Minutes from Amba Vilas Palace, the seat of the former Kingdom of Mysore, is Ramavilas Road. There is a notable exception in the street, mostly lined with hardware and machine tool stores—a century-old house. Its grey façade has ‘Naviluna’ painted on it, in English and Kannada. That’s a chocolate company.
Naviluna started out producing small batches of chocolates in a home kitchen in Mysuru, in 2012. Last year, it moved to this 5,000 sq ft place that serves many purposes. There’s a factory, a café, a retail space, an al fresco area to host events. A chocolate tasting room, too.
Founder David Belo is often credited for launching India’s first bean-to-bar chocolate brand. Along with his team, he manages the sourcing of cacao from Kerala. The cacao beans are cleaned, dried, cracked, winnowed, grinded, tempered and then moulded before they can be packaged as chocolate bars.
If you are wondering what the name Naviluna means, it is derived from the Kannada word navilu, meaning peacock. It just underlines the local origin of the chocolate.
Belo’s journey as a chocolatier broadly coincides with India’s craft or artisanal chocolate journey, which is newer than craft coffee or beer but follows similar principles—small batches, focus on quality and premium pricing. Unlike a bar with just fruit and nuts or caramel filling, an artisanal chocolate bar is simply more indulgent. The chocolate can be combined with, well, almost anything, from pistachio butter to bananas. While a 55 gm Cadbury Dairy Milk Silk Fruit and Nut bar costs ₹80, a craft chocolate bar can cost anywhere between ₹200 and ₹400.
But unlike beer or coffee, chocolates have a wider consumer base, including children. The appetite appears to be growing fast. Two years ago, India had less than 30 craft chocolatiers. The number has doubled today, some estimates suggest. There are companies of all sizes, mostly spread across the southern states where cacao beans grow.
India’s chocolate market was valued at $2.2 billion in 2022, and is expected to nearly double to $4.1 billion by 2028, as per market research firm the IMARC Group. This growth would come on the back of growing consumption. According to Statista Market Insights, India’s per capita consumption of chocolate is only about 1kg compared to 9kg in the US. Therefore, Indian chocolate makers have a long runway.
The market is dominated by well-known fast-moving consumer goods companies such as Mondelez India and Nestlé India. Premium chocolates are about 25-30% of the market, according to various estimates. Craft chocolate makers fit in here. This segment is also the playground of imported chocolates and the competition for any small Indian brand is thereby fierce.
Still, home-grown craft chocolate makers see an opportunity as customer preferences evolve towards healthier dark and vegan chocolates. The upwardly mobile consumer has perhaps outgrown the nostalgia of a Cadbury bar. Some urban consumers are also favourably disposed towards the country of origin. When beans are locally sourced, it implies less carbon footprint.
“The goalposts in this business are constantly shifting. What was considered great craft chocolate five years back is seen as average today,” says the 36-year-old Belo. “Everybody, including us, is trying to achieve scale and improve market penetration. The demand is good but then we also need the resources and capital to scale,” he adds.
Scaling up isn’t easy. Apart from stiff competition, there are bottlenecks around logistics (some craft chocolates don’t travel too well), distribution and the right retail strategy. Venture capital firms, who have now warmed up to the craft beer and coffee segments, are yet to play a role in craft chocolates.
What can artisanal chocolate makers do?
Labs and tours
The early years of India’s craft chocolate making involved entrepreneurs learning the process from YouTube videos. The entry barriers can appear to be low. If one can buy equipment—such as a roaster, cracker-winnower, grinder, melter and moulds—for about ₹10 lakh, nearly 150 kg of chocolates a month can be theoretically produced, L. Nitin Chordia, a chocolate taster and founder of vegan chocolate brand Kocotrait, says.
But, there are companies that are aiming for scale. Modern factories, experience centres and multi-channel retail strategies are in their arsenal.
Mumbai’s craft coffee brand Subko launched chocolates earlier this year and makes them from what is called The Cacao Mill in south Mumbai. Once, it used to be a textile mill. This chocolate factory doubles up as a café. There are guided tours to educate consumers on the pod-to-bar experience. Besides its own outlets in Mumbai, Subko Cacao has launched a Subko Mini format—miniature versions of its products are retailed from a Bombay Shirt Company store in Bengaluru, for instance. The company had earlier partnered with Kitab Khana, an iconic bookstore in Mumbai, to set up a coffee bakery.
“Going forward, we want to do extensive guided tours, create custom-made chocolate bars and do a lot more experimentation in products. We have also been on Zomato,” says Manali Khandelwal, Subko Cacao’s director of chocolate.
If Subko raised the bar marrying craft chocolates and coffee, Hyderabad-based Manam Chocolates took it a step further. It launched this August with 45 product categories. While its peers have largely focused on bars, bonbons and spreads, Manam has set up a ‘karkhana’, a chocolate lab where customers can make their own chocolates. Each of his chocolate packs has a QR code, which helps one in tracing the farmer’s name, the farm’s location, and when the beans were dispatched to the factory.
“Most chocolate makers make bars and are driven by creative pursuits. We are beyond bars, and the focus is on luxury retail of fine chocolates. We started with a strategy to build scale,” says Chaitanya Muppala, founder, Manam Chocolates. He is also the founder of Distinct Origins, a cacao processing facility in West Godavari district, Andhra Pradesh.
“In the west, craft chocolate makers offer an immersive experience. Subko, and now, Manam, are creating spaces where you can experience chocolate. That’s what we want to do as well,” says Karthikeyan Palanisamy, one of the founders of Soklet, a Coimbatore-based chocolate company.
Just a year after opening a kiosk inside the Coimbatore airport, Soklet shut it down. The rents were exorbitant and like most retail outlets at airports, the chocolates had to be sold at higher than the maximum retail price, or MRP. It was hardly making any money from the store, underlining the difficulty of selling chocolates through modern retail and the difficulty of scaling a craft business.
Now, the founders of the company—apart from Palanisamy, there is Harish Manoj Kumar—have opened a cloud kitchen in the city. “We sell in 350 stores across multiple cities, though we had to pull out of Delhi because managing the distributor was a challenge. We were present in Mumbai and Delhi through Foodhall,” Palanisamy says.
The closure of gourmet retail chain Foodhall, owned by Future Retail, was a blow given that there are few multi-city gourmet retailers. Most craft producers sell through their own websites or via other gourmet grocery chains such as Nature’s Basket. But they all have to battle for shelf space with the more popular chocolate brands, both domestic and imported.
A few have tried selling through online marketplaces but have run into supply chain and distribution issues. Problems around temperature control, too.
Vikas Temani is business head of Paul And Mike, a Kochi-based chocolate company. He says the company has adopted a hybrid retail model post the pandemic, combining both online and brick-and-mortar. It opened its first store recently in south Mumbai’s Kemps Corner.
“We can’t offer our full range at multi-brand stores, so we want to do more standalone stores now. Craft chocolates are handmade—made with simple machinery. In a hot country like India, if stores switch off the air conditioning at night, it’s a challenge. Which is why we need our own outlets,” Temani says.
Temperature is an even bigger challenge during shipping, because chocolate that contains cocoa butter melts at 32 degrees Celsius. So, to sell a ₹200 bar, Soklet had to charge ₹150 in shipping charges—the chocolates needed gel packs and thermal covers to keep the temperature down.
Pascati, an artisanal chocolate maker from Hamrapur, 80 km north of Mumbai, ships its chocolates in insulated boxes with cold bricks, usually by air. Cold chain vans are used for larger orders.
Chocolates like bonbons are more difficult to ship over long distances and distribute because they are delicate.
But the supply-chain is getting better. India has been building highways and broadening them at a quick pace—in 2022-23, a record 4,882km of highways were constructed by the National Highway Authority of India. Logistics companies are building more cold storages. Snowman Logistics, for instance, handles cold chain storage and distribution facilities for top chocolate brands. It provides warehouses to store the chocolates at 18-22 degrees Celsius. From the warehouses, the chocolates are moved in vehicles with the same temperature control to destinations such as retail outlets.
“The demand for cold chain solutions for chocolates has been growing at a compounded rate of 15-20% from a storage point of view,” says Padamdeep Singh Handa, senior vice-president of sales and business development at Snowman Logistics. “Chocolate companies are adding new locations and warehouses on the back of heavy demand,” he adds.
For instance, Mondelez India, in March, announced that it would invest ₹4,000 crore over four years to expand its manufacturing capacity and build more warehouses and cold-chain facilities to ensure that its chocolates and cookies reach more households.
More bitter than sweet
To do all of the above—modern factories, experience centres, stores and better distribution—the craft chocolate makers need loads of money.
Venture capital money, like we mentioned earlier, has already helped craft coffee and beer makers grow. Companies like Blue Tokai, Third Wave Coffee and Hatti Kaapi have raised capital in recent years, fuelling their multi-city retail expansion. Beer maker Bira 91 has raised multiple rounds of funding. But venture capital is largely absent in the chocolate sector. Why so?
In the last five years, Naviluna’s Belo has been in talks with various venture capital firms to raise funds. The feedback? The market size is too small.
“But if you don’t raise funds, you will remain small,” Belo says.
“We have been monitoring the craft chocolate space, especially in the last year or so. While profitability and revenue are always key factors, there is also scale to consider. Most venture capital firms won’t invest in a startup that is too small. So, at times, we just wait for a startup to expand and gain scale,” says a senior executive at a venture capital firm who didn’t wish to be identified.
The executive adds that a couple of brands from the craft chocolate market are likely to stand out, going ahead, and gain investor attention.
To be sure, some companies do have aggressive growth plans even without venture money. From producing 240 kg of chocolate a week now— which translates into 4,000 bars—Naviluna plans to make about 9,000 bars next year, as it would invest in new machinery. Manam plans to build three more chocolate labs, in Bengaluru, Mumbai and Delhi. Besides, it is eyeing retail spaces at airports and in high streets.
Harminder Sahni, founder and managing director at retail advisory firm Wazir Advisors, says that while a craft chocolate maker’s growth may never be at par with mainstream brands, the former will attract investors, just like many restaurant chains do. As new gourmet retail chains join the party, more pan-India sale channels would open up for the craft brands, widening their reach. Sweet words indeed for India’s growing breed of chocolate makers.