jeopardise large annual overrider payments of up to one million pounds by stocking a new untried brand” (pers comm. 2004). The author’s explain that overrider payments are annual financial bonus incentives paid by manufacturers when retailers and wholesalers achieve a pre-set sales volume target. Despite a decline in chocolate sales via independent CTN’s (Confectioners, Tobacconists and Newsagents) from 16% in 1998 to 12% in 2002 the major manufacturers still maintain sales representation even at this level The author’s explain that the head of buying in one large wholesaler supplying chocolate to the independent sector acknowledged that he had “too much too lose in annual overrider payments and would not stock Dubble”. This concentration of power manifest’s itself in the form of the concept called “category captains”. Joanna Blythman (2004) explains that a supermarket retailer will appoint a major supplier to their particular category say confectionery as a category “captain or partner”. The “captain” is charged to manage the product category jointly with the retailer, to decide product offering. For the category captain there are obvious advantages such as sight of competitor marketing plans, which, is a concern for leaders of Fairtrade companies (interviews) due to the nature of the Fairtrade differentiation. It also provides major suppliers with even more greater resources and strength. Retailers stock thousands of products in their stores; working with manufactures with specialist knowledge is seen as an advantage. Day’s first listing in October 1998 was in a major supermarket retailer, however despite a reasonable sales performance Day received a short fax in January 1999 explaining that in a range review supervised by a major manufacturer (category captain) that Divine along with a number of other products including Toblerone from Kraft Jacob Suchard had been de-listed from the product range. This initial setback highlighted the challenge for Day and provides evidence to justify the concerns of senior managers in fair trade companies. In addition to these market conditions we have already established that Day pays more for its cocoa. Day as part of its mission also pays a percentage of its turnover in producer support and development of Kuapa farmers and also a percentage of list price to the Fairtrade Foundation for use of the Fairtrade Mark. The article will now examine the progress of this new small Fair Trade start-up, which launched with one product, Divine milk chocolate in October 1998. This paper now turns to discuss how DCC is performing towards its key objectives. Progress Towards Business and Social Objectives To mainstream a quality and affordable range Of Fairtrade chocolate Excellent quality chocolate using natural ingredients (real cocoa butter and natural vanilla and GMO Free) matching the taste profile of the UK consumer has enabled chocolate consumers to switch to Divine Fairtrade chocolate. Findings from both consumer trend and tracking research and consumer sensory evaluation studies carried out between 1999 –2003 demonstrate that the Divine range of Fairtrade chocolate meets the critical success factors of quality, taste, texture and appearance preferred by the UK consumer. Interviews with key retailers and key stakeholders such as the Fairtrade Foundation identify the taste profile of Divine and Dubble as key to mainstreaming Fairtrade chocolate. Ian Bretman (Deputy Director) at the Fairtrade Foundation argues that “ Day got the taste profile right to compete in the mainstream, this meant that Day was able to focus resources more on its unique Divine Fairtrade “Bean to Bar”story. In contrast Green & Black’s have spent resources trying to persuade people towards their taste profile” (pers comms). The position of Day is clear, the more people who switch to Fairtrade the greater the benefit to farmers. Day now boast a Divine range that totals some 15 products including Darkly Divine (70% cocoa content) launched in 2002 in response to growth in the 70-80% cocoa solids product segment (see section on market trends). The Divine range is shown in figure 4; in recent taste tests carried out by leading chocolate experts Divine performs very well (Telegraph 2004). In addition to the Divine range Day launched in partnership with Comic Relief the first ever Fairtrade chocolate snack bar for young people in November 2000. Dubble was launched in conjunction with both a major education pack on Fairtrade and the dubble.co.uk website as the vehicle’s for concretising for children some of the complex issues surrounding Fairtrade. In addition to the branded products (Divine and Dubble) Day has also developed a sizeable supermarket own-label business. In November 2002 in an historic move the Co-operative Retail Group entered into a “truly co-operative “ venture with Day which, resulted in the Co-op switching all its own- label chocolate business valued at £3 million retail to entirely Fairtrade sourced from Day. Sales of this new Co-op range in comparison to the previous own label range have been nothing short of outstanding, in 2003 sales increased by 21% despite a decline in branded sales of 1.1%. In the first 16 weeks of 2004 this trend continued with a growth in Fairtrade own-label of 36% compared to a decline in branded products of 15% (pers comm. 2004 Brad Hill Marketing Development manager). In addition to the own label Co-op range, Starbucks Coffee Company now sells three Fairtrade chocolate bars that are also sourced from Day. To raise awareness of Fairtrade issues among UK retailers, consumers of all age groups, retailers, manufacturers and Governments Day aims to excel at marketing communications, chocolate provides an easy and popular way to understand what Fairtrade means and what it can achieve. Brad Hill (Marketing Development Manager at the Co-operative Retail Group) agrees and explains, “ a key strength of Day is their excellent ability to communicate their unique story and achieve impressive media coverage ” (pers comms). Day is the first UK fair trade Company to advertise on TV and the first through its partnership with Comic Relief to bring an awareness of fair trade to young people. This collaboration with Comic Relief has resulted in production of an award winning ‘Papapaa’ school education pack used now in 15,000 UK schools and the sponsorship indents for the first Celebrity Big Brother. Also the first TV advertising campaign for Dubble Fairtrade chocolate was produced by bringing together Comic Relief, Nickelodeon TV, pop star Samantha Mumba and the Funday Times (Sunday times Newspaper Children’s supplement) to launch a competition for young people to create a TV advert which was screened on Nickelodeon TV for a whole month in 2001. The above are just a few media highlights resulting from Day’s innovative approach to public relations. A selection of key media highlights from 1998-2004 are identified by Day are presented in Appendix 1. From consumer trend and tracking studies carried out in 2001 the impact of the investment in marketing communications can be seen. Fully two thirds of Divine consumers surveyed stated that Fairtrade awareness coupled with widespread availability of Divine and Dubble had reduced their consumption of other chocolate. In the same consumer study the results show that eleven percent of Divine supporters had come to Fairtrade for the first time and forty percent of Dubble consumers had never purchased a Fairtrade product before. From the Fair Measures Survey carried out with 9,000 school children in 2003, thirty percent said they had consumed Dubble Products. Eighty per cent of those consumers highlighted taste as the number one reason for purchase, fifty percent identified Fairtrade as the key factor and forty five percent identified the association with Comic Relief as the main driver. Retailer interviews revealed the positive impact of Day visiting buyers to present the Divine story and discuss Kuapa Kokoo (even bringing farmers from Ghana to visit UK retailers). Retailers are impressed with the supply chain and its traceability, but also have acknowledged the associated “halo effect” of DCC and their own brands. To be highly visible and vocal in the chocolate sector and thereby act as a catalyst for change Divine and Dubble are now available alongside the major chocolate brands in over 5,000 UK retail outlets. In addition to some supermarket retailers, Day has taken Fairtrade products into new mainstream distribution including Woolworth’s, Blockbuster video stores and major petrol forecourt chains. Initial breakthroughs in distribution during 1999 included the decision by The Body Shop to sell Divine in its 254 high street stores during Easter 1999. Then in late 1999 Day launched a promotion with Sainsbury’s supermarkets and Christian Aid supporters which involved a special feature in the Christian Aid Action mailing accompanied by a 20p price reduction coupon only redeemable in Sainsbury’s. This resulted in an unusually high coupon response rate for redemption persuading Sainsbury’s to increase the distribution of Divine from 70 stores to 343 stores. Further leaps in distribution were achieved at the launch of the Dubble Fairtrade chocolate snack bar in November 2000 which was the first ever Fairtrade product for young people. Day won distribution in newsagents, vending machines and some regional convenience store chains. Then at the launch of the Co-op own label range Day was able to add another 3024 UK stores to its rapidly expanding list of outlets stocking Day products. The success of the partnership with the Co-op (see above) has provided the business case for the Co-op to continue with its Fairtrade own label programme. David Croft Head of Co-op Brand explains “The relationship is a real partnership with Day. We both have a shared vision and a shared ownership perspective of key issues. Discussions are easier and there is a greater degree of flexibility in the relationship in comparison to the major players, which actually means the relationship between the Co-op, and Day is stronger. For example the relationship with the major players is based on the need to make more money. With Day it is a different level of relationship, of course there is a need to make money but what we are doing together is much broader than just making money. This is illustrated by a number of actions including the funding by the Co-op of marketing initiatives to promote Fairtrade such as TV Advertising campaigns, instore advertising and sampling. Normal practice with major players is to expect full funding on their part for these type of initiatives. The Co-op we estimate has spent approaching £3m on the marketing of Fairtrade products. This figure does not include marketing activity to our membership of 1.3 million members. We are convinced that our funded marketing activity has assisted in mainstreaming fair trade and as probably been a key factor in stimulating other retailers such as Tescos to stock fair trade lines” (pers comm. 2004) Day is also a member of the chocolate industry’s representative body, the BCCCA (The Biscuit Cake, Chocolate and Confectionery Association) and has always looked for opportunities to bring Fairtrade issues before fellow members. Day presented to the BCCCA annual conference 2001. The progress towards these business objectives as resulted in the sales performance shown in figure 5 below. Regarding market share Divine milk chocolate records a market share of <1% within milk chocolate blocks. However Darkly Divine 70% cocoa content launched in 2002 has achieved an impressive market share in value terms of between 2-3% in the 70-80% cocoa solids block segment. It is worth noting here that this market share figure would increase if calculated in volume terms due to lower retail price point of Darkly Divine compared to more expensive products in the same segment. Figure 5 The Day Chocolate Company sales performance 1999-2004 (source Day Chocolate Company accounts 1999-2004) Sales (£million) 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 1999 2000 2001 2002 2003 2004 It is important to now investigate the impact of this sales growth of Fairtrade chocolate on Kuapa. Impact of Fairtrade on Kuapa Kokoo Ghana As Day has succeeded in growing the market for Fairtrade chocolate, it has been able to buy increasing quantities of cocoa at Fairtrade prices. Kuapa’s Fairtrade income and additional social premium has grown year on year accordingly giving it a solid and stable base on which to grow and develop its business and improve living standards of its members. The governance structure means that KK members owns shares in a UK company, have influence over the end product in the market place and have developed an excellent understanding of the trading chain. Kuapa’s profile in the marketing communications of Day has in part led to the development of Kuapa’s international reputation as a successful business. From the Monitoring & Evaluation research with Kuapa members in both 2001 and 2003 some of the key impacts of Fairtrade on Kuapa Kokoo objectives are summarised in table one Table 1 Fairtrade Impact INTERMEDIATE OBJECTIVE To Provide a Forum for the empowerment of Farmers To provide incentives & opportunities for financial gain To build organisational capacity of societies To provide social Infrastructure IMPACT KK is strongly represented at the national level in Ghana Ownership structure of KK and DCC creates an increased sense of control over developmental process 30 % of Kuapa members are now women. Women representation at all levels of the co-operative from village to national executive have increased Since 1993 KK has received just over $2million in extra Fairtrade premiums Part of this premium has been paid has extra income to farmers. This is equivalent to the annual primary schooling costs for some 250,000 children. In Kuapa Kokoo Annual Report for 2003 Fairtrade volume sales had more than doubled. High awareness of Credit Union benefits, 46% of farmers are now members of Kuapa Kokoo Credit Union compared to 33% in 2001. This is permitting farmers to engage in alternative livelihood activities Some 40% of projects have at least initiated projects on their own Society executives are being trained in keeping consistent records & minutes but need further training. The majority of Kuapa’s development activities impact on non-members of Kuapa as well as Kuapa members Over 100,000 people (members & non-members) in communities with Kuapa societies have received free medical care & prescriptions via mobile clinics. This medical care is achieved by using medical students who are in turn sponsored by Kuapa to complete their medical degrees. Four new schools have been constructed and each serves children in a 4km radius 19% of all village societies now have access to clean water. Families are experiencing benefits such as reducing incidence of water borne diseases, water wells in villages also reduces the walking time to fetch water (4 hours per day) which often means that girls have more crucial time for education such as attending school and time for homework. Interviews with parents & children indicate that the school building projects has improved pupil attendance and quality of education Women’s IG projects have awakened entrepreneurial spirit in the women members leading to 28 new projects in 2003 compared to 19 in 2001. New initiatives include soap making for export and growing vegetables It is evident from the summary above that the impact of Fairtrade and this unique business model are far reaching and are not only focused on the price premium component. Conclusions The capital, expertise and market understanding for a primary producer group in the south marketing a consumer good in the North are overcome by Day’s unique governance structure, this appears to support the work done by Page & Slater (2003). The principal problems facing a new Fairtrade start-up chocolate company are the highly competitive forces, which prevail in this sector dominated by large corporations with pre-eminent brands built on decades of expensive advertising spend. In particular the challenge of gaining distribution was initially resolved by the presence of the national high street retailer The Body Shop in the ownership structure. Both Christian Aid with their active network of consumers and Comic Relief with their strong brand and innovative approach to marketing have assisted in raising both consumer and retailer awareness for the Fairtrade chocolate brands Divine and Dubble and have therefore overcome some of the problems associated with a low marketing budget in such a market sector. Marketing a Fairtrade product involves ensuring developmental processes and verifying Fairtrade standards. The work done by both Twin Trading and Kuapa Kokoo have been key to underpin the Divine “bean to bar” story so important in helping Day to excel in marketing communications. A public relations strategy based on both the unique story and excellent tasting chocolate has enabled Day to achieve both above and below the line media coverage beyond expectations. Day has created marketing networks to develop TV advertising campaigns on satellite TV and also sponsorship of high profile TV programs (see appendix one). The unique story was also sought by the Co-operative Retail Group to play a key role in their “Responsible Retailing” strategy, which resulted in an historic switch of all their own label chocolate business to Fairtrade and a major international media feature on BBC News 24. Another key to mainstreaming Fairtrade chocolate is the taste to match the British palate, Day now boast a Divine range of 15 products, which have attracted acclaim for their excellent taste. It is interesting that currently Darkly Divine is outperforming Divine milk chocolate in key retailers and is rapidly growing its share of the 70-80% cocoa solids block chocolate segment with initial calculations showing a market share of between 2-3% in this segment. These achievements in communications and product quality have led to a wide and diverse distribution of over 5,000 UK retail outlets. Day is the first fair trade company to bring Fairtrade chocolate into the mainstream UK market. It is the first to bring an awareness of Fairtrade to children and teachers and the first to advertise on TV. After five years Day demonstrates a viable business model achieving both its social and business objectives. Robins and Roberts (2003) argue that sustainable trade takes place when the international exchange of goods & services yields positive social, economic and environmental benefits. This paper shows that The Day Chocolate Company demonstrates an excellent case for sustainable trade and through its governance structure shows that new thinking in international trade does work! APPENDIX 1 The Day Chocolate Company Media Highlights 1998-2004 (source The Day Chocolate Company Media Library) PROMOTIONAL ACTIVITY Divine Launch 45 gram Divine Bar Cover Mounted Three page spread Fair Trade Fortnight Body Shop Promotion Iceland (supermarket) Promotion Divine 1st Birthday Celebration Key Note Speaker: Clare Short Minister Overseas Development Kuapa Kokoo and Fair Trade chocolate (In association with Christian Aid) Second piece: launch of Dubble, Fair Trade and Kuapa Product Sample Cover mounted Divine DCC short listed for Business in the Community innovation award MEDIA SOURCE Breakfast TV News BBC Lunchtime News BBC 6 PM News BBC News 24-hour (twice) ITN Channel 5 News SM TV National Print Media Vegetarian Magazine DATE 0910/1998 OUTREACH National televised coverage 03/1999 Monthly circulation 200 000 Ben Elton TV Advertisement 03/1999 Re-cut 03/2000 Ben Elton TV Advertisement The Express Newspaper Extensive coverage 11/1999 Over the two weeks of airing, it occupied 14 national and 44 other regional slots An estimated 5% of population (9.5 million people) watched the advert at least once The highest exposure was to women (17%), 16-24 year olds (17%) and adults Over 55 (20%) 43 TV adverts Channel 4 10/1999 Average Net circulation: live 963 433 BBC Newsround 11/1999 Approximately 1 million viewers 10/2000 Good Food Magazine 03/2000 07/2001 45 000 issues sold specifically to Sainsburys Average Net circulations: 231 46211 467 564 10/2000 Circulation: Independent on Sunday Financial Times Dubble Launch Cover mounted 8 week double page spread Smash Hits Dubble Launch Cover mounted 8 week double page spread Match 250 000 10/2000 Circulation: 100 000 Double page spread Dubble The Sun 10/2000 Cover Mounted The Big Issue Scotland 11/2000 Body Shop Promotion Divine Chocolate 03/2001 The Mirror M Mag Woman Bliss Sugar Girl About Town Average circulation: 3 601 410 Circulation: 45 000 Circulation 2 million + 600 000 + 300 000+ 400 000+ 85 000 + national Dubble Indents Product sponsor for Celebrity Big Brother Celebrity Big Brother 03/2001 Chocolate Competition Daily Mirror 07/2001 TV Advert Competition TV ad campaign on Nickelodeon TV Double page feature in Feature in Funday Times BBC News 24 GMTV- Loraine Kelly 0506/2002 11/2002 03/2003 International coverage National coverage Observer Food Monthly- 7 page feature BBC Newsround TV & Website September 2003 11/2003 Circulation 9/2003 National Coverage Daily Telegraph 03/2004 Circulation 1 million plus Co-op Story Fair Trade Fortnight Kuapa Kokoo Uk farmers visit Kuapa Kokoo Tenth Anniversary Feature Kitty’s (school pupil) Daily Diary of visit to Kuapa Tenth anniversary Tour in Ghana Divine taste test 1 program/night 7 nights Channel 4 10 million + viewers Average Net circulation: 2 225 015 Competition entries received: 4 000 64 ad features on Nickleodean TV Funday Times Circulation REFERENCES Blythman, J. 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