2003 Candy scene is a tale of two extremes: an increasingly sophisticated taste for chocolate coupled with a strict eye on budgets and waistlines is making the confectionery middle ground less hospitable territory.

In the 1990s when the U.S. food industry was falling all over itself to capitalize on the fat-reduction craze, a surprising thing happened. While many consumers were snatching up SnackWell's fat-free cookies and TCBY frozen yogurt as if fat were evil, sales of Ben & Jerry's superpremium ice cream and Pizza Hut stuffed crust pizza were soaring. Consumers began pursuing two seemingly contradictory paths, simultaneously seeking to reduce fat while indulging in more high-fat foods.

A similar dichotomy characterizes the state of the candy industry right now. It's not a fat issue, and it's not even a carbohydrate issue (although carb mania is having its own huge impact on the business). The issue is more one of price and quality. Shifting consumer tastes, the economics of manufacturing and a changing candy retail sector have spawned an industry growing at both ends of the spectrum.

"From my perspective, mainstream consumers are moving in two opposite directions," says Jim Reynolds Jr., vice president, sales and marketing, Gray & Co., Portland, Ore. "On the one hand, a significant group is moving toward more premium, higher value products, just as they did with ice cream, beer, coffee. On the other, for more traditional candy products that haven't changed over time, a good segment is willing to purchase those products in less expensive form."

The proof is on the shelves--and in what's flying off the shelves. Five years ago, finding Lindt or Perugina required going to a specialty store--or overseas. Buying a Ghirardelli chocolate bar meant shopping at a Ghirardelli outlet. Now, walk into any Walgreen's or CVS store, and these kinds of premium offerings can be found alongside mainstream candy bars.

"Products that people might have associated with trips to Western Europe are widely available here. One reason is that consumers are becoming more discerning in what we sometimes call everyday luxuries," says Reynolds. "A larger consumer segment, not just rich people, is making that [upscale] choice."

Reynolds and others point to a string of food products that consumers have taken upscale--gourmet vinegars, olive oils and the aforementioned coffee, ice cream and beer. Chocolate is next in line.

"For the category, it's a positive thing, potentially bringing in new customers--not just carving off a piece of the existing pie," says Elek Schneider, director of marketing, World's Finest Chocolate Inc., Chicago. Schneider cited the example of Hershey's Pot of Gold boxed chocolate as an example of a premium-positioned product from the nation's leading mainstream candy player.