Ferrero SpA

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Ferrero SpA

Piazzale Pietro Ferrero 1
12051 Alba, Cuneo
Telephone: ( + 39) 0173-2951
Fax: ( + 39) 0173-363034

Private Company
Incorporated 1946
Employees: 15,000
Sales: EUR 4.4 billion ($3.89 billion) (2001)
NAIC: 311330 Confectionery Manufacturing from Purchased Chocolate; 311320 Chocolate and Confectionery Manufacturing from Cacao Beans

Alba, Italys Ferrero SpA is one of the giants of the worlds confectionery industry. Still owned and run by the Ferrero family, Ferrero has built its success on a limited number of strong brands, including the hugely popular hazelnut and chocolate spread Nutellathe company claims that its spread outsells peanut butter around the world; the Kinder brand, which includes the companys popular Kinder Surprise chocolate egg with the toy inside and other snack products; Ferrero Rocher and Mon Cheri chocolates; and Tic Tac, a world leader in breath mints. Sales of these and other brands, including a number of products created specifically for the Italian market, combined to generate sales of more than EUR 4.4 billionplacing the company in the top five of the global confectionery industry. Ferrero supports its international sales with a network of 29 sales and 15 production subsidiaries throughout Europe, North America, South America, and Asia. Brothers Peter and Giovanni Ferrero, sons of the companys founder, share the chief executive spot. The company remains resolutely private, with no plans for a public listing; however, the company has indicated its interest in pursuing international partnerships at the beginning of the 21st century.

Pastry Maker Makes Good: 1940s

Born in 1898, Pietro Ferrero began his career as a pastry maker in Dogliani, then moved to Turin, where he opened his own pastry shop. During World War II, however, Ferrero was forced to move his shop, to Alba. Joined by wife Piera, who took over operating the family pastry shop, Ferrero himself began experimenting with recipes. In particular, Ferrero sought to develop new products to overcome the short supply of many traditional pastry ingredients, and particularly cacao, during the period. By the end of the war, Ferreros efforts had paid off with a new frosting-like spread that combined roasted hazelnuts with cocoa butter and vegetable oil. Ferrero called his new paste pasta gianduja, which he began selling in 1946. In that year, Ferrero incorporated the company as Ferrero SpA. Joining the company were Ferreros brother, Giovanni, and his son, Michele.

Inexpensive to produce, the Gianduja paste was also affordably pricedand the product became an instant hit in confectionery-starved Italy. By the end of 1946, the company had already hired more than 50 workers, and the company was obligated to move to newer, larger production facilities in Alba. The company invested early on in modern production equipment, a commitment that was to remain a company hallmark. With sales of the paste topping 660 pounds in that first year, Ferrero began contacting farmers to ensure the companys supply of hazelnuts, while at the same improving their quality.

The spreading popularity of the Gianduja paste carried the Ferrero name throughout the industry. At first, the Ferrero family delivered the paste to wholesalers, who handled distribution around the country. While delivering to a Milan wholesaler, however, Giovanni Ferrero recognized the potential for selling directly to customerswhen Ferrero arrived to make his delivery, the wholesaler was closed. Instead, a crowd formed around Ferreros van asking to buy the product.

Ferrero began developing its own fleet of delivery vehicles in the late 1940s, enabling the company to cut costs, while also providing a bit of added advertising by using the companys own fleet of trucks sporting the Ferrero logo. Meanwhile, Pietro Ferrero continued to work on improving the Gianduja recipewhich the company maintained in strict secrecy. By the end of the 1940s, Ferrero had perfected his recipe, which the company now called Supercrema Gianduja, a creamier, more easily spreadable version of the paste. The company nearly faced disaster, when its factory was flooded in 1948. Production quickly resumed however, and, in 1949, Ferrero introduced the Supercrema, also known as II Cremino.

The new product proved an even bigger success than its predecessor and firmly launched Ferrero into the top ranks of the Italian confectionery market. Ferrero also proved somewhat of a pioneer, playing a role in changing the candy and confectionery habits of the Italian consumer. Whereas Italians had previously reserved cakes and candies for special occasions, products such as the Gianduja spread encouraged more daily consumption of sweets. Indeed, the Supercrema version of the Gianduja spread became something of an Italian after-school traditionbefore going on to conquering much of the rest of Europeas shopkeepers began to offer a smearing service, coating slices of bread brought to their stores by schoolchildren with a smear of Gianduja.

By the early 1950s, Ferreros fleet of delivery vans had topped 200 as the company moved to expand its operations nationwide. In 1954, the company adopted a new brand name for its core product, emphasizing its key ingredient of hazelnuts with the name Nutella. The company also continued developing new products, and met with new success with the launch of Mon Cheri, a chocolate candy with a cherry liqueur filling.

International Expansion in the 1960s

Michele Ferrero took over leadership of the family company after both his father and uncle died in the early 1950s. The younger Ferrero inherited a small confectionery company with a largely regional focus and transformed it over the next four decades into one of the worlds leading candy and confectionery specialists. One of Ferreros first moves was to launch the company internationally, turning first to Germany. In 1956, the company opened its first foreign plant in Allendorf, near Frankfurt, and began producing its hazelnut spread, which it dubbed Cremalba for the German market. Soon after, the company rolled out Mon Cheri in Germany as well.

Ferrero entered France in 1959, buying a confectionery company, Prevost et Grenier in Villers-Ecalles. For its debut in France, Ferrero chose the Mon Cheri chocolate, which met with considerable success. In 1961, the company rolled out the Nutella pastecalled La Tartinoisefor the French market and expanded its French production plant.

Ferrero expanded quickly, opening sales and production subsidiaries across most of Western Europe. By the end of the 1960s, Ferrero operated subsidiaries in the Netherlands, Belgium, the United Kingdom, Austria, Sweden, Switzerland and Denmark, as well as in France and Germany. Ferreros presence in such a variety of markets enabled it to begin creating and marketing products specifically for each market. Yet the companys strongest seller remained its Nutella brand, and starting in 1964 the company began rolling out that brand across all of its markets. That same year, Ferrero moved into new administrative headquarters in Turin in 1964.

Ferrero continued adding new products through the 1960s, including the breath mint Tic Tac. The company then turned its attention to pursuing growth beyond Europe, and notably in North America. Instead of launching Nutella there, which would have placed the company in head-to-head competition with the venerable peanut butter market, the company chose the Tic Tac brand as its key to entry into the North American market. In 1969, Ferrero set up a sales office in New York City. The Tic Tac launch was soon supported by a distinctive in-store advertising display, the Tic Tac tree, and a successful marketing campaign built around the tag line: Put a Tic Tac in your mouth and get a BANG out of life. The success of Tic Tac later led the company to establish a dedicated production facility in New Jersey.

By the late 1960s, however, Ferrero had begun to focus its interests on shifting consumer habits among its customers, and particularly the youth market. In 1968, the company launched a new chocolate brand marketed directly at children, called Kinder. Ferrero began developing products for the new brand, rolling out the first of the Kinder line in 1974. That product, Kinder Chocolate, was quickly joined by a variety of others, including Kinder Brioss, Kinder Cereal, Kinder Colazione, Kinder Delice, Kinder Bueno, Kinder Fetta al Latte, Kinder Pingui y Kinder Paradiso, all of which were dedicated to children.

Ferrero continued its worldwide expansion through the 1970s and into the 1980s, opening subsidiaries in Canada, Argentina, Brazil, and Ecuador, then moving to the Pacific, with subsidiaries in Australia, New Zealand, Hong Kong, Taiwan, and Singapore. The company also continued to grow in Italy, opening two new production plants. The company also launched a new chocolate brand, Ferrero Rocher, designed to introduce the company into the fine chocolate sector. During the 1980s, Ferrero took the unusual step of restructuring its operations along its brand lines, with each brand being treatedboth internally but especially in its marketingas a separate company. In this way, Ferrero was able to develop a distinctive image for each brand.

Company Perspectives:

FERRERO TODAY. Today, Ferrero remains a true family -run success story. A third generation of Ferrero sons have joined their father and continue to operate under the same basic principles that gave Ferrero its start in Alba over 50 years ago. With global sales growing in country after country, Ferrero is today one of the largest confectionery companies in the world. The Ferrero Family continues to delight its global consumers with a seemingly inexhaustible line of unique, high-quality products, not only in the spread and candy aisles, but also in the bakery and beverage sections.

While many of the companys core products remained unchangedsuch as Nutellaothers continued to evolve. Such was the case with the Tic Tac mint, which began adding new flavors, and which enjoyed still stronger success, especially in the United States, with the early 1980s rollout of a new campaign emphasizing the mints low calorie content. In 1989, burgeoning Kinder product introduced a new hit product: the Kinder Surprise. The white and dark chocolate candy was formed over an egg-shaped case, which held a surprisea figurine or a model to be put together by the child. Children across Europe eagerly grabbed up their Kinder Surprises and, before long, the toys themselves became the object of collectors around the world. While banned in the United Stateswhere legislation barred embedding objects in food productsthe Kinder Surprise proved wildly successful elsewhere.

Family Commitment for the 21st Century

In the 1990s, Ferrero turned to the newly opening Eastern European markets, opening subsidiaries in Poland, Hungary, the Czech Republic, and Russia. By the mid-1990s, the companys sales had topped the equivalent of EUR 3 billion. Nearly three-quarters of Ferreros sales came from outside Italyalthough the rest of Europe remained the companys primary market, accounting for some 60 percent of its revenues. Nonetheless, the company began stepping up its activities in other parts of the world, notably in the North and South American markets, where it hoped to boost sales to more than EUR 1 billion before the end of the decade. In order to achieve that, the company invested in new production facilities, opening a new $100 million facility in Brazil in 1997.

In that year, Ferreronow headed by Michele Ferreros sons Pietro and Giovanniwas rumored to have offered itself for sale to Unilever, then in the process of concentrating on its core food businesses. The Ferreros denied any interest in selling out, howeverand accused competitors of having spread the rumor. Instead, the company reaffirmed its commitment to remaining family-owned and private.

Ferrero continued to introduce new products, although most of its product linemore than 20 items altogether, remained limited to the Italian market. In 2000, the company, which already marketed its Pocket Coffee drink, launched a new ready-to-drink tea beverage, Estathé. That year, the company also launched a new chocolate, Mon Amour, a counterpart to the highly successful Mon Cheri. With sales rising to EUR 4.4 billion at the end of 2001, Ferrero announced that it was interested in seeking international partnerships as a means of continuing to grow. The companys future appeared as smooth as its popular hazelnut spread.

Principal Subsidiaries

DucalbaZao (Russia); Ferrero Ardennes SA (Belgium); Ferrero Argentina SA; Ferrero Asia Ltd (Hong Kong); Ferrero Australia Manufacturing Pty Ltd (New Zealand); Ferrero Australia Pty Ltd; Ferrero BV (Netherlands); Ferrero Canada Ltd; Ferrero Ceska sra (Czech Republic); Ferrero de Mexico SA de CV; Ferrero Ireland Ltd; Ferrero do Brasil Ltda (Brazil); Ferrero del Ecuador SA; Ferrero France SA; Ferrero International SA (Luxembourg); Ferrero Iberica SA (Portugal); Ferrero Iberica SA (Spain); Ferrero Italia SpA; Ferrero Japan Ltd; Ferrero Mag-yarorszag Kft (Hungary); Ferrero Osterreich Handelsges mbh (Austria); Ferrero OHG mbh (Germany); Ferrero Polska SP Z.o.o. (Poland); Ferrero Scandinavia A/B (Sweden); Ferrero Schweiz AG (Switzerland); Ferrero UK Ltd; Ferrero USA; Soremartec Fontvieille SAM (Monaco).

Principal Competitors

Nestlé Suisse S.A.; Mars Inc.; Nabisco Holdings Corp.; Cad-bury Schweppes PLC; Orkla ASA; Parmalat SpA; Hershey Foods Corp; CSM NV; Bimbo S.A. de CV; Meiji Seika Kaisha Ltd.; Masterfoods Slough; Hillsdown Holdings Ltd.; Sees Candy Shops Inc.; Ezaki Glico Company Ltd.; Katokichi Company Ltd.; CIR SpA; Oettinger Imex AG; Tiger Brands Ltd.; Morinaga and Company Ltd.; Kraft Foods France; Bear Creek Corp.; LU France; Arcor S.A.I.C.; UIS Inc.; HARIBO GmbH und Co KG; Cadbury Schweppes Australia Ltd.; Bestfoods Beteiligungs GmbH; Lotte Confectionery Company Ltd.; Fujiya Company Ltd.; Karl Fazer Ab Oy; Bourbon Corp.; Allied Bakeries Ltd.; Con Agra Store Brands; Russell Stover Candies Inc.; Storck of the Americas Inc.; Lance Inc.; Pliva dd; Bahlsen GmbH und Co KG.

Key Dates:

Pietro Ferrero moves his pastry shop to Alba.
Ferrero introduces his own recipe, a mixture of hazelnuts and cocoa butter called pasta gianduja.
Ferrero launches its own distribution operations, building up a fleet of 200 delivery vans by the early 1950s.
Company launches improved recipe for pasta gianduja, called Supercrema Gianduja.
Gianduja brand name is changed to Nutella for the Italian market.
Company opens its first international subsidiary in Germany.
Kinder brand of chocolate products for children debuts.
Ferrero establishes U.S. subsidiary and begins marketing Tic Tac for that market.
Company opens new $100 million production facility in Brazil.
Ferrero announces its interest in forming international partnerships.

Further Reading

Ferrero Plans Expansion, Eurofood, June 20, 2002, p. 8.

Ferrero Reports Flat Sales in 2000, Eurofood, July 19, 2001, p. 8.

Ferrero Unlikely to Change Its Ways, Campaign, May 3, 2002, p. 18.

Lutchford, Amanda, Ferrero Courts Sale to Unilever, Marketing, December 4, 1997, p. 1.

Martin, Michelle, Will Reformers or Traditionalists Win the Battle for Ferrero?, Campaign, November 21, 1997, p. 29.

Pacyniak, Bernard, Ferreros Fresh Approach, Candy Industry, October 2001, p. 39.

M.L. Cohen