Nutella S

Changing consumer tastes challenge Ferrero’s chocolate fortunes

Nutella LThe Nutella maker is changing strategy amid higher competition and healthier diets….

Ferrero eponymous founder, Michele Ferrero, a secretive genius who dreamt up Nutella, the heart of the business, as well as Tic Tacs, Kinder eggs and its famed chocolates, died in 2015.

But two years after Mr Ferrero’s death, both Nutella and the confectionery group he created are confronting a range of new issues. These include shifts in consumer tastes to ‘artisan’ chocolates and concerns over the health impact of Nutella as well as the succession issues common to family-owned companies.

Giovanni FerreroNutella has made Mr Ferrero’s surviving family, which includes his wife Maria Franca and son Giovanni (left), Italy’s richest dynasty with an estimated wealth of $22bn, according to Forbes.

The new generation is already being forced to adapt, however, breaking from a longstanding ban on corporate acquisitions and appointing its first non-family chief executive, Lapo Civiletti, a long-time manager within the business.

There is even talk of a future stock market listing. But the core of the business remains the spreadable gianduja paste. Now, it generates about €2bn in annual sales, more than a fifth of the Italian group’s revenues, and is the world leader in chocolate spreads.

Ferrero made €10.3bn of revenues in 2016, up 8.2 per cent on the year before, breaking the €10bn threshold for the first time.

Like many first generation industrialists, Mr Ferrero swore off acquisitions — turning down the opportunity to buy Parmalat, a deal that would have doubled the size of the business. He also refused to consider a stock market listing.

But his heirs have sought to diversify the business since his death, with small acquisitions including Thorntons in the UK, Belgian biscuit maker Delacre and, most recently, Chicago candy chain Fannie May’s in March.

Guido Corbetta, professor of family capitalism at Milan’s Bocconi University, says Michele Ferrero was “obviously a great leader and designed the strategy and governance for Ferrero in a very personal way”.

Giovanni Ferrero has developed a new strategy for the group, as signalled by the recent acquisitions.

“This was sort of taboo for the previous generation. It has demonstrated Giovanni has his own personality,” Mr Corbetta says. Before his appointment food industry insiders feared the former poet would struggle to adjust.

Nutella has sought to shift focus to “gifting”, in the view of analysts at Euromonitor. Consumers can emblazon jars with names or love notes to personalise the Nutella experience for the recipient.

According to Euromonitor, Ferrero continues to experience high growth in China — where Nutella has positioned itself in the gifting market — and perform solidly in many other of its core markets, while gradually expanding in weaker areas such as the US and the UK.

Euromonitor sees “a failure to make huge inroads in the US despite the popularity of premium chocolate there”.

Plans by Mondolez, makes of Cadbury, Toblerone and Milka, to expand its footprint in the US and China could also cramp Ferrero and its growth prospects, it adds. Still, “its biggest threat is consumers becoming more conscious of indulging in sugary and fatty foods”, Euromonitor says.

Nutella contentsA Twitter message from Consumer Centre in Hamburg, Germany supposedly showing the ingredients in a jar of Nutella — high in sugar and palm oil and rather lower in cocoa and hazelnuts — went viral in January this year.

Worse, in May 2016 the EFSA announced findings that glycidol, found in its highest levels in palm oil and palm fats, was carcinogenic and that it could not recommend a safe level for the substance.

Ferrero says that it uses mild heat treatments when processing palm oil to keep contaminants to a minimum and that Nutella is an entirely safe product.

“You cannot pretend Nutella is healthy. It is not. It is like Nestlé, it is an indulgence,” says Luigi Consiglio, a food industry specialist at management consultancy GEA in Milan.

Ferrero appears to be adapting to the new consumer trends — and also to the need for greater openness amid speculation about the future of the group. Even opening its factory to the media is another sign of change.

Michele Ferrero only did one interview in his life, with sunglasses shielding his eyes — on condition that it was to be published only after his death.

“I think only of Valeria,” he said in the interview, given to the editor of Turin’s newspaper la Stampa. “Valeria is the mother who does the shopping, the grandmother, the aunt, the consumer who decides what to buy every day.”

Mr Corbetta argues the slipping veil of secrecy about the company and the rise in acquisitions suggest “they are probably thinking of listing or going public in the future”.

Ferrero, which throws off cash due to Nutella, does not need a listing for economic reasons but one could help for governance and ensuring the future of the group, Mr Corbetta argues.

This future will also hinge on whether the newly institutionalised and globalised Ferrero, stock market listing or not, will be able to innovate sufficiently to keep Valeria, Michele Ferrero’s imaginary shopper, coming back for more.

Because, in the words of the company’s founder: “If one day she changes idea and no longer comes to you and no longer buys from you, you are finished. You are finished without warning, because she does not send a letter from her lawyer to warn you that she is ending her contract, she simply decides to go elsewhere.”

Source: Financial Times

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