Scharffen Berger Returns to Private Ownership

Premium chocolate company Scharffen Berger Chocolate Maker has returned to private ownership following its acquisition by The Hershey Company in 2005, the company announced last week.

The company will refocus its business on baking chocolate under the leadership of new owner and CEO Paul Cherrie, a confection category veteran, with founder John Scharffenberger returning as advisor. Terms of the deal were not disclosed.

Cherrie, former Concord Confections president who oversaw the sale of the company to the Tootsie Roll Company in 2004, bought Scharffen Berger with additional financial support from Hampton Roads Capital after Hershey announced plans to divest the brand last year. His plan is to return the company’s focus to baking, through consumer-facing products, as well as revive its ingredient supplier business to bring Scharffen Berger “back to the roots” after it became “lost in the shuffle” among Hershey’s larger confection brands over the years.

“I think [Hershey] recognized that it was a misfit as much as I recognized it was a misfit,” Cherrie said.

Scharffenberger, a sparkling winemaker who sold his brand Scharffenberger Cellars to Moët Hennessy Louis Vuitton in 1995, founded the Scharffen Berger chocolate brand in Berkeley, California in 1996 with physician Robert Steinberg. He grew the brand to offer a variety of premium baking and tasting chocolate bars and chunks as well as cocoa powder. As a “bean-to-bar” chocolate brand sourcing cacao beans from countries like Madagascar, Indonesia and Jamaica, Scharffen Berger was the first U.S. chocolatier to prominently feature the cacao content of its chocolate on its wrappers, according to the Los Angeles Times.

The brand was an “instant hit,” upon launching, Cherrie said, and soon caught the eye of Hershey, who acquired it in 2005 for a reported $50 million. Hershey combined Scharffen Berger and another California-based confection company, Joseph Schmidt Confections, into a subsidiary called Artisan Confections Company, and in 2009 moved their production from California to Illinois, laying off approximately 150 production employees.

While Scharffen Berger’s strength was in the baking aisle, this was an area that Hershey was not very adept in, Cherrie noted. The brand was also much smaller than other Hershey-owned companies and thus “didn’t get the attention it should have,” Cherrie claimed, which affected its business performance. Following the acquisition, Hershey also parted ways with Scharffenberger, a move Cherrie said ultimately made Scharffen Berger “a different business.”

“The most important asset that Hershey acquired was John Scharffenberger himself,” he said. “Not the brand, not the formulations — it was the entrepreneur. And unfortunately, like a lot of big companies, they didn’t recognize that.”

Hershey CEO Michelle Buck announced in April of 2020 the company’s plans to divest Scharffen Berger and organic chocolate maker Dagoba, as well as jerky brand Krave, which it sold to Sonoma Brands the following month. She said that while the brands “continue to resonate with consumers,” they ultimately “require a different go-to-market model that we believe is better supported by other owners.”

Now under Cherrie’s leadership, the brand is refocused on baking, and aims to establish broader distribution in new geographies, zeroing in on the natural and specialty channels, while also growing its ecommerce presence. As a premium brand, its baking chunks are priced at $5.99 per 6 oz. bag, higher than competitors Lily’s (whose acquisition by Hershey closed last week) and Ghirardelli, but Cherrie said the brand plans to compete with other brands on quality, rather than price, Cherrie said. The opportunity for this growth is clear, as the Specialty Food Association predicted in its recent State of Specialty Food Industry report that baking mixes and ingredients will continue to see growth through 2025 following a notable sales boost during COVID. Cherrie said the brand plans to double down on its current offerings, particularly in dark chocolate, rather than cater to the low sugar trend others are perpetuating in the baking aisle.

“I’m not interested in chasing trends. There are a lot of trends that have come and gone through the category,” Cherrie said. “And surely the low sugar stuff at the moment is enjoying tremendous interest. I’m not interested in compromising our product quality for the achievement of low sugar — it just isn’t what I want the brand to be.”

The recent M&A activity in the premium chocolate category, including the acquisitions of Lily’s and Hu earlier this year, have demonstrated “keen” financial interest in the space, Cherrie noted. He said Scharffen Berger will likely build on this momentum in the space with brand acquisitions of its own to establish “a bit more heft” as it looks to regain its footing in the premium segment.

“We certainly view this as a platform to try and grow the premium chocolate business and I think [the premium segment] is where the growth of the chocolate category is going to come,” Cherrie said. “I think people are eating less but better quality chocolate, is what I’ve seen in the market, and I don’t expect that to change.”