• by Laurie Petersen , October 20, 2006

Hershey, the nation's largest candymaker, took another bite of the premium chocolate market with its acquisition of Dagoba Organic Chocolate, an Ashland, Ore.-based maker of natural and organic chocolate.

Dagoba produces natural and organic chocolate bars, hot chocolate and chocolate-covered coffee beans sold in natural and gourmet food stores. Terms of the deal were not disclosed.

The $20 million organic chocolate category grew 57.2% last year, compared to a decline of 0.1% for conventional chocolates, according to Nutrition Business Journal.

Although organic line extensions of existing brands are faltering, marketers who acquired organic brands are finding more success. The organic segment in total saw a sales growth of 16.2% to $14 billion last year, NBJ reports.

Hershey's other chocolate products include Hershey's Reese's, Kit Kat and Almond Joy.

In a conference call with analysts yesterday, Hershey also lowered its sales and earnings growth projections for the year. Third-quarter sales rose 3.3% to $1.41 billion from almost $1.37 billion a year ago, an increase Chairman and CEO Richard Lenny attributed to strong Halloween shipments and sales of dark chocolate products.

The company said it plans to spend more on marketing and merchandising in the fourth quarter to revive sales and margins because retailer orders of new products were disappointing, as they still have too much stock on hand of Hershey's limited editions candies.

"After five years of outsized performance, Hershey has finally hit a wall this year relative to expectations, but still delivering growth any company in the industry would be happy to achieve," reported Credit Suisse.

An A.G. Edwards analyst warned that the extra marketing spending could hurt 2007 earnings if retail sales remain sluggish.