“I’d rather someone buys less often because it costs more”: how Fatso is riding out the cocoa price spike

It was lockdown, and Ella McKay and friends were moaning about the chocolate aisle. “Milk chocolate got to have all the fun. Dark chocolate was stuck being the sensible, serious one,” she says. “So we made the dark chocolate we actually wanted to eat.”There’s a sentence that hides a lot of hard work. For McKay’s idea - adding “big chunks, big flavours, and the nostalgic combinations you'd normally find in ice cream, biscuits and puddings” to chocolate - has turned into confectionery business Fatso, on target for £1 million sales this year. Now on the shelves of Waitrose and Whole Foods, the brand launched in October 2022, online and through independent shops, cafés and hotels.But building a chocolate business when the cocoa industry is in crisis - with climate pressure, disease, ageing trees and years of underinvestment in West Africa, where the majority of the world's cocoa is grown, plus rising energy, transport and packaging costs - has been understandably intricate. “We've all got used to paying very little for something that's complex to grow and relies on some of the poorest farmers in the world,” McKay, who had no cocoa experience and previously worked at business accelerator Hutch Ventures, says. “The recent price spike just stopped the system hiding the true cost.”Fatso’s dark chocolate comes from Luker Chocolate in Colombia. “There's a whole industry there,” she explains. “The cocoa is grown, fermented and made into chocolate in the same country. Shipping beans to Europe to be made into chocolate is how cocoa gets turned into a cheap commodity, and how most of the value ends up a long way from the people growing it. Keeping it at origin keeps more of it where it belongs, and meant we were never short on supply.”Popular treats like Cadbury’s Dairy Milk and Terry’s Chocolate Orange have famously engaged in ‘shrinkflation’ - smaller bars for the same or higher prices - but Fatso has raised prices to keep chunky bars. “When we launched in 2022, our bar was £5.95. It's now £7.50 in Waitrose. That's never a decision we take lightly, but that money hasn't gone into our margin, which is no bigger than it was in 2022. Our farmers are guaranteed 90% of the global market price for cocoa, so when prices went up, they benefited. I've heard brilliant stories from them: visiting grandchildren who'd moved away, reinvesting in their farms, buying more land. That's who's on the other end of a chocolate bar.”McKay takes a bold line on quality over quantity - even when it comes to sales. “I'd rather someone buys Fatso less often because it costs more, than more often because we've compromised what's inside.”Now as the business scales, Fatso is “getting more operationally sophisticated,” she explains, improving company systems, increasing production runs, and expanding into more stores. When it comes to pulling operational levers, McKay asks herself: “Can we make enough chocolate? Can we make it at the quality we expect? Can we get it where it needs to go? Where are the bottlenecks? And do the economics of the business work?“Cashflow is obviously a huge part of that. You've got to be able to keep producing and paying for everything that comes with growth, while making sure you've got enough product to meet demand. That's one of the hardest things about growing a business.”Amid the well-known struggles of switching from founder to CEO, McKay says she is not there yet - but is trying to step away from daily commercial decisions to steer the business’s direction, product pipeline and retailer relationships. This year, she completed Goldman Sachs’ 10,000 Small Businesses UK programme, “which forced me to work on the business rather than in it and build a three-year growth plan”, and hired a part-time assistant. “The first task was clearing my 14,000 unread emails - not my finest statistic,” says McKay.“When you're the founder, everyone looks to you. But if every decision still has to go through you, you haven't built a bigger business. You've just built yourself a bigger job.”