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The Future of Ferrero: Possible Scenarios for the Confectionery Giant

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Ferrero has been the subject of plenty of speculation this week, with much discussion regarding the future of the company. As a fiercely private, family-owned company, such conjecture is difficult to qualify.

However, there are a range of possible scenarios for the company. Across a series of reports, Euromonitor International will examine these scenarios, although, as with all predictions about Ferrero, they should be taken with a pinch of salt. Could Ferrero be acquired by another packaged food giant, which Nestlé was rumoured to be considering in 2013? Could the premium chocolate confectionery manufacturer actually look to consolidate its share by looking to acquire a rival? It is this latter question that will be the focus of this article, specifically with regards to Lindt.


The Case for Lindt

The notion of Ferrero acquiring Lindt may provoke bemusement. After all, Ferrero has solely favoured organic growth, focusing on developing its own brands rather than pursuing an acquisitive strategy. Both manufacturers’ flagship brands possess roughly the same image – widely available premium chocolate confectionery for consumers who are looking for quality – and both derive the majority of their sales from Western Europe. Ferrero’s chocolate confectionery sales in the region amount to US$5.2 billion, or 59% of the company’s global chocolate confectionery sales; Lindt’s reliance on Western Europe is even more skewed. With such similar positioning for their products, the level of overlap between the two companies suggests that Ferrero would gain little from an acquisition.

Company Shares of Chocolate Confectionery by Region: 2014


Source: Euromonitor International


Yet, despite these doubts, there are also plenty of reasons why Lindt is suitable. A main driver of the recent consolidation in chocolate confectionery has been cocoa prices moving upwards. This has put pressure on chocolate confectionery manufacturers to improve cost efficiencies via unit price increases. Companies need to pass unit price increases onto retailers in order to maintain their margins and so, by buying rivals, they acquire leverage in negotiations with these retailers.

Whilst both companies strengths lie in Western Europe, their external priorities have diverged over the past five years. Lindt has focused its expansion on North America, where its sales have increased at a 9% CAGR – double the pace of Ferrero’s – to achieve sales of over US$1.0 billion, or more than three times the regional sales of its Italian rival. In the US, Ferrero has been caught cold by Lindt, which has been far more willing to invest in marketing and product development, with the latter company debuting its “Hello Gorgeous” range in the region and introducing its Creation tablet brand at the start of 2015.

Conversely, Ferrero has a very strong presence in emerging markets. Between 2009 and 2014, the company added a combined total of over US$600 million in Russia and China – double the company’s entire sales in North America. The company has outperformed competitors in Asia Pacific, where it has leveraged the Ferrero Rocher brand’s premium image to become a status symbol. Ferrero also has a far higher share of chocolate sales in Latin America, with Kinder achieving significant growth. Compare this with Lindt, whose combined sales in these two regions are smaller than the company’s entire presence in Spain, and the asymmetry in geographical strength becomes more apparent.

The right match of products

The two companies have the right mix of geographical strengths, but, Nutella aside, both specialise in manufacturing chocolate confectionery. Both companies also position themselves as premium manufacturers, with superior product quality to the likes of Hershey and Mars. A valid criticism could be that there is not enough diversity for the acquisition to be a prudent move.

Ferrero and Lindt's Regional % Value Share of Chocolate Confectionery Products by Type 2014


Source: Euromonitor International


Despite this, their two chocolate confectionery portfolios complement each other well; Ferrero’s weaknesses are offset by Lindt’s strengths. For example, Ferrero only has a 2% value share of tablets compared to Lindt’s 6% share; Ferrero has a 14% share of global value sales of boxed assortments compared to 3% for its Swiss rival. By 2019, these two product types combined are forecast to grow by nearly US$7.0 billion from 2014, representing 47% of all additional chocolate confectionery sales worldwide. Given that they are even better positioned in regions of high growth, Ferrero and Lindt are both well placed to capitalise on the strengths of their portfolios.

There are many issues that could make an acquisition difficult. One issue would be that, since its origins, Ferrero has offered a small range of products. Given that Lindt has recently acquired Russell Stover and Ghiradelli, the Italian confectioner would effectively be doubling its brand portfolio – something it may not want to do, having spent decades concentrating on just four brands. Yet of all the major chocolate confectionery companies operating today, Lindt is the only public company available, and, as such, is Ferrero’s only realistic target. Certainly, there are other options open to Ferrero, which will be explored in the rest of this series. However, the acquisition of Lindt would certainly prove lucrative for the Italian manufacturer.

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