AFTER INHERITING HIS FAMILY’S $13 BILLION CANDY EMPIRE IN 2015, GIOVANNI FERRERO VOWED TO SUPERSIZE IT AT ANY COST. HE DEVOURED ICONIC BRANDS LIKE RED HOTS, BUTTERFINGER, BABYRUTH AND NESTLÉ CRUNCH, AND HE’S NOT DONE YET. BUT WILL HIS GLUTTONY LEAD TO A MELTDOWN?
On the outskirts of Alba, a cobblestoned Italian city that dates to Roman times, stands a stark modern fortress. Behind 10-foot concrete walls, steel gates and uniformed guards lies not a nuclear facility or an army base but a chocolate factory. This is is the hometown plant of Ferrero, the maker of Nutella, Tic Tac, Mon Chéri and Kinder. Inside, khaki-clad workers monitor hundreds of robotic arms that craft sweets with military precision. Overhead, thousands of cream-filled Kinder bars zip down conveyor belts. Underneath, high-speed cameras scan for imperfec-tions: A tiny flaw in the coating is enough to trigger a puff of air that shoots the offending chocolate of the line. “We do everything with seriousness and extreme competence,” says Giovanni Ferrero, the firm’s 54-year-old executive chairman.
Hazelnuts cascade onto Ferrero Rocher pralines in Alba, Italy. The plant produces 1,100 tons of sweets every day.
That discipline has built an empire. Fer-rero sold $12.5 billion worth of sweets in 2017, and its namesake owners are worth an estimated $31 billion altogether. Their suc-cess took generations. Founded in 1946 in war-ravaged Italy by Giovanni’s grandfather Pietro, the business expanded through de-cades of careful growth, with little debt and no acquisitions.
But after a lifetime of working hand-in-glove with his brother and his father, Giovanni is suddenly alone at the helm. His brother, also named Pietro, with whom he ran Ferrero as co-chief executive for 14 years, died of a heart attack in 2011 at age 47. Then, four years ago his father, Michele, died as well. Left on his own, Giovanni ap-pointed Lapo Civiletti, a longtime Ferre-ro executive, as CEO in September 2017 in order to concentrate on strategy as execu-tive chairman.
THE FERRERO STORY begins in the shadow of World War I. In 1923, after serving in the military, Pietro Ferrero opened a pastry shop in Dogliani, in northwestern Italy. Life soon began to move quickly. Life following year he married 21-year-old Piera Cillario, who gave birth to a son, Michele, in 1925.
The family spent the next decade mov-ing between cities, as Pietro perfected his skills at other shops. Then, in 1938, he moved to East Africa with a plan to sell bis-cuits to the Italian troops dispatched there by Mussolini. The effort fizzled, so Pietro returned home. By the time World War II began, the family had settled in the quiet hills of Alba.
It was there that Pietro found his biggest success. At the prompting of his young-er brother, he began experimenting with cheaper alternatives to chocolate, an out-of-reach luxury in wartime Italy. He landed on a blend of molasses, hazelnut oil, coconut butter and a small amount of cocoa, which he wrapped in wax paper and sold around town. He called the mixture Giandujot, which traced back to gianduiotto, a similar confection that had been popularized under Napoleon.
“He had inventor syndrome,” Giovan-ni says. “He would wake up at any hour, go to the laboratories and right in the middle of the night would wake up his wife, saying, ‘Taste this. This is a great recipe.’ ”Giandujot was selling “as fast as [Pietro] could make it,” writes Gigi Padovani in his 2014 Ferrero biography, Nutella World. So Pietro teamed with his brother, also named Giovanni, who had a background wholesal-ing food, and they formed Ferrero in 1946.Pietro barely saw the business take off before he died of a heart attack in 1949, at age 51. But the groundwork had been laid. That same year Ferrero launched a more spreadable version of Giandujot, which eventually became Supercrema, the precur-sor to Nutella.
Then came another early death. In 1957, at age 52, Giovanni suffered a fatal heart at-tack. The company bought the stake inher-ited by his widow. Just 33 years old, Michele was thrust into command.If any one person deserves credit for Fer-rero’s global expansion, it’s Michele. Just before his father’s death, he persuaded his relatives to enter the German market.
Next came expansion to Belgium and Austria and soon and after to France.
In 1962, as Italy was emerging from postwar ruin, Michele decided to upgrade the quality of his Supercrema. The country could finally afford real chocolate, so he added more cocoa and cocoa butter to the mix. en, when the Italian government moved to regulate the use of superlatives in advertising—potentially putting the name Supercrema in peril—he chose to rebrand, landing on Nutella and began shipping jars under the new moniker in April 1964.
Ferrero’s expansion rolled on to Swit-zerland and Ireland and as far as Ecuador, Australia and Hong Kong. New products were introduced at a steady clip: the Kind-er line in 1968, Tic Tac in 1969, Ferrero Rocher pralines in 1982. By 1986, annual sales reached 926 billion lira, about $1.5 billion in current dollars.
As the company grew, Michele left nothing to chance and from his home in Monaco he often popped into retail stores to sample competitors’ products.
By the time he handed the reins to his sons in 1997, the once tiny operation had become a heavyweight with roughly $4.8 billion in annual sales.
In the late 1970s Giovanni and his brother were shipped off to a Belgian boarding school, ostensibly to protect them from Italy’s Years of Lead, in which high-profile figures (including John Paul Getty III and Ita-ly’s former prime minister Aldo Moro) were kidnapped for ransom. But their father had an additional motivation. He knew that Eu-rope was quickly moving toward a single market, and he needed heirs comfortable anywhere on the continent.
“It was the first historical age of Ferrero being a European company. Brussels was at that time the head of the European integration process,” Giovanni recalls.
Giovanni studied marketing in the U.S., then started work at Ferrero in the 1980s.
His first assignment placed him with Tic Tac in Belgium. Later he moved to a managerial role in Germany before learning business development in Brazil, Argentina, Mexico and the U.S.
As already said, together with his brother, in 1997, they took over as CEO from their father, who remained chairman. For the next dec ade and a half, they focused on boosting Ferrero’s in-house brands.
But in 2011, while biking in South Africa, Pietro died of a heart attack, the same fate as his grandfather and great-uncle, leaving his wife, three children and Ferrero behind.
Giovanni was forced to run day-to-day affairs by himself. “[It] was a big discontinuity,” he says. Four years later, Michele died, too, at age 89. More than 10,000 people reportedly attended his funeral in Alba.
He spent more than two years juggling dual roles, entrepreneurial and managerial, and was left with little time to address corporate strategy. “You get dragged down by the nitty-gritty,” he groans. Lapo Civiletti’s appointment as CEO in September 2017 made him the first outsider to hold the role.
With Civiletti minding the shop, Giovanni is concentrating on making acquisitions.
Hence the acquisition of Thorntons in 2015. At the time, the British chocolatier was seen as a declining business. Yet Giovanni evidently saw value there. He next bought U.S. candy makers Fannie May ($115 million in May 2017) and Ferrara, maker of Red Hots and Trolli gummies
(about $1.3 billion, in December of that same year). Finally came the Nestlé deal, including its Crunch, Raisinets and LaffyTaffy labels, for $2.8 billion. It was an ironic twist of fate. Two years earlier, after Michele’s death, rumors swirled that Nestlé might acquire Ferrero, which Ferrero strongly denied.
If his goal is simply scale, Giovanni is succeeding. Following the Nestlé purchase, Ferrero became the world’s third-largest confectioner, according to data from Euromonitor. And he’s not finished buying. Giovanni’s theory is that, as with the beer market, a few key players will come to dominate the confections trade. The rest will be relegated to niche status. “Somebody out there will [emerge] as a front-runner,” he says.
Some outsiders are skeptical of his plan. The obvious criticism is that unlike his father, who spurred growth through innovation, Giovanni is just buying his way to scale. And Ferrero is diving into the North American market just as consumers are shifting to more premium sweets and healthier foods.
Lucky for Giovanni the ongoing spending spree has not taken on a lot of debt.
And there are other, clearer bright spots. Ferrero launched its popular Kin der Joy eggs in the U.S. last year, the product got the FDA’s blessing and is already “overperforming expectations,” Giovanni says. Ferrero has unveiled other new products of late, mainly derivatives of existing lines, like Tic Tac gum.
The company is also on safer ground with its hazelnut business. A few years ago it purchased two of the world’s biggest hazelnut traders, Oltan Group in Turkey and the Italian Stelliferi Group, and is further investing in plantations in Australia, the Balkans and South America in a bid to increase yields and availability throughout the year. Ferrero, which buys about a third of the planet’s hazelnuts, is also now the
world’s largest hazelnut supplier.
That statistic underscores the company’s spiraling size. In just three generations, Pietro’s tiny shop has become a behemoth that sells goods in more than 160 countries, employs 40,000 people and makes 365,000 tons of Nutella per year. Giovanni waves all this away: “Well, it’s a promising start.”
On April 1, the Ferrero Group announced plans to acquire the cookie, fruit and fruitfl avored snack, ice cream cone and pie crust businesses from the Kellogg Company for $1.3 billion (or €1.16 billion at current exchange rates). These businesses, including Little Brownie Bakers®, supplier of cookies to the Girl Scouts, generated sales of approximately $900 million in 2018.
“These businesses are an excellent strategic fit for Ferrero as we continue to increaseour overall footprint and product offerings in the North American market,” said Giovanni Ferrero.
Ferrero will also take over from Kellogg six owned U.S. food-manufacturing facilities located across the country, two plants in Chicago, Illinois, and a leased manufacturing facility in Baltimore, Maryland.
The transaction, subject to customary closing conditions and regulatory approvals, is expected to close in the second half of the year. JP Morgan Securities plc and Davis Polk & Wardwell LLP served as advisors to Ferrero.