A Dunedin group campaigning to keep production of Jaffas, Pineapple Lumps and Buzz Bars in the city has dropped its bid.
City councillor Jim O'Malley and a group of volunteers created Dunedin Manufacturing Holdings, hoping to take over production when the Cadbury factory in central Dunedin - run by the American multinational company Mondelez - closes next March.
There are still two other bidders for the contract, one believed to be Rainbow Confectionary in Oamaru, where pineapple lumps were invented.
The company would not comment, but Oamaru mayor Gary Kircher said he was confident they would bring the lumps home.
"We've got a great company with Rainbow, they've got the capacity to do it and they've got the ability to do it."
"So really we're just standing by and we'd certainly support our local business to be able to take it on and deliver the goods.
Dr O'Malley told Morning Report the Dunedin group had withdrawn its bid because it would be too hard to meet Mondelez's requirements by a July deadline.
He said he was now working on a new business case to buy the factory and produce chocolate.
"What we'll do is go back to the original formula, and we'll also be targeting more what you would call artisan chocolates, so darker chocolates with more cocoa components. So we'll be focussing highly on quality rather than quantity, and we think that will give us the market niche we are looking for."
The 'Own the Factory' crowdfunding website raised pledges of more than $5 million after it was launched by the group earlier this month.
Dr O'Malley said the money pledged to the company would now be spent on starting the new chocolate company, using Cadbury staff.
One of the pledgers, Glynn Babington, said Dr O'Malley had done the right thing.
"If we had been in business with somebody else we probably would have - you know, their whims would have affected us - where now, we're totally in control.
"So, it's a bit harder to get started perhaps but I think, long term, it is actually healthier."
Mr Babington said he had put $1500 in and he would put in more if he could afford it.
But Dunedin South MP Clare Curran said she was disappointed and angry about the situation because Mondelez was seemingly acting in bad faith.
"The Dunedin venture that created so much community interest and support is pulling out of the bid because they say Mondelez is too inflexible. I'm gutted about it, actually."
Ms Curran said she would likely pull out of the Cadbury working group, though she would give Mondelez one last chance to explain its actions.