Ice-cream & Chocolate

Smitten & TCHO

2017.03

Winning Ice-cream and Chocolate start-ups in Silicon Valley
Ice-cream & Chocolate
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I. Introduction

Entrepreneurs in the American West (e.g. Mark Zuckerberg, Elon Musk, Evan Spiegel, etc.) have changed the world’s perspectives on the IT/mobile phone, telecommunications, automobile, energy, and aerospace industries

  • The telecommunication industry was once dominated by an oligopoly of a few large companies (e.g. AT&T) that were sponsored by the government to operate the nation’s phone and internet services. However, the scene has shifted to place [1]front and center such innovative, smartphone-friendly startups as Facebook and Snapchat.
    • Refer to Ringle’s, “Snapchat, a serious threat to Facebook,” and “The rise of VR: Facebook and Samsung partnership.”
  • The automobile, energy and aerospace industries have changed hands from government-sponsored private agencies to Elon Musk’s Tesla, SolarCity, and SpaceX respectively, leading the world in generating innovative solutions to global issues.
    • Refer to Ringle’s “Elon Musk, the world’s raddest man.”

These Silicon Valley innovators are also rewriting the paradigm of the American food and beverage industry.

  • Third wave coffee companies like Philz Coffee and Blue Bottle Coffee, which were founded primarily in the West and focus on providing the highest quality beans and beverages, have taken ahold of the coffee industry, draining the influence of first and second wave coffee shops like Starbucks and Peet’s Coffee.
    • Refer to Ringle’s “The third wave coffee: Philz Coffee vs. Blue Bottle.”
  • The fast food industry has also transformed, pushing out large franchises like McDonald’s and Burger King for smaller, beloved chains like In-N-Out and Shake Shack.
    • Refer to Ringle’s “The story behind two of the world’s best burgers: In-N-Out vs. Shake Shack.”

What all these recent enterprises have in common is that they offer high-quality goods and services at very competitive prices.


The ice cream and chocolate industries also serve as examples of the innovative changes occurring in the hands of the Silicon Valley entrepreneurs.

  • Ice cream: Stanford MBA Robyn Sue Fisher’s [2]Smitten Ice Cream crafts decadent, churned-to-order ice cream that have customers falling head over heels for its frozen treats.
  • Chocolate: Former NASA engineer Timothy Childs partnered with chocolatier Karl Bittong to start TCHO, a luxury chocolate maker that works with cocoa bean farmers and cooperatives. TCHO not only sells directly to customers but also collaborates with local businesses (i.e. ice cream shops, bakeries, restaurants, etc.) to provide the best quality chocolate.


II. Smitten Ice Cream

In the past, several of the largest ice cream manufacturers had tainted the reputation of the dessert by using a host of chemical additives and unsanitary production procedures.

  • Artificial taste: One could taste the chemical additives and artificial coloring mixed into the ice cream.
  • Unsanitary manufacturing processes: Investigations revealed that ice cream manufacturers were using severely rusted machinery to churn ice cream using ingredients far past their expiration dates.
  • Marketing schemes: Ice cream manufacturers differentiated themselves from one another with their marketing tactics rather than the quality of their products.

Smitten Ice Cream, on the other hand, is a startup that uses specialized tools to churn-to-order four fresh flavors of ice cream a day.

  • Fresh ingredients: Smitten acquires its ingredients from local farmers and vendors.
  • 4 flavors: Smitten only offers four flavors of ice cream per day, and each shop makes its own flavors. When a customer places an order, the machines churn out the ice cream in 3-5 minutes.
  • Delicious quality: The machines, customized for Smitten, utilizes liquid nitrogen to instantly freeze and churn the custard into a luxurious and smooth treat.

Smitten has succeeded in differentiating itself from competitors with its production process and taste, and has opened stores throughout San Francisco.

  • Quality you can taste: Customers willingly stand in line for hours, confident that Smitten’s high-quality ice cream is worth the wait.
  • The production process markets itself: Watching the innovative churning process through videos distributed on various social media platforms serves as a cost-effective marketing strategy for Smitten.

Smitten was the brainchild of a Stanford MBA who simply loved ice cream.

  • Robyn Sue Fisher graduated from Williams College with a degree in psychology and worked for the Monitor Group as a consultant. She applied to the Stanford Graduate School of Business, hoping to change the course of her career, and was admitted in 2005.
  • While getting her MBA, she decided to dedicate herself to something that she would enjoy doing and would also make other people happy.
  • Fisher wanted to make the best ice cream in the world. When she graduated from Stanford, she partnered with engineering students at Stanford and invested $200K to [3]prototype her ideal ice cream machine. The resulting product was the Brrr Machine.
  • Fisher began her business serving ice cream out of a red Radio Flyer wagon that she towed on San Francisco’s Mission Street. She would tweet where she was going and ice cream lovers throughout the city would show up.
  • Fisher opened her first store in a shipping container in Hayes Valley, and the shop was a huge success.
  • Smitten now has ten stores in San Francisco, San Jose, Los Altos, and LA.


III. TCHO Chocolate

In the past, several of the largest chocolate manufacturers had tainted the reputation of chocolate with the use of chemical additives and excess sugar.

  • Artificial flavoring: Chocolate rarely tasted like the cocoa bean, its flavor muddled by additives and artificial flavoring. Manufacturers altered the flavor of chocolate by varying the ratio of cacao to additives.
  • Manufacturing process: Chocolate manufacturers had failed to invest in quality ingredients and relied on dilapidated machines.
  • Marketing schemes: Candy companies competed with one another with marketing techniques, like flashier packaging, TV commercials, and display locations on store shelves.

TCHO hoped to steer the chocolate industry to reflect the wine and coffee industries, diversifying the flavor profiles, making transparent the origins of the cocoa beans, and using scientifically supported methods to roast, grind, and craft the best chocolate possible.

  • Focusing on the taste of the cocoa bean: TCHO focuses on enlivening the raw taste of the cocoa bean, rather than relying on sugar and additives to enhance its flavor.
  • Processing cocoa beans like coffee beans: Rather than focusing on percentages of cocoa on each bar, TCHO designates its chocolates by their flavor profile and origin: “fruity” (Peru); “citrus” (Madagascar); and “nutty” (Ecuador). Each of its six chocolates is treated to a unique roasting, grinding, and blending process.
  • Scientific and transparent manufacturing process: TCHO has revealed its manufacturing process, which carefully considers the humidity, temperature, and purity of the chocolate using modern, scientifically fine-tuned tools.
  • Best quality ingredients: Almost all of TCHO’s chocolate products are both organic and/or [4]fair trade and the company is trying to raise consciousness about the widespread slavery taking place in the chocolate trade.

TCHO, like Smitten Ice Cream, has succeeded in differentiating itself from competitors with its production process and taste, and has made itself available to customers and businesses in San Francisco.

  • Chefs love TCHO: Chefs, more sensitive to the quality and flavor of chocolate than the average person, have been using TCHO to craft decadent desserts. They credit TCHO when presenting the creations to their customers. Smitten, for example, uses TCHO to make its chocolate flavor.
  • The production process markets itself: TCHO keeps its production process transparent by offering tours around their facilities. Customers are welcome to record and share the experience on social media.
  • Fair trade as marketing: The media has lauded TCHO for the good relationship it maintains with its cocoa bean farmers.

TCHO started as a collaboration between a chocolatier and a chocolate-loving engineer.

  • Timothy Childs was once a vision systems technology engineer for NASA’s Space Shuttle program. His co-founder, Karl Bittong, was a 40-plus year veteran of the chocolate industry, specializing in the engineering aspect of chocolate production in factories around the world.
  • Childs and Bittong used the coffee industry as a benchmark and began their business venture in 2005. They sought to use science to produce the best quality chocolate possible.
  • The founders then enlisted the help of other visionary business people (e.g. Chief Chocolate Officer Brad Kintzer) to further improve TCHO.
  • TCHO’s fame spread throughout San Francisco by word-of-mouth, becoming the chocolate of choice for chefs and chocolate-lovers throughout the city.


IV. South Korea’s ice cream and chocolate industries

Korea’s chocolate and ice cream markets are still dominated by franchises and large corporations.

  • Lotte Confectionary, Haagen-Dazs, Baskin-Robbins, and Hershey’s control 80% of Korea’s ice cream and chocolate markets.
  • A few small stores in Seoul do craft their own ice cream and chocolate, but these shops have not expanded because of limitations in their flavor and market structure.

One might argue that Korea has not yet seen the rise of such innovations due to the absence of an entrepreneurial mindset and because the country’s industry structure benefits large conglomerates.

  • An Absence of an entrepreneurial mindset: Rather than refining the taste of goods, many Korean entrepreneurs launch profitable short-term food ventures.
  • Sourcing the ingredients from large manufacturers: South Korea’s food manufacturing industry is dominated by a few large companies, and it is difficult to source ingredients outside of conventional supermarkets.

What are the essential elements of the ice cream or chocolate industry? How were these West Coast food startups able to transform the national market? Can you imagine such startups as TCHO and Smitten popping up in Korea?

Please discuss Smitten Ice Cream and TCHO with your Ringle Tutor, and take the time to improve your spoken English.

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