On the outskirts of Alba, an Italian city from Roman times, stands a stark modern fortress. Behind high concrete walls, steel gates and uniformed guards lies a chocolate factory. This is the hometown plant of Ferrero, the maker of Nutella, Ferrero Pralines, Tic Tac and Kinder.
With €10.7bn of turnover in FY 2018, Ferrero Group is one of the World’s greatest confectionery empires. The group successfully manages world’s leading FMCG brands that practically every chocolate-aware knows. Impressively, the Ferrero products can be today found on the shelves in 170 countries worldwide.
The Ferrero’s story of success started with Michele Ferrero’s talent, who is still today often referred to as the Italy’s business icon. Fererro products, a global vision, and a knack for rapid expansion made him the richest Italian, as well as one of the country’s most respected business people back then. In 1997, after several decades of successfully developing the business, his two sons, Pietro and Giovanni, took over. They worked well together until the tragedy happened in 2011, that left Giovanni solely before the incredibly responsibility role – to further develop father’s legacy.
Ingredients supply as the innovation driver
Many innovation are linked to the hard times and so can be Ferrero’s. The fact why Ferrero’s main ingredients are hazelnuts can be explained with a simple historical fact – cut off cocoa trade routes to northern Italy in times of Napoleonic era. In order to survive, the chocolatiers had to adapt. They started supplementing chocolate with little bit of hazelnut paste, making every ounce of cocoa stretch that little bit further. Rationing struck again in the 1940s, which is why, Pietro Ferrero, the owner of a pastry shop in the small village of Alba, came up with a spreadable version that required even less cocoa. People eat Ferrero’s SuperCrema, as it was first called, with croissants, toasts or even solely with a spoon. The product became super popular with the locals. The recipe, however, needed some fine-tuning. With the help of his son Michele, Pietro released the improved version in 1964 with a new name Nutella. The product gained traction through very successful marketing (word of mouth, advertising) and the company’s ability to recognize changing consumer tastes and adapt to the market. Nutella, this “humble” chocolate spread, with decades became a global phenomenon. According to Ferrero 150 million families regularly eat the spread. Thanks to the demand for Ferrero products, Ferrero has become the biggest consumer of hazelnuts in the world, buying about a third of the global supply.
Making of Ferrero Rocher in one of the Ferrero Group’s production facilities.
Michele’s attention to details and perfection led into the creations that the world admired. For example, it took Michele five years for Ferrero Rocher to master the method to shape wafers inside the chocolate shell.
The Ferrero (Group) family
A core pillar of Ferrero’s success over the years is linked to the corporate culture. The company was built in line with the traditional Italian business model. The company was built on the close relationships within the family and its employees. Michele was able to maintain the strong roots throughout the expansion of Ferrero. A corporate culture that developed in a small village of Alba, where everyone knew each other well, was replicated also on other locations worldwide.
The employees respected Michele as he was continuously offering them perks such as transportation to work and back home, welfare services such as free medical care etc. Employees never stroke and always stick together. Even in worse, when for example the floods brought the factory in Alba to a standstill in 1994, hundreds of workers helped reopen it.
Working for Ferrero has always been seen as an achievement. The company had a strong commitment to training and educating employees, particularly those in more senior positions, which is why Ferrero managed to developed the top-notch individuals. Michele was well aware of the fact that investing in people was necessary for the company if it would like to become the industry leader.
The power of Ferrero brands
Ferrero brands can indeed be linked to Michele’s ability to recognize and develop business opportunities. Ferrero created and adapted products to suit each market in which it sought presence. Products were considered as unique by consumers for a sufficient time, that their brands gained the momentum.
Michele was also very much aware of the fact that he can not develop strong brands without sufficient focus. This is why Ferrero rolled out a chocolate egg with a small toy inside throughout Europe, known as Kinder Surprise, and mints in North America.
The packaging and products are iconic and in many markets a synonym for certain products. Brands are achieving record high number of followers and supporters on social media and in real life. Products are being awarded for their quality and innovativeness.
The collage of views as Ferrero’s success
Someone would think that sharing a title for Pietro and Giovanni would result in a complete mess, but it really wasn’t so. Pietro was considered by many as the dominant one, and Giovanni, on the other hand, as the more introverted one. As long as Michele could, he was very much involved in product development and strategic decisions, despite the fact that he officially stepped back.
The transition of the business from Michele to the two sons, Pietro and Giovanni, was a crucial move in terms of Ferrero’s prosperity. Although Michele’s contribution was in many ways unique and Ferrero today struggles to replace it, the business transition brought the necessary changes in philosophy. With younger generation in charge, Ferrero gained valuable additional value generation tools, such as mergers & acquisitions, which Michele did not really support. The fact that industry is consolidating rapidly is now finally being addressed in much broader context.
Giovanni Ferrero at Ferrero’s headquarters in Luxembourg. Photo: J. Toppin / Forbes
Perhaps the most vivid signal the market received in March 2015, when Ferrero gained final approval to begin the integration process with one of the biggest hazelnut producers in the world, Turkish Oltan Group. Given Ferrero’s dependence on hazelnuts and its demand, this was a critical move for the company in terms of value generation as well as indication of a shift in group’s long-term strategy.
Giovanni indeed revitalised the Ferrero Group also from within. Some more notable strategic moves are linked to the introduction of foreign managers, improved time to market and initiated creative marketing approaches. It is well-understood that making a step towards higher involvement and personalization is necessary if Ferrero wants to be a preferred choice of Millennials.
Giovanni has shown he can bring something different to the table. He is not self-taught as his father. He studied at the best marketing and business schools in Europe and US. Above all, he is also the author of several fiction books, which proves the fact how strong his vision and imagination are.
The past is getting new dimensions with Giovanni Ferrero
The competition among Ferrero and its closest rivals (Mars Inc, Nestlé S.A., Mondelēz International, Inc., Lindt & Sprugli, Perfetti Van Melle, Haribo, The Hershey Company, Meiji Co., Grupo Arcor and many others) is expected to tighten. Given the group’s high success rate for product development, excellent corporate governance, a reputation that attracts the best talent, and now a new business model, Ferrero is on a good path to strengthen its position.
According to Forbes estimates the company nets about 10% of sales and is sitting on a pile of billions in cash. Expansion through acquisitions is the logical choice to grow. The rationale behind the acquisition is to further consolidate presence in new territories and help drive sustainable growth rates in the following years. Among the already executed recent acquisitions are several multi-million euro deals that include Thorntons, Fannie May Confections Brands, Ferrara Candy, Kelsen Group, Nestlé’s U.S. candy business for $2.8 billion in 2018 and also Kellogg brands for $1.3 billon in 2019. One things is clear – the newly acquired product lines are less premium.
The proven elements of Ferrero’s success will undoubtedly continue. However, there are many factors that will require a special attention in the future. One of them might also be the rising negotiation power of discounters and e-commerce. Giovanni has shown he has the ability to stay true to the Ferrero legacy, while mixing it with modern business thinking. It seems that this mix of tradition and innovation is a promising base.
Read more about the Ferrero Group on their webpage.