While busy acquiring other companies for expansion, Ferrero, the third largest confectionary manufacturer in the world, has set a new target in China.
“Given the ambitions in the next five years, we aim to double our size, and we hope to achieve that not only through the chocolate segment, but also expanding our food in other categories beyond chocolate.” Mauro De Felip, General Manager of Ferrero China, said to the reporter of Food Inc, “we are very serious about the China market.”
Inside the Guangzhou office of Ferrero China, Food Inc held an exclusive interview with Mauro De Felip. In addition to the “Five-year Plan”, he also shared the opportunities and trends Ferrero sees in the Chinese market as well as some new localization strategy carried out by the company.
Let’s all hear it from the ‘Captain’ of Ferrero China.
Cater for dynamism of Route to Market
“Ferrero believes China is changing the rules of the traditional market and the rules of interacting with the consumers. So being successful in China for Ferrero, will lead to success worldwide tomorrow.” We started the conversation by talking about the retail changes in China that foreign food giants have been experiencing in recent years.
In the opinion of Mauro De Felip, China is experiencing a revolution in distribution channels earlier than any other country in the world, especially in the industries of e-commerce and new retailing. In the words of the manager, chocolate consumption in the U.S. is 10 times higher than that in China but online sales counts for a small margin; while in China, online sales can be registered at 20-25% of the overall sales volume.
This is where Ferrero is focusing on in order to “double its size within five years” in China.
As stated by Mauro De Felip last year, online sales counted for 15% of Ferrero’s total sales volume in China. This means that there is still plenty of headroom for growth in this area and that’s why Ferrero chose to strategically partner with Alibaba and JD.com. In March 2019, Ferrero announced new strategic partnerships with JD NPW and Alibaba LST to work together in marketing, consumer research, channel expansion & penetration and product upgrading.
Taking the partnership with JD.com as an example, as Ferrero said in a press release, the two parties will upgrade Ferrero’s brand store and increase traffic during the “JD Brand Day”; at the same time, they will also explore other marketing models such as upgrading POP store (third-party sellers on the platform) to strengthen product structure, expand distribution channels and penetrate into lower-tier markets in key regions. Similar to many other food companies, Ferrero will develop exclusive products that will only be available online.
“We are working with our distributors to provide exclusively customized products for our clients in China,” Mauro De Felip said. For instance, Ferrero will customize special SKUs that fit small retailing store better for Alibaba LST, “We hope our clients can customize products through our partner’s platform.”
This is one of the reasons why Mauro De Felip is not worried about the cannibalization between online and offline channels. “The big players like Alibaba and JD, they’re also interested and are also investing in offline businesses. This is where we are directing our business. When it comes to price, we will allow our clients to decide. We only provide them with suggestions; the retailers will make their pricing strategy.”
Outpace the market and gain bigger market share
Although Mauro De Felip did not reveal the most recent revenue number to us, he did say that Ferrero China “is experiencing a steady growth”: “We're growing about at 6.1%, while the market average growth is 2.3%, hence we outpaced market for than 2 times.”
When looking at the whole group, Ferrero closed the financial year of 2017/2018 with a consolidated turnover of 10.7 billion Euro (approximately 80.9 billion RMB), with an increase of +2.1% compared to the previous year.
In terms of business performance, the products that led the growth in net sales of finished products were Nutella, Ferrero Rocher, Kinder Joy, Kinder Bueno and Kinder Chocolate.
In China, the innovation of Kinder is also leading the performance of the whole company. “Kinder was introduced 5 or 6 years ago. The steady growth of Kinder Joy and Kinder Chocolate is another example of how our product quality and brand value have been recognized by Chinese consumers,” Mauro De Felip said.
In addition, he also referred to data from Nielsen that by Dec 2018, Ferrero outperformed market growth both value and volume.
As he has told us, Ferrero gains 27% of market share in China, ranking 2nd behind Mars. At this moment, Mars is selling Dove, M&M’s, Snickers and Maltesears in China.
When asked which company Ferrero’s biggest competitor in China is, Mauro De Felip jokingly said “nobody”. In his opinion, Ferrero owns three unbeatable uniqueness.
First is the uniqueness of the products. We design, craft, engineer from zero for our products. We even design the equipment in the manufacturing plant, which enable us to produce our products. That allows us technologically and technically to realize a product that is impossible to copy or imitate.
“This is our biggest competitive advantage as we know nobody can get even closer.” Mauro De Felip said that “as you can imagine, it takes a lot of investment and time in developing the recipe, engineering the machine, and pulling the machine up to speed. And we are not using third party providers or small chocolate makers behind the corner.”
For consumers, Ferrero products, like Ferrero Rocher which is more commonly known as “Jin Sha” for Chinese consumers, are very distinctive. “We see a lot of imitations of Ferrero Rocher in the market. But if you try one imitation of Ferrero Rocher, you will find what they can imitate is very limited”, said Mauro De Felip with confidence.
Second is the obsession on quality. “ Ferrero is the only one chocolate manufacturer using the cold chain during all transportation.” Mauro De Felip said that If it’s a sunny day, the temperature inside the truck can even reach sixty degrees, any chocolate product will face the melting issue under this circumstance. Meanwhile, Ferrero requires its distributors to use cold chain transportation and Ferrero will pay this additional cost to assure the best quality and freshness of its product.
Last but not least is the strong brands going beyond category. Ferrero Rocher is not just a premium chocolate brand, but also a gifting brand. It is not just competing with chocolates, but with other gifting and offers that consumers can buy at very important festival occasions in China. Kinder as well is not just a chocolate bar, it is more than that, it is a brand that Mom can give it to their kids because it’s a chocolate product with high-quality ingredients, representing emotional bonding between parents and kids. We’re leveraging on this strength, which differentiates us from other competitors.
Innovation Leveraging Local Context
In order to create an emotional bonding with consumers, Ferrero has invested hugely on the localization of its product offering.
Due to its unique brand positioning, a large portion of Ferrero sales still relies on gifting during holiday seasons. Gifting still represents big market tendency and the marketing team of Ferrero therefore focuses on the development of seasonal portfolio to cater for the specific requests emerging on local context.
“The tradition festivals of the Chinese market particularly fit with the tradition of Ferrero brands, Chinese New Year, mid-autumn festival, which are relevant to all consumers. And if it comes to our brands, it is particularly relevant to follow those occasions, Ferrero’s products are for particular occasions. It is not pure chocolate, it can be bought for Chinese New Year, and also for small gifts to children from the grandparents, for those occasions. " said Mauro De Felip.
Food Inc noticed that Ferrero has developed a limited edition of Rocher to celebrate the Chinese New Year, the most important occasion of family reunion throughout the year - the limited edition of Chinese Knot pack of Ferrero Rocher. And Ferrero has also unveiled customized New Year greeting cards, enabling consumers to choose a tailored blessing message of their choice to place on the Chinese Knot Ferrero Rocher pack. Kinder also launched a special pack for Chinese New Year, incorporating traditional Chinese elements such as “the year of pig” and “red envelopes” into the design.
To enhance parent-child connection, Kinder has also carefully studied the parent-child relationship of Chinese consumers and decided to take Chinese kids as the “cover star” of Kinder Chocolate. Mauro De Felip mentioned that Kinder has introduced “Face of Kinder” to China since 2017 to find the most appropriate kid of the year to become the “cover star” of Kinder Chocolate with the idea coming from Chinese mum’s local insight.
Differentiate from many other brands, Ferrero never used brand ambassador in its history. Mauro De Felip said,” we think our brand equity is strong enough, I respect the strategy of our competitors, but that is not mindset of Ferrero. We hope to create this emotional bonding with our consumers through the offering of strong brands beyond its category.”
Diversified Product Supply
China is one of the most important markets for Ferrero Group in terms of its market size and evolution. Mauro De Felip said that China and the U.S. will be top two key pillars of growth for the Group in the future.
Mauro De Felip said that given the ambitions in the next five years, Ferrero aims to double its size, and hopes to achieve that not only consolidating the chocolate product, but also expanding in other categories beyond chocolate.
According to him, Ferrero is seeking opportunities in other categories. Mauro De Felip said that, “Our portfolio is pretty large, we have different categories like biscuits, sugar confectionery, ice creams as well. We are taking our time to really understand what the opportunity is in China and how we can approach the consumers. We take a bit of time for this probably a bit longer than other competitors, because we want to be sure to make the right choice. “
Mauro De Felip told Food Inc that Ferrero will introduce new product next year. He emphasized that there are still growth opportunities in the chocolate market.
As Food Inc reported not long ago, Ferrero has acquired cookie and fruit-flavored snacks businesses from Kellogg in the U.S., entering into new strategic product categories for the first time. Since 2017, Ferrero has acquired many American brands and businesses, including Fannie May, Ferrara and Nestle’s U.S. confectionary business.
However, despite its effort to seek growth opportunity outside chocolate category, Mauro De Felip told Food Inc that Ferrero has no plans to acquire any business in China at the current stage.
As he explained, the American market is mature and saturated. Acquisition can help Ferrero grow in the U.S., as shown by the statistics. But it is not the same way in China. The market here is still expanding where all sub-categories are showing single-digit or even double-digit growth rates. At the same time, digital technology is also introducing more opportunities.
“I think we are in a different kind of path in China. M&A in China, for the moment, is not on our agenda. ” He said. Right now, Ferrero is only focusing on the chocolate category in China. Its chewing gum, biscuit and bakery products have yet to be introduced to the Chinese consumers. This is where the company puts its focus on.
Mauro De Felip mentioned that the other trial Ferrero is seriously taking into consideration is to enter the market with Nutella, not as a spread but under other categories. “If you look at Ferrero global portfolio, we have Nutella biscuits launched in Europe. We have Nutella & Go which is a biscuit stick with Nutella. That would be the way to enter Nutella in china, this is what we are considering.”
In addition to expanding product category, the Italian confectionary giant is also trying to explore more “self consumption” occasions other than gifting during festivities – in China, chocolate is still the “first choice” for gifting during holidays. Compared to other markets like the U.S., personal consumption is very low.
“We’ve also developed a lot for self consumption occasions. Ferrero Rocher, for example, we have a small package with Rocher T3, which you can buy almost everywhere, even in convenience stores or a supermarket at the check-outs, and also the hot spots in store.” Mauro De Felip told to the Food Inc, products in small portion and individual package have lower price and fit better the consuming behavior of self indulgence.
Mauro De Felip said that according to the data from Nielsen, Ferrero has registered a double-digit growth on segmentation of self consumption. “Everything is going to be convenient. It’s driven by the rapid expansion of small format stores, convenience stores in China. It has been growing very strongly and successfully in the last two years.”
According to Mauro De Felip, per capita chocolate consumption in China is not high, there is much room for growth. “I think the particular innovation and new synthesis of new products, recipes and variety really play an important role in the future. Therefore we are working on that aspect as well. We are investing more in China. I think there is infinite growth rate of this market in the future.”