Fancy marshmallows toast upscale sweet tooths

— -- The everyday marshmallow is toast.

Replacing it: gourmet, fancy-dancy marshmallows made with everything from caramel swirls to chocolate chips to passion fruit.

Kraft and rivals aim to prove "gourmet marshmallow" is not a contradiction in terms.

The gooey treats are being reinvented as more than stuffing for s'mores over campfires or garnish for hot cocoa.

"Consumers have started to snack on marshmallows," says Gwen Gray, Kraft's marketing director for Jet-Puffed. As kids go back to school, Kraft is adding chocolate to its marshmallow mix and putting its three flavors into 90-calorie variety snack packs.

After several years of inconsistent sales, the innovations have the $132 million marshmallow industry up 7.4% though July compared with the same period in 2006, according to ACNielsen.

Nutritionists, however, aren't going soft on the treats: "Warning to parents," says Stanford University nutritionist Jo Ann Hattner. "This is packaged sugar."

Among new, gourmet offerings:

•Nothing artificial. Plush Puffs Gourmet Marshmallows adds no preservatives or artificial colors or flavors to its products. A sack of 16 Caramel Swirl marshmallows sells for $5.99. "If you toast them, they're amazing," adds owner Ann Hickey.

•Pricey. Pete's Gourmet Confections sells "artisan" marshmallows in gift packs from $10 boxes to $60 baskets. Pete's has lavender and savory (chili-flavored) marshmallows on tap, says co-owner Peter Croyle.

A flavor that bombed: margarita.

"What's trendy in foods these days are nostalgic, classic foods," says Suzanne Lombardi, facility team leader at Whole Foods.