Ferrero India posts a 17% decline in profit

Ferrero, an Italian chocolate giant, is acquiring the biscuit and snack businesses of the American Kellogg Company for $1.3 billion. The brands that Ferrero will buy include popular Keebler cookies as well as Famous Amos and Murray Sugar Free cookies and fruit snacks like Stretch Island.

Founded in 1946, Ferrero has acquired several US brands and businesses since 2017. It is now the third-largest company in the global chocolate confectionery market.

Steve Cahillane, Chairman and Chief Executive Officer, Kellogg, said, "This divestiture is yet another action we have taken to reshape and focus our portfolio, which will lead to reduced complexity, more targeted investment, and better growth. Divesting these great brands wasn't an easy decision, but we are pleased that they are transitioning to an outstanding company with a portfolio in which they will receive the focus and resources to grow."

Giovanni Ferrero, Executive Chairman of the Ferrero Group, stated, "The Kellogg biscuit businesses "are an excellent strategic fit for Ferrero as we continue to increase our overall footprint and product offerings in the North American market."

"We have great respect for Kellogg, it's legacy and values, and are proud that Kellogg has chosen Ferrero as a good home for these businesses," he added.

Italian confectionery major and premium chocolate maker, Ferrero Will invest additional Rs 500 crore to take its total investment to Rs 2,000 crore in India to further its production facility and distribution network, a senior company official said.

"India is an important market because the potential is very big. Today, it is relatively small but the idea is that India would grow many folds. The ambitions are big. The idea is to multiply our turnover of today and it would take some time," Ferrero India Managing Director Stefano Pelle.

The company is now planning to enter into tier II and III cities by doubling its distribution network over the next 2-3 years.

brands like Ferrero Rocher, Kinder, Tic Tac and Nutella operated by Ferrero is considering to get into the affordable segment in the sugar confectionery with value-based offerings and small SKUs (stock keeping units) in chocolate side.

Once, Ferrero has right kind of portfolio and have right through the market, then definitely India would be among its "three biggest priority market for us," Pelle added.

About the investment, Pelle said, "There are plans to increase it. Now we have invested already more than Rs 1,500 crore but we have plans to cross easily Rs 2,000 crore in some time to come. It could also be more depending opportunity in the market. Certainly, the group is very clear that India is a priority."

Moreover, the premium chocolate maker is also aiming the mass market by having some affordable products in its offerings.

On being asked about the strategy, Pelle said affordable "packaging would be a part of it".

Ferrero is also expanding its distribution network and plans to be available in top 100 cities soon. "One of the ambition which we have, is to double our distribution in next 2-3 years," Pelle added.

The company has a plant in Baramati catering partly to the domestic market and rest is for markets of South Asia, South East Asia and Middle East.

Its round chocolates in golden wrap may be the best known product of Ferrero Rocher, but it’s the tiny toys packed inside its top selling chocolate-confectionery product Kinder Joy that are now Ferrero India’s biggest product.

Stefano Pelle, managing director at Ferrero India said “India is a growing and very important market with big scope for category penetration. We don’t have a mass brand. We are working in that direction, especially in sugar confectionery, and later, within the enlarged chocolate market, not strictly chocolate products. it would not be easy for the company to compete in mainstream chocolates market. We wouldn’t make something that is there in the mainstream that wouldn’t be Ferrero then. Comparatively, the upcoming products will be among the most affordable products in the Ferrero universe. This doesn’t mean we won’t have our premium products. In spite of the fact that the environment was turbulent, we still saw some double digit growth. While the chocolate market has been facing some headwinds, Ferrero has been growing in double digits."

Ferrero India makes 900 million toys, of which 270 million are used for domestic consumption and the rest are exported, either as part of Kinder Joy packs or as toys.

The Italian firm, which reported €10.3-billion revenues for the year ended August 2016, has only one manufacturing unit in India in Baramati, Maharashtra, but it has some exclusive vendors in the country who manufacture toys only for Ferrero.

The Italian firm, which sells chocolates, bakery products, snacks, spreads, mints and drinks across over 170 countries, has begun testing entry-level confectionery brands in India as it looks to broadbase its portfolio and step up share in an intensely competitive market.

Italian chocolate maker Ferrero who made endeavored in the Indian market eight years ago are now roaring high as their annual revenue figures are scaling up year-on-year. The recent numbers of 2015 show that company which produces products such as Kinder Joy chocolates and Nutella chocolate-hazelnut spread has generated revenue of Rs 929 crore (as on March 2015). On the other hand, the company which is among one of the leaders in the business, Nestle has managed to garner revenue 1,110 crore in calendar 2015.

The aforementioned figures suggest that Ferrero is closing in with Nestle as three years ago, Nestle used to generate revenue which was three times that of its Italian counterpart. Mondelez, which sells Cadbury chocolates, still dominates the segment with annual revenues of over Rs 6,500 core. Experts attribute this to Ferrero's differentiation strategy.

Describing about the recent shift, Devendra Chawla, President, FMCG and Brands at Future Group said that there is a case to revisit the lens with which marketers view Indian consumers and affordability. Brands like Ferrero with no historic baggage has discovered and led the top down approach of premiumising through innovation versus old school thinking of focusing mainly on low priced products. Ferrero has shown that there is a large market even at the top end.

The recent report of Nomura claims that Nestle has suffered a lot because of its portfolio issues that gradually piled up and resulted in the decline of its revenue and share loss. The report further stated that Growth in the chocolate and confectionery business for the company has been in decline since calendar 2010, but revenue has declined from calendar 2013 onwards. Reasons for this decline are portfolio optimisation in chocolates, as well as seeking premiumisation at a time when demand was slowing. That apart, the failure to innovate beyond the wafer segment when consumer tastes were evolving is also blamed for the growth decline. 

Tic Tac, the mouth freshener brand from Ferrero, recently launched its first desi variant for the Indian market – Elaichi (Cardamom) mint catering to the Indian palette.

The brand has now associated with Cafe Coffee Day (CCD) to engage and strike a chord with the youth with the new desi mint the desi way.

This will be a 15 day long association in over 100 CCD outlets in Mumbai and Delhi.

Through the association, every order of CCD will be accompanied by a Tic Tac Elaichi Mint pack of Rs 5.

Tic Tac will also place exciting Desi props in all the 100 outlets for consumers to click quirky pictures, selfies and groupies.

The activation has a digital leg as a part of the 360° approach for the launch. Consumers are invited to upload their photos and write a quality which makes them uniquely desi using #desiquirk (on fb/tictac page).

“The aim is to reach out to as many youth through this association with CCD and build awareness and likability for the flavor. We are confident that the youth will enjoy the desi mint as much as we enjoy presenting it to them,” said Emanuele Fiordalisi – Vice President, Marketing, Ferrero India.

Tic Tac will be launching a fb innovation with tictacbook.com which is an interesting way of communicating the desiness of the elaichi mint variant.

Also as a part of the holistic approach is a radio campaign personifying the Tic Tac ‘Desi’ character.

A radio contest called ‘Sabse Desi Kalakaar’ is organized wherein listeners will be requested to vote for the most Desi actor, actress and singer. The duration is of 2 weeks on a popular radio channel.

Considering the ever evolving attitude of young consumers, Tic Tac has been regularly innovating new flavours to suit the Indian taste buds.

The current flavours available are Mint, Orange, Peach Passion, Strawberry fields and Mintensity.