Maker of Nutella and Tic Tacs Confident in Family Hands

Maker of Nutella and Tic Tacs Confident in Family Hands


Nov. 28, 2013 9:15 p.m. ET


For years, investment bankers have beaten a path to the door of Ferrero SpA—the Italian maker of Tic Tacs, hazelnut spread Nutella, and Kinder chocolate eggs—dangling proposals to take the company public or sell out to a bigger rival. Just last year, Mars Inc. expressed interest in the company, while Nestlé SA NESN.VX +0.08% has looked at Ferrero for years, according to people familiar with the situation.But even the prospect of unlocking the huge value in Ferrero—the company is worth as much as $30 billion, by some analysts’ estimates—hardly persuades owner Giovanni Ferrero.

Mr. Ferrero, Italy’s richest man, said in a rare interview that he has no plans to take the company public or sell out to a bigger rival. Ferrero has never made a major acquisition and won’t start now, he said.

“We were born a family business and we intend to remain that way,” said Mr. Ferrero, 49. “We’re not interested in maximizing revenue in the short term, like everyone else. If we were listed, we would be under short-term pressure to deliver dividends and profits.”

Instead, he said he plans to double Ferrero’s size in the next 10 years by breaking out of its European stronghold—it earns 80% of its sales there—and expanding in Asia and the U.S., going toe-to-toe with candy giants such as Mars and Hershey Co. that now dominate there.

“Every day we’re a step more confident that we can achieve that,” Mr. Ferrero said. “And once we get there, there won’t be any more problems about our size compared with our peers.”

Ferrero is the world’s fourth-biggest chocolate confectionery firm, with 8% of the global chocolate market, compared with No. 3 Nestlé, which has 12%, according to consumer research group Euromonitor.

The company, set to exceed €8 billion ($10.9 billion) in annual sales this year, grew from humble origins. In 1942, Mr. Ferrero’s grandfather Pietro opened a small candy store in Alba, near Turin. During the war, it was difficult to find cocoa, so he used nuts from local suppliers to make chocolate treats including a hazelnut-and-chocolate spread later dubbed Nutella. Nutella is now a fixture in Italian pantries.

Today, the younger Mr. Ferrero, who is intensely private, leads a company that is a rare example of a large consumer goods player still entirely in family hands. Major rivals such as Wrigley and Cadbury have fallen into the hands of giants such as Kraft and Mars in recent years, while Nestlé has snapped up players in emerging markets such as China and Russia.

Mr. Ferrero dipped a toe into the 2010 takeover battle for Cadbury, but has otherwise repudiated the consolidation that has created ever-bigger candy rivals. Nestlé has long been interested in the company; a combination of Ferrero and Nestlé would create the world’s biggest chocolate company.

Last year, Mars was interested in Ferrero, but the talks went nowhere, said a person familiar with the situation. Nestlé declined to comment on whether it was interested in acquiring Ferrero, while a Mars spokesman said any reports of interest in the company are “purely rumor.”

The 2011 death of Mr. Ferrero’s brother, Pietro, who was 47 years old at the time and managed the company along with Giovanni, stoked questions as to whether the family would finally sell out. Instead, Mr. Ferrero took over as sole chief executive and hopes his sons, now 8 and 5, will follow him some day.

Ferrero has been growing steadily in recent years—about 45% since 2006—driven largely by sales of power brands such as Kinder and Nutella in Europe and abroad.

But to keep growing, it is tracking the strategy of most European consumer goods companies that are tilting away from the Continent, where a protracted downturn has pummeled disposable spending, and are instead expanding in North America and the emerging markets. Mr. Ferrero expects about 80% of future growth in chocolate candy will come outside Europe.

But pitching its signature hazelnut candies and chocolate spread to Americans or Asians won’t be simple, given that consumer tastes are notoriously local. For instance, Nestlé sells more than 100 different formulations of its chocolate around the world, ranging from more bitter versions in Europe to milkier mixes in the U.S.

Asia, where Ferrero already has a toehold, will provide a major plank for its international expansion. China is already the biggest market for Ferrero’s Rocher, a hazelnut chocolate candy wrapped in gold foil that is popular as a gift there, and the company plans to push the same strategy elsewhere in Asia, where chocolate candy sales could grow by 16% by 2017, according to consumer research group Datamonitor. The company may open a new plant in China to meet demand.

“The strength of the Rocher brand [in Asia] is an early indicator of the route to follow,” Mr. Ferrero says.

The U.S. could be a tougher nut to crack for Ferrero. Its presence there is tiny, dependent largely on Tic Tacs, while its chocolate products are little known. It can’t sell its famous Kinder chocolate eggs in the U.S. because of a law banning the sale of food product containing nonedible parts. (The eggs contain a toy inside.) Moreover, the company is going up against Hershey and Mars, which together have 70% of the chocolate market and can use their heft to secure key space in supermarkets and convenience stores.

“The U.S. market is difficult,” says Susan Viamari, analyst with consumer group IRI. “There are very large players, the retail chain is very fragmented and distribution is far more complex than in Europe.”

Ferrero plans to use Nutella as its spearhead for the U.S. market. But in doing so, it will have to face the peanut-butter juggernaut there.

Ferrero has sold Nutella in North American for 25 years, but only started investing heavily three years ago. It is now flooding the airwaves with commercials touting the health benefits of Nutella-and-bread at breakfast. It also wants to capture a slice of the huge American market of on-the-go eating with a portable package containing Nutella and biscuits for dipping. “It won’t replace peanut butter, but it could start representing an alternative,” said Ms. Viamari.

Mr. Ferrero acknowledges that the U.S. market will be tough. “The U.S. is as rich in potential as it is tough to penetrate,” he says. “Our critical mass is still limited compared with the industry’s best in class…. The future of confectionery is full of untapped opportunities and Ferrero is well equipped to capture them.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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