CINDY ELLEN RUSSELL / CRUSSELL@STARBULLETIN.COM Dennis Teranishi, vice chairman and chief executive of Hawaiian Host, visited the chocolate factory on Thursday. He is pictured with quality assurance worker Cecilia Cordova.

A host of new directions

Candy maker Hawaiian Host branches into China

Answer: Pressure is constantly on you. You got to have youth and vigor to manage. Among the other reasons we are initiating this process is we have a relatively large number of senior management and executives who are in their late 50s and early 60s. So we are doing this transition not only at the presidents' level but other levels of management. We are living longer, so some senior managers may wish to stay on in lesser capacities, allowing them more free time to do other things. It is hard to find key managers in Hawaii.

A: One, we've had 10 years of no growth. The second thing is many of the Big Five corporations other than A&B are no longer here and they used to provide great training ground for new management and talent, so that's no longer here. So what we are having are smaller companies like us that are wanting to become even bigger companies ... to get from entrepreneurial to the next size requires people who are more trained in formal management systems. There are very few operating companies that provide people who have that kind of training. Keith was already working at Hawaiian host, so I was fortunate in that regard. There are people in Hawaiian Host who started 25 years ago in much lesser positions. Our production manager in our Honolulu facility started out as a janitor. Our production manager in Los Angeles started out as a student help in high school. Our warehouse logistics manager started out as a truck driver. So we have a lot of home-built, home-trained managers, but we have also brought in outside managers who are formally trained. And we need both. We have a lot of interns here in marketing, in human resources, new product development and quality assurance.

Q: I understand the company has made strides in China.

A: We just started selling in China about two years ago in the duty-free markets. We are in Beijing airport, Shanghai airport and border towns near Macao. Macao is being built into a major Las Vegas-type place and the Chinese just love to gamble.

It's been difficult for us in China. There's a truth to all of the stories you hear about China. Beijing pretends to rule and Shanghai pretends to follow. There's miscommunication problems. I went to Shanghai three times this year to resolve these issues, also to sign new agreements. We chose a new advertising design company for the China market.

Q: Do you market differently there?

A: We use a lot more gold in China. We use a lot more red. Also the translation of the characters is so critical. We are taking a very measured approach to this.

Q: How much of your business is in China?

A: It's less than 5 percent right now.

Q: How big is the company overall?

A: In Hawaii we have just about 100 employees, and in the company we have over 200. We have a manufacturing facility in Los Angeles that's a big as our Honolulu facility. We also have a subsidiary company in Japan that does all of our sales, warehousing and marketing in Japan. Our founder Mr. Takitani was very, very forward-thinking. A lot of what we have today was started 25 years ago by him. He started the factory in L.A. and he started the Japanese company way over 25 years ago.

Q: What is your biggest market?

A: Hawaii is our biggest market, representing slightly more than half of total sales. In North America, it's about 15 percent of our sales. Japan is about 10 percent of our sales. The balance is in all the other countries.

CINDY ELLEN RUSSELL / CRUSSELL@STARBULLETIN.COM Dennis Teranishi, Hawaiian Host's vice chairman and chief executive, left, stopped to talk story with Logistics Manager Joey Corpuz during a tour of the chocolate manufacturer's factory in Iwilei.

A: For us the strongest market would be the mainland market. We are living in a period of radical Islam, so we don't know when another terrorist will strike, and we're big in travel retail in Hawaii and in many other markets. The other thing we have to be mindful of that we don't have control over is a pandemic. The SARS outbreak in the Far East had a major impact on our business, where the Japanese not only don't travel to Hawaii, they don't travel anywhere.

In both instances our U.S. mainland market recovered the fastest. Also, we have a factory in L.A., so we have a beach head there.

Q: What new products do you have?

A: In the last few years the first new product we had was the toffee, which we introduced about four years ago. The next new product was the jewel collection. We took the best five selling items, which was the chocolate, the classic Tiki, the caramac, the crunch and the almond and we put it in a jewel collection. After that we came up with a honey-coated chocolate macadamia nut. And the latest item, which we just introduced this fall, is Harmoni: Rice crisps, dark chocolate and milk chocolate, only sold at DFS and Neiman Marcus. We're upscaling all of our products, the new products, trying to market to the upscale market to differentiate our brand.

Q: How much higher are the prices?

A: The Harmoni is in the $14 retail range. The honey is about $10-$11. The jewel is about $10. Whereas you see our products as low as a $1.79. We hardly make profits in Hawaii because there are so many competitors, so the consumer benefits.

Q: Why stay in Hawaii?

A: Hawaii is an extremely important market for us. We get a lot of shelf space, it creates our brand and image. We are upscaling our product to build more margins into our products.

Q: How much have macadamia nut costs gone up?

A: It's been significant. We're paying $6.25 a pound for mac, which is very high, especially when you consider peanuts aren't even 50 cents. Almonds have come up too, but mac nuts are $6 a pound. And yet we sell it so cheap.

Q: How has the response been to the more pricey products?

A: It has been very good. It's like the difference between a Mercedes-Benz and a Buick. Sell less but make more. It takes a lot more labor and a more expensive ingredient.

Q: Last word?

A: The founders are Mr. and Mrs. Takitani. Mrs. Takitani is still alive. They've been wonderful to all of us employees. They also have a foundation that gives scholarships to high school every year, so they've given over a million dollars back to Hawaii since 1994. They set company up in 1960 by buying a company that was started in 1927, Ellen Dye Candies, then renamed it Hawaiian Host. That's why we can say were genuine, we're classic and we're original in the chocolate macadamia nut business.