Lindt: time for Swiss chocolatier to raise the bar
With sales set to fall this year, the group might be wise to reposition itself more upmarket
Lindt & Sprüngli enjoyed a chocolate high during the pandemic. The Swiss chocolatier is now a lot less full of beans. Last week, it said organic sales growth would roughly halve to 5-7 per cent this year. The shares remain above pre-Covid levels but have fallen nearly 20 per cent since the new year.
Chocolate is losing its appeal as an anti-covid hedge. Shares in Barry Callebaut, a rival Swiss chocolate maker, gave up early gains on Wednesday after expectation-beating three-month sales figures.
Society and economies are establishing a new normal. The overlay in the case of Lindt is the positioning of its chocolates as affordable luxuries.
Pushing further upmarket would be a canny strategy for Lindt. Demand for durable luxury goods such as handbags are enjoying secular growth.
Lindt needs to expand its distribution, especially of premium products. At present this venerable business concentrates on Europe. North America, where production was hit by supply bottlenecks, contributes less than a quarter of operating profits. Asia is an even smaller source of earnings, according to the same S&P data.
Fast-growing developing markets could offset slower growth in mature economies. The Swiss company can also shore up sales with new products such as sugar-reduced and vegan chocolates.
Operating profit margins are expected to improve to 15 per cent this year. That is better than small UK rival Hotel Chocolat. But chief executive Dieter Weisskopf needs to focus on improving medium-term profitability, even so. That means investments in distribution and advertising to make the brand a little cooler.
Short term, the result would be fewer payouts to rival last March’s Sfr750m ($815m) share buyback. But no one invests in Swiss industry for a fast buck.
High, chocolate-fuelled expectations and Lindt’s reputation for resilience help explain why, despite this year’s falls, its shares still trade at around 45 times forward earnings expectations, far higher than Barry Callebaut and Nestlé. To justify the premium classification of its shares Lindt needs to reinforce the credentials of its chocolates in that market segment.