ALL YOU CAN EAT

Forbes - - CONTENTS - By noah kirsch

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?

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 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 im­per­fec­tions: A tiny flaw in the coat­ing is enough to trig­ger a puff of air that shoots the of­fend­ing choco­late off the line. “We do ev­ery­thing with se­ri­ous­ness and ex­treme com­pe­tence,” says Gio­vanni Fer­rero, the firm’s 53-year-old chair­man, in his first-

ever sit-down with the Amer­i­can press.

That dis­ci­pline has built an em­pire. Fer­rero sold $12.5 bil­lion worth of sweets last year, and its name­sake own­ers are worth an es­ti­mated $31 bil­lion al­to­gether, $21 bil­lion of which be­longs to Gio­vanni, who’s the 47th-rich­est per­son in the world. Their suc­cess took gen­er­a­tions. Founded in 1946 in war-rav­aged Italy by Gio­vanni’s grand­fa­ther Pi­etro, the busi­ness ex­panded through decades of care­ful growth, with lit­tle debt and no ac­qui­si­tions.

But af­ter a life­time of work­ing handin-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, three years ago his fa­ther, Michele, died as well. Left on his own, Gio­vanni ap­pointed Lapo Civiletti, a long­time Fer­rero ex­ec­u­tive, as CEO last fall in or­der to con­cen­trate on strat­egy as ex­ec­u­tive chair­man.

In many ways he is now turn­ing away from what pow­ered Fer­rero’s as­cent: a sin­gu­lar fo­cus on its na­tive brands. In­stead, Gio­vanni is chas­ing higher rev­enues through ac­qui­si­tions. He be­lieves that ex­ist­ing prod­uct lines won’t be enough, in the long run, to com­pete with larger ri­vals like Mars, the maker of M&M’s and Snick­ers (2017 con­fec­tionery sales: $23.7 bil­lion), and Mon­delez ($23 bil­lion), which has Oreo and Toblerone. So in 2015 he bought the ven­er­a­ble Bri­tish choco­latier Thorn­tons for $170 mil­lion. It was Fer­rero’s first branded ac­qui­si­tion ever. His big­gest pur­chase came in March, when he ac­quired Nestlé’s U.S. candy busi­ness for $2.8 bil­lion in cash. Amer­i­can icons like But­terfin­ger and BabyRuth are now Gio­vanni’s do­main.

He can af­ford it. Fer­rero is highly prof­itable—Forbes es­ti­mates the com­pany nets about 10% of sales—and is sit­ting on a pile of bil­lions in cash. But it’s still a risky en­deavor. At its core, the choco­late busi­ness is a brand­ing game. Ev­ery pur­veyor sells roughly the same com­modi­ties. Yet by some alchemy, or mar­ket­ing savvy, Fer­rero’s goods have tra­di­tional- ly com­manded a higher de­vo­tion. Nutella es­pe­cially so. When Columbia Univer­sity be­gan of­fer­ing the spread (a blend mainly of cocoa, sugar, hazel­nuts and milk) at a din­ing hall in 2013, stu­dents smug­gled it out like bandits, send­ing costs up a re­ported $5,000 in a week. In Jan­uary, af­ter a French gro­cery chain marked down jars by 70%, ri­ots en­sued.

The newly ac­quired prod­uct lines, how­ever, are less pre­mium, which threat­ens to di­lute those hefty mar­gins and com­pli­cate Fer­rero’s busi­ness model. And Gio­vanni is go­ing against the grain: His com­peti­tors are run­ning from cheap, junky sweets as health­ier snacks like trail mix are in­creas­ingly in vogue.

Gio­vanni, who runs the com­pany from Lux­em­bourg, is fix­ated on scale as an end unto it­self, de­fy­ing the views of his late fa­ther and in­dus­try ex­perts. Yet if he’s wrong, Fer­rero’s mar­ket po­si­tion could fal­ter. And he would be­come the prodi­gal son who blew bil­lions of dol­lars try­ing to rein­vent the wheel.

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. The fol­low­ing year he mar­ried 21-year-old Piera Cil­lario, who gave birth to a son, Michele, in 1925.

The fam­ily spent the next decade mov­ing be­tween cities, as Pi­etro per­fected his skills at other shops. Then, in 1938, he moved to East Africa with a plan to sell bis­cuits 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 younger 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,” Gio­vanni 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 whole­sal­ing 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 pre­cur­sor to Nutella.

With some clever tricks, the fam­ily ex­tended Su­per­crema’s ap­peal. They sold it in re­cep­ta­cles like jars and pots so pen­nypinched cus­tomers could re­use the con­tain­ers. Rather than dis­trib­ute it through whole­salers, the com­pany used an army of sales reps who went di­rectly to stores, help­ing keep prices low.

Then came an­other early death. In 1957, at age 52, Gio­vanni suf­fered a fa­tal heart at­tack. The com­pany bought the stake in­her­ited by his widow. Just 33 years old, Michele was thrust into com­mand.

If any one per­son de­serves credit for Fer­rero’s global ex­pan­sion, it’s Michele. Just be­fore his fa­ther’s death, he per­suaded his rel­a­tives to en­ter the Ger­man mar­ket. The com­pany con­verted former Nazi mis­sile fac­to­ries and be­gan churn­ing out sweets. It found a quick foothold with a cherry-liquor-filled choco­late called Mon Chéri, which it in­tro­duced in 1956. The Ger­mans were hooked.

Next came ex­pan­sion to Belgium and Aus­tria and soon af­ter to France. Fer­rero blitzed new mar­kets with ads billing the high en­ergy con­tent and health­ful­ness of its sweets. (Such mes­sag­ing later got the com­pany into trou­ble in the U.S., where it set­tled a false-ad­ver­tis­ing law­suit for $3.1

mil­lion in 2012, in part over call­ing Nutella “an ex­am­ple of a tasty yet bal­anced break­fast.” It de­nied wrong­do­ing.)

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. Then, when the Ital­ian gov­ern­ment moved to reg­u­late the use of su­perla­tives in ad­ver­tis­ing—po­ten­tially putting the name Su­per­crema in peril—he chose to re­brand. His team pon­dered a la­bel that would evoke the fla­vor of hazel­nuts in lan­guages across many mar­kets. Ul­ti­mately, they landed on Nutella and be­gan ship­ping jars un­der the new moniker in April 1964.

Fer­rero’s ex­pan­sion rolled on to Switzer­land and Ire­land and as far as Ecuador, Aus­tralia and Hong Kong. New prod­ucts were in­tro­duced at a steady clip: the Kinder 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. In one case, he filed a patent for Mon Chéri in Ara­bic to thwart knock­offs, and from his home in Monaco he of­ten popped into re­tail stores to sam­ple com­peti­tors’ prod­ucts. Where dili­gence wasn’t enough, he turned to faith, in­stalling stat­ues of the Madonna of Lour­des to watch over Fer­rero fac­to­ries around the globe.

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.

PRAC­TI­CALLY FROM BIRTH, Gio­vanni Fer­rero was groomed to be choco­late roy­alty. In the late 1970s he 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 Italy’s former prime min­is­ter Aldo Moro) were kid­napped for ran­som. But their fa­ther had an ad­di­tional mo­ti­va­tion. He knew that Europe 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. So off the boys went. “Per­sonal was al­ways subor­di­nate to the com­pany,” he says.

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.

Along the way Gio­vanni mas­tered the technical minu­tiae needed to run the firm. He now speaks in streams of cor­po­rate jar­gon (“di­men­sional thresh­olds,” “growth mo­men­tum,” “fo­cal­iza­tion”) in­flected with ar­cane data. Still, sales and mar­ket­ing were a more nat­u­ral fit for him. Thin, well-dressed and with a dis­arm­ing gig­gle, he has more the air of a game-show host than a bil­lion­aire fac­tory owner. He is also the au­thor of seven nov­els, many of which are set in Africa. When the topic comes up, he darts off to col­lect a copy of his lat­est, The Light Hunter, which is ded­i­cated to his fa­ther.

Gio­vanni’s cre­ativ­ity made him an ef­fec­tive coun­ter­part to his brother, Pi­etro, who grav­i­tated to op­er­a­tions. To­gether, in 1997, they took over as CEO from their fa­ther, who re­mained chair­man. For the next decade 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 dayto-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.

The deaths sparked nu­mer­ous changes at Fer­rero. To start, the busi­ness, which Michele had owned out­right, was di­vided among the fam­ily. He left the ma­jor­ity to Gio­vanni, since he felt that con­sol­i­dated own­er­ship would of­fer more sta­bil­ity. The rest went to Pi­etro’s young heirs, whose stakes re­main in trust. Fer­rero’s nom­i­nal pres­i­dent, Maria Franca Fis­solo—Mi-

one­time sec­re­tary and later his wife —re­ceived no shares, though she in­her­ited other as­sets and is now worth an es­ti­mated $2.1 bil­lion.

De­spite his mas­sive wind­fall, Gio­vanni was over­whelmed. “You have a lot of pres­sure,” he says. He spent more than two years jug­gling dual roles as CEO and chair­man 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, which his fa­ther had fiercely re­sisted. When asked what his dad would think of the buy­ing spree, he laughs: “I am 53. I have al­ready to­tally freed my­self.”

TO­DAY FER­RERO’S NERVE cen­ter is in Lux­em­bourg. Thanks to friendly taxes, the tiny state is a buzzing hub of global en­ter­prise. It’s a stark con­trast to life in sleepy Alba, a metaphor, per­haps, for how Fer­rero has changed. By virtue of its own­er­ship it’s still tech­ni­cally a fam­ily busi­ness. Yet Gio­vanni is re­ally run­ning a multi­na­tional, with 25 fac­to­ries scat­tered around the world—and a man­date to ex­pand. “I feel like we are duty-bound to grow,” he says.

He elab­o­rates, with char­ac­ter­is­tic wonk­ish­ness: “We are in love with a growth al­go­rithm of 7.33 pe­ri­odic be­cause, or­ganic or nonor­ganic, that would dou­ble the com­pany in a ten-year time hori­zon.”

Trans­la­tion: Gio­vanni’s plan is to in­crease rev­enues by at least 7.33% per year in or­der to dou­ble turnover in a decade. Fer­rero’s na­tive prod­uct lines prob­a­bly couldn’t ex­pand that quickly, so Gio­vanni is buy­ing sales to com­pen­sate.

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). 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 fron­trun­ner,” 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. Fin­tan Ryan, an an­a­lyst at Beren­berg Bank, calls Nestlé’s former prod­ucts “very much mass-mar­ket, high-sugar, un­healthy con­fec­tionery,” though he notes that they weren’t “given TLC” by the Swiss firm. Jean-Philippe Bertschy of Von­to­bel is less char­i­ta­ble. Nestlé was “a weak­ish busi­ness which lost mar­ket share year af­ter year.” Fer­rero, he says, “has made some ques­tion­able ac­qui­si­tions.”

Lucky for Gio­vanni, he has a com­fort­able mar­gin of er­ror. If Fer­rero’s fi­nan­cials are in line with those of its main com­petchele’s itors, it likely throws off more than $1 bil­lion a year in profit. Even with the on­go­ing spend­ing spree, it has not taken on a lot of debt.

And there are other, clearer bright spots. Fer­rero launched its pop­u­lar Kinder Joy eggs in the U.S. last year. They had been banned as a chok­ing hazard, since the choco­late shells con­tained a hid­den plas­tic toy. Af­ter mod­i­fi­ca­tions, 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.”

PHO­TO­GRAPH BY JAMEL TOP­PIN FOR FORBES

Hazel­nuts cas­cade onto Fer­rero Rocher pra­lines in Alba, Italy. The plant pro­duces 1,100 tons of sweets ev­ery day.

At Fer­rero’s Alba fac­tory, jars of Nutella are lined up for box­ing. The com­pany claims 150 mil­lion fam­i­lies reg­u­larly eat the choco­laty spread for break­fast.

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