Hello, and thank you for joining. I am Melissa Travers, Director of Community here at BevNET & NOSH, and I am pleased to welcome you to The Nombase Podcast. Don't forget to check out nombase.com, BevNET's platform built for the CPG community. It's where you can find episodes of this podcast, our partner directory, a press release hub, and so much more. So please do go over and check that out. Today we're diving into a major operational challenge facing brands. Environmental issues have already made sourcing key ingredients tough, and now tariffs are making some ingredients nearly impossible to procure. It's all over social media and the news, and for smaller brands, this double whammy is making it even harder to stay afloat. His core ingredients become harder to find and more expensive. Joining us in this discussion today are Christian Quie, VP of Sales at ChocXO, and Lillard Anthony Wong, co-founder of Owlvericks Coffee. To share how they're navigating these disruptions and how it's shaping the future of their businesses. Well, thank you both so much for joining. Chocolate and coffee are maybe my two most favorite things in the entire world. And I'm terrified that these things may be challenged. So I really appreciate both of you joining today to give us a behind the scenes look in how these challenges are affecting your businesses. I'd like to start with a couple intros first. Lillard, let's start with you, please. Owlvericks is a generations long business, right? Please tell us a little bit about your role in the business itself. Yeah, sure. Owlvericks is a coffee company. We're a roastery out of Anaheim. It was started by my wife, Amy. She's a third generation coffee roaster. Her grandfather was a roaster in Vietnam. And then her father brought the trade here to Anaheim in the 90s. And then she started our Owlvericks brand eight years ago. And we've been making craft coffee ever since. And I joined probably a year after she started this. I do all the operations. So I'm COO over here. She's CEO. Yeah, we're just focused on making really smooth coffee. That's what we do. Well, I hope you can continue to do that with as little disruption as possible. Mike Schneider, our CMO, told me that he had been talking to you about some of the challenges that you are facing. So thanks again so much for joining us. Christian Quie of ChocXO, thank you for joining. I think I met you actually at NOSH Live this past December. Then at Expo West, you had me do a truffle tasting, which was maybe my favorite thing of the entire show. Please tell us a little bit about your role at ChocXO and ChocXO itself, of course. Well, thanks, Melissa, for having me. It's a pleasure to be here. This is my first time doing a podcast with you guys, so excited about the opportunity. ChocXO is a truly indulgent, lower-sugar chocolate based out of Canada. I actually live in West Los Angeles in Culver City, but our operations are out of Vancouver. All of our cocoa beans are sourced from South America, specifically the Dominican Republic and Peru, which is naturally sweeter, more fruitier cocoa beans, so you need really less sugar to make it taste amazing. Almost all chocolate in the world comes from West Africa, which we'll talk about, Ivory Coast and Ghana, almost 70 percent, a much more bitter and astringent experience. We're really excited that we found this great source in South America to make an organic chocolate. I had sales for the organization and it's an exciting product like you mentioned, sampling truffles. We could be selling kale chips, but we're selling chocolate and Lillard, you're selling coffee. Two things people love and it's really fun to talk about and work every day. I really have been so impressed by how ChocXO makes a lower sugar chocolate. It truly doesn't feel like you're missing anything at all. Thank you both so much for joining us. Lillard, we actually had some Owlvericks Coffee in our BevNET Cafe. It was absolutely delicious. Can you give us the full story on how the coffee that you're sourcing is becoming harder and more expensive to procure? Certainly, we've heard about all the environmental issues that are affecting coffee. How has that impacted the way that you do business? And then add the tariffs on top of that. We probably have to start pre-tariff. The two biggest producers of coffee in the world are Brazil, who produces about 38% of the total supply. They focus primarily on arabica beans. And then you have Vietnam, who's the second largest producer. They make up about 17%, 16% or 17% of the global supply. And they do primarily Robusta. So our issues on the cost sides started in 23. Both countries at the same time experienced severe drought in 23 and 24. And so when you have the top two producers, you know, reduce in their in their yield in such a dramatic way, it affects total supply across the board. So as as the year went along in 24, we saw 75% increase in in pricing just in that year. So this is pre-terra. This is only in calendar year 24. So we were already like, hey, this is too big of a of a cost increase for us to absorb. And so we had already kind of started to look at price increases to our customers in January. And then, you know, the new administration came in and started talking tariffs, which they they had been doing during the previous year. And so that increased it even further. So now today we're at 100% increase in cogs since January of 24. So that's impacted our cost side by a significant amount. So that was your first question. It was an environmental thing that was affecting crop. And then on the demand side, emerging markets have actually started to drink more coffee. So demand is up. And Americans have no shortage of coffee demand either. So, you know, basic economics, lower supply, higher demand. That's why we're seeing 100% increase in costs of coffee. So that's a 100% increase. Is that holding steady or does it fluctuate day to day, week to week? So it's definitely daily. So Amy looks at it at the coffee market every day and it's the intercontinental exchange. So when I'm talking about prices, it's like the commodity price for coffee. And that's traded on futures. And so when we're talking about the commodity price, there's a premium built in to like single origin or if you're doing graded coffee. But the kind of the ticker gives you an estimate of how expensive coffee is gotten. Is Amy, your co-founder, just glued to the computer all day long? Every day. She was already doing this daily anyway, but the volatility had definitely made it more difficult. I mean, we're seeing spikes like crazy, right? Spikes and dips. So in February, it hit $438, which just to give you an idea, January of 24 was 183. By the end of 2024, we're at 321 and there's this invisible barrier at 350. Everybody was like, we're never going to go above 350. It's never been done. We blasted through 350 and 400 easily in 2025. We hit a peak of 420, I think 428 in February. Then when the tariffs were announced, it actually came back down, I think, to accommodate people who knew that that built-in tariff was going to affect demand a lot. So it actually came down to 369, which it is at today. And that's still ahead of that ceiling that we just talked about, that kind of invisible ceiling that was never breached in 50 years. We're now sitting above 369 easily. Whereas in 2023, we were about 160, 170, 180. So it's been a roller coaster for sure. And how are the tariffs affecting Owlvericks specifically because you're sourcing your beans from Vietnam? I know from country to country, that's a little bit different. Anecdotally, we have some funny stories about our distributors who are not small, the green bean distributors. And that when the administration was fighting with Columbia, they told us, we can't sell you any Columbia today because we don't know what's happening. So, that's been a roller coaster for sure. Wow. Well, excited to get into a little bit more about how that's specifically impacting the business. Christian, let's hear a little bit about how ChocXO's timeline has aligned with these two issues. First, the environmental factor and now the tariffs. Yeah, and just in hearing Lillard's story, it's a mirror to a lot of what we're experiencing in the cocoa world. Yeah, but to go pre-tariffs on the environmental standpoint, the cocoa crop, like I mentioned, is primarily valued on the African crop of cocoa in those two countries. And last year, there was actually too much water, so there was root rots, the crop was small, and there was concerns. To anchor a little bit in terms of pricing, historically, cocoa is traded on the London Exchange on a metric ton, so it's $3,000 to $3,500 a metric ton. Through that volatility, it went up to $12,000 a metric ton. And good luck trying to price a product in that type of environment. The other dynamic, though, was that speculators were flooding to the cocoa market, and the anecdote I like to use is, I think some of us invest on the side, you put it $1,000 into NVIDIA last year, you'd actually make more money on cocoa because of the increase it experienced. So needless to say, you've been hearing about price increases in the chocolate market because it's a real tangible dynamic when such a significant part of your product is tied to that. Well, then, as Lillard mentioned, the new administration started in January and it has been a whiplash event. If you recall, we're a Canadian company. So unfortunately, there's not been the greatest Canadian-US relations over the past 90 days, for no fault of any country except some of these policy discussions. So there's literally on again, off again, on again, off again, we're going to have tariffs across the border, we're not going to have tariffs, we're going to have tariffs. It's been very challenging and a lot of, I think, wasted time on scenario planning, we're not building the brand and trying to execute our strategy of trying to just navigate some of these what ifs. So currently, we are in a position where there is not a tariff, but that could change tomorrow. So that's where we are today. How do you plan for the future, even if the future is next week, how do you know what to pay attention to and to start planning for versus what's just wasted energy? Yeah, that's a fair question. I mean, a couple of things. The first is in terms of planning our ingredient supply, unfortunately, we're not buying cocoa in the spot market. We do have a large purchase power. So we are hedging our purchases and purchasing different tranches of futures to offset. So as Lillard mentioned, as you're watching the ticker, so to speak, each day, we're watching the cocoa market. And when there's a dip about 10 days ago, we went to market and made a purchase. And now again, in the last six days, we're up 15% again. So it's unbelievably volatile, but you do the best you can with trying to hedge for future purchasing when you see that opportunity. In terms of the economic tariff dynamic, we're trying to do as much as we can long-term with some solutions in the US which I think we'll get into. But in the short-term, it's really working with our partners to maybe build up some US supply, talking about our distributors and looking at how their purchasing frequency is, maybe shifting some warehousing across the border, if you will. So doing some things in the short-term that we can control without adding costs that make it unprofitable to sustain. The contracts that you secure in order to secure your future, do you find that those are always infallible or if there's something like a set of tariffs being applied or if there's a huge weather event like a drought, are there loopholes where perhaps your contracts fall through? Yes, back on Wood, ours have been in a positive sign, but there's countless stories right now where farmers are, I mean, you kind of blame them, but you don't blame them. They're giving an opportunity to honor a contract from a year ago, let's say 5,000 metric ton, or they can sell in the spot market for double that. They've got a family to feed. Sometimes they're just taking the money short-term, so then those that had purchased that contract a year ago are left holding the bag. And that dynamic is still happening, which is really challenging. But again, when you have these outside forces with speculation, that's really not driven by supply and demand, causing these highly inflated prices, some tough stuff's happening on the ground. So one of the dynamics is shifting some of that production and supply from West Africa more to South America, which is great. Unfortunately, those cocoa trees don't mature overnight. It takes 4 to 5 years for them to mature. In the longer term, it will be a much better supply chain for all of us chocolate lovers, but there's going to be some bumps before we get there. And are you, for example, competing with the Hershey's and the Mars of the world? Absolutely. Now, because of their purchasing power, most of their chocolate is purchased from West Africa, and the price of South American cocoa beans is directly correlated to West Africa. But we've got great relationships on the ground in Peru and the Dominican Republic through our cocoa providers. That's helping us right now offset that risk, but we are seeing more and more of those incumbents come to that part of the world to purchase cocoa, to offset the risk from Africa for sure. Lillard, how does the coffee buying market work? Is it similar to cocoa? I mean, it sounds like Amy's watching the numbers every single day. How does that process work? It's actually very similar to what Christian was talking about. We make spot purchases, but then we also have contracted purchases, and so we hedge a lot too. Especially since January, in the last four months, it's just been so insane. It's all-time highs, and then it dips a little, and then that's when Amy makes a move on purchasing that day. So we're looking at it every day, all the time. The issue has also been, I don't know if, Christian, you've experienced this as well, is that on the supply side for us, so the distributor side, they're going really lean too, because everything is so expensive. So as a roaster, we're a little bit leaner than before just because COGS is so high. And so like stockpiling stuff, when we are a small business, it's pretty difficult, right? Because that's a lot of cash that's out. So we've been hedging up and down as best as we can with just eagle eye on the market. And to build on that, a similar nuance dynamic is, because cocoa processing is expensive, some of the smaller processors finance their beans, but they're not able to get financing because the costs are so high from the bank. So some of those smaller size would be equivalent to a distributor, for instance, they can't even do that. So you're left with the cardins of the world who are getting pretty healthy from all of this. And the smaller guys unfortunately can't compete because they just can't afford to finance the price of production. Right. And actually, there's a funny thing. We just got regenerative organic certified in 2024. And so we made a rather large purchase for a company our size of regenerative organic beans from a single farm and contracted that price. And now, it's probably our cheapest coffee. And we had bought that at a premium at the time, you know? And that's just how it's gone since, jeez, September of last year, where we were like, oh, we'll pay a little extra because we want to do, try this regenerative, you know, we believe in the regenerative process. And so we made this purchase and now it's like, it looks like we're genius, you know? Because that pricing contractually is terrific compared to anything you could buy on the market right now, even non-organic, like not even organic certified, not even regenerative organic certified. I'm talking about like conventional coffee. You can't buy it at the price we bought regent at. So that's how it's gone. I mean, Christian, you did Forex Cogs. I thought we were about at 100% Cogs in the last 16 months. And both of you have highly differentiated products in the certifications that you both hold. So Owlvericks, I know you're USDA organic, regenerative. Christian, what are ChocXO's certifications? Yeah, also USDA organic certified. So, and then dark chocolate can be non-GMO project verified. So we're that as well, gluten-free, kosher, plastic neutral. But in terms of the cocoa sourcing or certified organic is the primary certification. And again, the similarity between these categories is very real. The price to get a certified organic cocoa typically is 30 percent minimum. Now the spread is very, very narrow because there's just nothing available on the conventional side. So conventional prices are highly inflated. It's also carrying over to the cocoa butters of the world, to the white chocolate. So people are looking at other alternatives with are typically much less expensive than dark chocolate. Those have inflated as well. So anything that has cocoa in it or cocoa butter is highly expensive. Lillard, how much time do you and Amy spend dealing with these sourcing challenges? And what does it look like? Like how do you communicate with each other? How do you communicate to your customers? How do you manage the whole process? Well, like I mentioned, Amy is watching Green Coffee every day. A lot of the days, especially since the beginning of the year, since we reached all this volatility. As far as if we want to go into the customer and client side, we could talk about that. In 2024, we experienced that 75% increase. So in January, we were already talking about increasing the prices. We always try to absorb some of it so that our clients aren't on a roller coaster with us, but 75% we definitely were, you know, reach out to everybody across the board and had to increase prices. I think we're just really relationship driven. So we're communicating very openly, especially with food service partners. We tell them, hey, you know, we're not, we're not gouging, you know, we're not making any more money. We just, this is part of our inputs and we're a single input brand. And so coffee, when coffee goes up in such a significant way, we're going to have to increase prices. So for the most part, they've been really understanding. We have great relationships. We consider everybody, we work with a partner. So we don't want anybody to fail, you know, of course. So I remember one, one chain that we're, we're close with. They said, hey, can you give us an extra 15 days? We got to reprint menus. And I'm, you know, that's a pretty reasonable request. So of course, you know, we're going to do what we can to accommodate a customer like that. So we definitely are really transparent with customers. On the retail side, it takes about 90 days to implement a price change. So we were very open with buyers in the, in the big chains, like, hey, this is what's happening. I think as, as more coffee companies came in and said the same thing, it became kind of accepted, but our price change from January is probably hitting the shelves right now. And we're already going to have to look at an additional price change. Because since January, we've seen a 15 to 20 percent increase again, due to the tariffs and also inflation and just the retracted supply side. So I think the grocery side is, is, is a challenge in a different way. Like they, they, the buyers have to understand, like, what's happening in the, in the macro sense. And I think that they do a pretty good job as, as the brands go, go and implement price increases at the same time. It's not like, you know, we are uniquely affected by the price increases lately. So unfortunately, I think you're going to see $25 bags on the shelf. Nobody wants it to be there, but there's no way we can do anything else. Or I would say we as a collective like as a coffee roaster. I think it's unfortunate, but we have to stand for a certain amount of quality. And if that's what it's going to cost to put it out, that's what we have to charge, right? Yeah, I'll build from that and then go back to a point you made earlier. You know, one of the metaphors our owner likes to talk about is at a certain point, you're no longer going to afford to put premium gas in your car. You just can't afford it, so you're going to go back to Atlanta. And in an indulgent category like chocolate that is highly discretionary, what is the tipping point? There will be some pullback. I think that's why you're seeing, you know, private label and other parts of our business really bolster right now because that's more value focused, so we're grateful to have that diversification. But at the same time, we know our loyalists love high quality, great tasting, low sugar chocolate that they can feel great about eating. So it is that rub. Is that consumer going to be as broad across the natural channel as it is in grocery? Probably natural channel will be still the king for us, and there will be parts of the natural channel that we want to make sure that we're highly focused on. But there may be retailers that, you know what, maybe now is not the time if the price point gets to a point that is too high. But to go back to the other dynamic around your question, how much we're talking about pricing and commodities. Look, my sales team, we like to sell. This is what we like to go do. But we've also become experts in commodity pricing and sourcing. Unfortunately, because the single ingredient or high percentage of your product ingredient is visible on the market, we're having pricing discussions with our buyers. They understand that we're not making this up. This is not some secret behind the curtain. It's public knowledge. So in my career as a CPG professional, I've never experienced volatility like this, but I've also never experienced retailers being so understandable because these are not controllables that we're making on our own. This is a natural international issue. So Christian, Lillard mentioned that they had already taken a price increase and are probably looking at another one. Did ChocXO take a price increase during those pandemic days when it felt like most people did? Yeah, we have taken more than one price increase for sure. This is something that nobody enjoys taking price increases if you're the receiver or the giver of it, so to speak. A lot of paperwork, a lot of nuance, but critical to be viable as an organization. So yes, we have and we continue to evaluate if we need to take more. But we're also sensitive to the fact that something's going to have to give, whether that be the consumer demand at a certain price cliff or the market, hopefully, say look, enough's enough. But yeah, right now, we are in a position where we're looking at another one potentially for this year. What would be the tipping point to help you understand that it's actually time to pull the trigger? Well, it comes on a couple of things. One, if our prior contract quantity is tapped out and we have no more at the value, so to speak, we have to go back to market and we go back to market, the price is at a premium. Could be number one. Number two is, there is no futures pricing that is below our current contract price. Number three, can we think of an alternative formulation? We mentioned, if you're 100 percent coffee, we fortunately have a little bit of dynamic with the peanut butter cup, for instance, or an almond butter cup that we say filling is your friend. Can we think about ways to reformulate innovation or look at different form factors that use less chocolate that still deliver on that taste, but are heavily focused on other ingredients? If we can't do that, then that's another trigger for a price increase. Lillard, to that point, you're only selling coffee and you actually roast beans for other brands, is that right? We do work with some brands that we roast for. And I think if you're not working with a partner that is a real partner and is looking out for your best interests, I think you're going to run into trouble. If you're buying from a random roastery and just slapping a label on and you have no conversation about inputs, I think you're going to hit some tough times. All the brands that we work with, we're really transparent with. I'm not a green bean trader. We're not green bean traders. We've actually even given them the option starting in January. If you want to bring green beans sourced elsewhere, you're welcome to. We'll continue to produce for you. Copac brands, I think you're going to actually see some consolidation. I think it's going to be pretty tough when the company doesn't control what they make. You have a very slim area for innovation because it's really just the coffee. Am I missing something? Are you just between a rock and a hard place? We are between a rock and a hard place. Our Saigon Nights is one of our best sellers. It's a Vietnamese Robusta blend. It is a blend. As Christian was mentioning, you can do some stuff where if one bean is a little bit more affordable, you can add more of that. But there is a taste profile that we're stuck to make sure that it tastes the same as you've been tasting and loving over the last eight years. You do have a little bit of flexibility on the blend side. But we have been looking at collab products. We've been looking at culinary driven products. Last month, we actually produced a coffee rub in conjunction with a James Beard nominated chef here. We did this combined collab release of a coffee rub. He was on Tournament of Champions on Food Network. So we're looking at stuff like that where maybe it's not all coffee. Maybe we could sell some of those on the side. But yeah, no, it's pretty tough. I think the RTD space is really difficult. We've definitely retracted from the RTD product that we used to produce. We don't do it at all anymore. I think we're really focused on roasted coffee and trying to figure out, being flexible with what offerings we're producing and making available. I think that's really what we're trying to do. Then additionally, we have gone direct to farms. We're working with a family farm in Colombia, and they produce a great coffee out of Colombia. Unfortunately, it's not organic certified, which is another part of the conversation and the calculation. But we do some stuff that is non-organic as well. They have been a great source and we can help each other. That's one avenue that we're looking at in terms of sourcing innovation to alleviate some of the trouble that we've been seeing. Well, I'm glad you have a little room to play around with. I heard you say $25 bags of coffee. Are we talking 12-ounce bag, like the standard 12-ounce size bag of coffee? I think, yeah, we do a 10-ounce bag. I don't think we are going to be at 25, but I think you're definitely going to see 25 on the shelf for 10 to 12 ounces. I've already seen some brands reduce the amount of coffee so that they can stay under certain price points. I don't think we're going to do that. I don't like when somebody shrinks a package, personally. I like it when you're selling me the same thing, and I know that there's a price increase for a reason. I just want to get what I've always got. If I've always bought Owlvericks at 10 ounces, I want to have Owlvericks at 10 ounces. That's it. It feels like a dirty trick. It does, especially if you're not publicizing it widely. We're seeing six ounces, eight ounces on the market, which we never saw before, unless it was a frac pack, a food service product. I think you are going to see smaller sizes, smaller packaging, and I don't think we're going to do that. I would think in food service, it's a little bit easier to vary your pricing. But certainly, at retail, you don't want to change your prices more than you have to, because as Christian mentioned, it's a ton of paperwork. It also makes people pretty upset when you're changing prices more than you have to. How do you decide what your price increase is going to be and what that number that you settle on is? For price changes, we want to communicate them openly and early. Nobody really likes surprises. So, our price increases are really based on what we're seeing from the cost side. We want to pass along whatever we're experiencing. And like I said before, we're really transparent. We don't want the customer to think we're gouging because we're not. We're just... I'm not making any additional money. I'm just trying to make sure that we are operationally sound. And that's really what's driving our price increases. And I'm sure that transparency really helps ease the whole conversation. I think it's a blend of data and art. I only say art just because it's based on the story that you're telling. If we're telling you that we're a budget brand, then we're always going to look at how to keep ourselves at this bottom line and be the cheapest coffee on the shelf. But that's not our story. So that's the art side of it. The data side is all the cost stuff that we've already been discussing. So I think we're just doing enough to make sure that we've built in enough margin where we can survive and pay employees and continue to operate. That being said, we are expecting these cost increases to remain throughout 25 at a minimum. So that's why we've taken steps to really build in what we think is a safe margin. But we thought our January increase was a safe margin. I think Christian probably went through this too. We're like, oh yeah, we're going to be fine. We built in this thing for the tariffs and we're going to be fine. But now it wasn't fine. So I think we're just going to have to play it by ear. And then if we've overstepped what the customer is going to be able to afford, then we're going to have to reassess it. So unfortunately, it's not like a perfect science. And it's really, really volatile. And we're being really thoughtful about it, right? Like I said, we don't want to be... Nobody wants to see $25 bags of coffee on the shelf. Nobody wants to see that, like including us. We're just doing our best. And that's... Given the information that we have, we're just doing our best. And that's all we can hope for, really. I'm just grimacing thinking about having to deal with that. Christian, how do you and the ChocXO team figure out what that price increase is going to be? I'm sure it's a combination of your inputs, but also what your competitors are doing on shelf. Yeah, sure. We are constantly looking at the competitive set in terms of what their price points are, and we've seen everyone go up in the last 12 months for sure, and much more noticeably in the last 90 days. With some of the larger brands, they had coverage sometimes up to 18 months. So through 2024, they were in a good spot. They went back to market. They're not in a good spot. So you're seeing, I think, the larger brands taking those increases now and through the next three months. So consumers watch out. It's coming. Smaller brands have been doing that throughout 2024. Because we're much more nimble, we don't want to be carrying that much weeks of supply. It's a lot of expense to have in the books. Also with the volatility, you don't know if there's going to be a big dip and if you go too long, well, then you're left holding the bag when the market's 20 percent lower. So in terms of how we create the price increase, it's pretty black and white. We know what the price of cocoa is. We know how much percentages in our product. If it goes up 15 percent, it's a 15 percent increase. So we are very clear because being a high quality chocolate, there's a much higher percentage of dark chocolate in our product. So a great infographic is if you look at most confectionary mainstream brands, it's milk chocolate or they'll just say dark chocolate, but they won't give you the percentage of cocoa. That's intentional because they don't want you to know it's like 54 percent. It's not 70 or 80, 85, which is a true great quality dark chocolate. So the higher the number is, the higher the cost is. When you can mask it and even go to milk, which is usually 33, maybe 32, it's much less expensive. So you have a little more flexibility. So it's a blessing and a curse. The higher the quality, the more exposed you are to the market. But we like to say, there's a reason people think it tastes fantastic because we're giving them great quality ingredients which is more expensive. The bigger macro trend in America, it costs more to eat better. You can't pay less for good quality. It just doesn't work like that. So same in the confectionery space, for sure. And how are your sales being impacted by the price increases, the one that you already took? Are you finding that consumers are buying higher quality chocolate from you, for example, less often? Yeah, great question. I think I want to give the answer by a channel. So in the club channel, we were probably one of the first to increase prices and then others are going. So the price gap to the competitive set is much more narrow. So sales right now are very strong. Before, when there was a bigger gap, it wasn't as favorable. In the grocery and the natural channel, similarly, kind of the same story, others were taking price increases, I think, much more frequent earlier than they were in the club channel. And we were seeing, I'd say, some slowdown in grocery velocities. But the natural channel, where it's consumers, they don't see Hershey's or Reese's or other mainstream brands. It's all better for you. So the price point anchor is already higher. So it's less apparent. And when the competitive set and ourselves are all going up at the same time, for better, everyone's kind of embracing it. So there's less dilution in that natural channel, for sure. Well, I'm definitely not eating less chocolate. Lillard, how about coffee? Are you finding that your retail partners, your food service partners, they're not ordering less coffee, are they? Are people still drinking and needing the same amount as they always have? Yeah, I don't think we haven't seen a big fluctuation in from the price increases on the food service side, for sure, aside from just the general dip in, I think in people going out to restaurants. I think that that's been just the bigger picture story. As far as our sales in the food service, that hasn't changed. Even on the e-commerce channel, I think we're seeing similar numbers that we saw in 2024. I hope it continues. I think we make really great coffee as Christian was talking about chocolate. There is a standard that we make. I hope that as long as we continue to produce that high quality, that people will follow us and understand that we're doing this, given what we see in the marketplace. We can't do it for less, unfortunately. Well, one other build to that, I think from a promotional strategy, what you're going to see is less depth, less frequency. If you're a consumer and you see chocolate on sale, you better go get some because it's not going to be on sale probably and for a longer duration. Some segments of the chocolate category, it's high promo. They're frequently, it's almost every other week or every two weeks, you're seeing some yellow tag on shelf. That will reduce and the depth will reduce because that's another way for brands to be more cost-effective in their trade investments. But that's necessary, I think, because then you're able to maintain that everyday price without going to a certain price clip and surpassing it by then having such a huge high-low strategy. Because then you're just training the consumer to just to cherry pick. We don't want to do that. We want to drive loyalty. But you have to do that in a way that's gradual and not overnight. It'll be a phased approach through 2025. Sustained price increases, certainly. Are there any other predictions you have for the long-term impacts of environmental challenges and now the tariffs? I think you're probably going to see some consolidation, especially amongst the smaller brands. I think they may struggle to keep up. As I mentioned, the brands that can't control the inputs. I think that they're going to have a tougher time when things have just gone so out of control on the cost side. The ones that are going to stick around are the survivors. They're going to be the ones with really great relationships who really tried to build out a community of partners. The ones that have great stories and are trying to treat the product with care and thoughtfulness, I think those are the brands that are going to make it through. But I think you'll see a lot of M&A activity. We already saw two very large distributors in Brazil file for bankruptcy in 2025. Those we thought were untouchable, but they were trading futures. And the chickens came to roost. Is that the expression? Yeah. Yeah. So they were big too. They weren't like small distributors. So I think unfortunately you're going to see some consolidation in the market at all levels. Christian, how do you see the long-term impacts of what's going on on the chocolate industry? I know that you and your team are doing so much from a sourcing perspective, a pricing perspective to plan for the future. What do you think is going to happen to this category? First, what we're doing just to help preserve our outlook is building a new factory in the US. We're broken ground in Dallas. We're going live Q2 2026 if all goes to plan, which will triple our capacity. We're really excited about that. We could say that's because of the tariffs. Actually, we had that in New York for quite some time, but we were trying to accelerate that to have less reliance on potential tariff risk. That's from a ChocXO standpoint. I think the other part of it is, as you mentioned, there's going to be some brands that aren't going to make it. Those brands that, fortunately, we have our own factory that aren't relying on contract manufacturing, I think in our positions of strength, becoming operationally excellent is important. As we say, how do we make lemonade and lemons from all of this? We've been very laser focused on our entire balance sheet and knowing the ins and outs of outbound freight impact or what this ingredient will do. We've become much more laser focused on profitability because that really is the key to survival right now. I think when we come through it, those brands that are remaining are going to be super strong. They're going to have a very bulletproof operational supply chain because of this. There'll probably be less brands and the prices will be high for, I think, at least 12 to 18 months, unfortunately, from a consumer standpoint. But those brands that are committed aren't going to compromise on what they're doing. Because when others are struggling, how can you be opportunistic and find opportunities with different types of supply sources, different sourcing partners? We just did a tour across the US looking at different nut butters, for instance, meeting different providers we hadn't talked to before, which has been great to create new relationships, to diversify those two. And in closing, do you have any words of advice for other food or beverage brands out there who are also having trouble sourcing a key ingredient? I think one is keep the network open. You are not alone. Everyone is going through this. Owliver mentioned it. Everyone's talking about coffee and cocoa prices. So know that your woes are embraced by others. Be collaborative and know that, for instance, if there's a really big trend on pistachios, no surprise, do you buy chocolate? It's a huge thing right now. Well, there's a big run on pistachios, but maybe that pistachio farmer has a great insight on peanut butter. Or they could introduce you to someone who's doing a great white chocolate offering because they heard of this cool concept that's coming in Germany, that's coming to the US. Now is the time really to, I think, just broaden your supply chain network. Because there's so many people out there, that may have lost their home for their prior product and they're looking for some help. And how can you repurpose what you're doing to help them and find a lower cost future? Lillard, could I ask the same of you, any words of inspiration or advice in this particularly tough time? Yeah, I mean, I think Christian nailed it. I think we should definitely, we should all just look at it together as like a collective. I think our relationships are so important to us on both sides. And as long as we're working together and understanding each other, and trying to find alternative sources or other partners that we could possibly work with, it'll be okay. I don't know if that helps. I also think what I was getting at about the brand side, the ones that are going to survive, are the ones, consumers are savvy nowadays. So like our best-selling coffee is Saigon Nights. It's a Vietnamese Robusta blend. It's a dark roast. And it just speaks to the customer, our brand heritage. Amy's grandfather was a roaster in Vietnam. And then her dad brought this trade over to America. And then we make this great Vietnamese coffee blend. And so like, I think when brands have this kind of flagship product and idea, I think the customer will go along with you. Like despite the challenges that you're experiencing, if you have, you know, if you have brought them into the world and like, we're in this together, I think the possibility of being continuing to grow is definitely still there. Well, I know I am willing to pay any price for coffee and chocolate, and I know that there are so many consumers out there who feel the same way. So I wish you both the best and that you, you know, you hold on to your hats through this, this difficult time and that things even out hopefully sometime soon. I just want to thank you both so much for joining this conversation. Christian Quie of ChocXO, Lillard Anthony Wong, Owlvericks, thank you so much for joining this conversation today. It was great to have you. And for everybody else out there in our audience, thank you for tuning in. Make sure you head over to nombase.com and we'll see you next time. That concludes another episode of the Nombase Podcast. Many thanks to Nate Brescia, our recording engineer, Ryan Galang, our live stream coordinator, and Josh Pratt, our podcast editor. If you enjoyed the show, please leave us a review and follow us on your listening platform of choice. Want to be part of a live recording? Register at nombase.com/podcast to join the conversation. You can also watch and listen to past episodes on nombase.com, and don't forget to join our Nombase Slack at slack.bevnet.com for company updates, industry networking, and community discussions. See you next time.
