Fortress Ferrero resists bankers’ siege
The drive from Milan’s financial centre to Alba, the headquarters of the Ferrero group, takes just two hours. But the two places could be worlds apart.
Perched on the edge of a river in the Piedmont region, the presence of Nutella is clear from merely smelling the air in the nearby medieval town where it is based. Here, Ferrero, which owns the Nutella, Tic Tac and Kinder brands, has defied the lure of 21st century capitalism and remained fiercely family controlled and conservatively run.
In Milan’s tight-knit financial community, Ferrero, which made €8.1bn in revenues in 2013, is known for being “unbankable”, in the words of the partner at a leading law firm. Bankers and lawyers talk of making repeated forays to Alba, only to be turned away on any proposition, from a stock market listing to issuing debt.
The death of the group’s patriarch, Michele Ferrero, aged 89 after a long illness has reignited speculation among bankers and financiers of a possible change of strategy.
But those familiar with the sprawling group, which remains in the hands of Mr Ferrero’s son Giovanni, the chief executive, do not expect it anytime soon.
“The strategy and the structure is so good so far that I don’t from a technical perspective see any need for any change,” says Luigi Consiglio of consumer goods consultancy GEA.
A longstanding Italian chief executive in the global consumer goods business adds: “It is a very slow-moving company. Indeed, it is more a group of brands than a company, nothing will happen there for years.”
Milan investment bankers were abuzz 18 months ago when rumours reached the city that Swiss group Nestlé had approached the reclusive Ferrero family, made up of Michele Ferrero, his wife and his son Giovanni, and the widow of his son Pietro, who died in 2011.
Ferrero is the fourth-largest confectionery brand in the world — after Mondelez, Mars and Nestlé — with €81.bn of revenues and €545m of net profit in 2013. Its Kinder brand is the world’s third-biggest by revenues after Wrigley and Cadbury. A merger with Nestlé would have made the group the biggest confectionery company in the world.
Nestlé at the time refused to comment and Ferrero in a statement in Italian newspapers said it had received no bid. Giovanni Ferrero added: “We were born a family company and intend to stay that way.”
According to three people with direct knowledge of the matter, Nestlé had made a tentative proposal for a cash and share swap that would have seen the Ferrero family becoming a big or even the biggest shareholder in the merged group, but the proposal was duly dispatched.
Giovanni and Pietro Ferrero had considered a big deal once before — a takeover of Cadbury in 2009 — but gave up the idea when it was vetoed by their father.
The only acquisition the group has made was a Turkish hazelnut supplier, bought last year. Organic growth through its brands has been its mantra — and thus far has served its expansion. One jar of Nutella is sold every 2.5 seconds worldwide, according to the company.
Jack Skelly, a food analyst at Euromonitor International, says one of Ferrero’s strengths is that it has balanced organic growth between developed and developing countries. In the Chinese and Russian markets, Ferrero’s sales in chocolate confectionery have increased by more than $600m in the past five years. The overall growth of China and Russia’s combined chocolate confectionery markets during that time is nearly $4bn.
Mr Skelly points out that Ferrero has also committed to improving its presence within other countries, such as the UK, the only European market where it does not have a top-three leadership position.
It is launching its Kinder range in so-called share bag format in a bid to build up its presence in the children’s confectionery market. Mr Skelly considers the Italian group also has room to “tinker with its formula to push the Ferrero Rocher brand in retailing and reinforce the brand’s premium image”.
Its most pressing issue, say industry experts, is not consolidation but its most precious asset — Nutella.
While hazelnuts remain a crucial part of the Nutella recipe — although far less than when it was created by Michele Ferrero more than 60 years ago — palm oil makes up as much as fifth of its ingredients.
Industry insiders say mounting consumer concerns about the use of palm oil — for both health and sustainability reasons — could affect sales of Nutella, especially since EU rules forced clearer labelling of ingredients since January this year.