Nutella: From small family business to global spread

Appearing in In The Black, May 2016

See http://intheblack.com/articles/2016/05/01/nutella-small-family-business-to-global-spread

Nutella: From small family business to global spread

 

A small northern Italian family company has managed to ride the wave of globalisation and turn a simple idea into a food phenomenon.

 

From Corn Flakes to Coca-Cola, the food industry is famous for its universal brands and global conglomerates. Yet one of the greatest food globalisation stories of the past half-century belongs to a small company from Italy’s Piedmont region that founded itself on the success of one product – Nutella.

In five decades, the recipe has not changed from its blend of sugar, oil, hazelnuts, cocoa and milk. With 13 per cent hazelnuts and around 55 per cent sugar, Nutella is technically a sugar spread rather than a hazelnut spread, a straightforward testament to children’s interest in anything sweet, smooth and chocolate-flavoured.

Some visual aspects of the product and advertising styles have evolved, but there is a clear family resemblance going back to the beginning. It is a simple product with a simple name that combines the word “nut” with the Italian diminutive suffix “ella”.

The company behind the spread is similarly straightforward. The Ferrero company is a family affair, responsible not only for Nutella but for other hugely successful products, such as Ferrero Rocher chocolates, the Kinder line of children’s chocolates and the ubiquitous mints Tic Tacs.

Each product line makes little effort to associate itself with other lines, and the Ferrero group does not seek to advertise or brand itself as a corporate entity.

Yet for a simple product from a simple company, the Nutella story may have quite a lot to teach about investment, innovation, brand strategy and successful globalisation.

Nutella

The mother of invention

Nutella’s half-century milestone has been marked by a new book, Nutella World, by food writer and journalist Gigi Padovani, who traces the origins of the product and seeks to understand the reasons for its success.

Padovani notes that the product grew out of the dire economic conditions in Italy in the years immediately after World War II. Italians have always loved chocolate, but cocoa was in short supply. Necessity, or at least scarcity, acted as the mother of invention.

A baker, Pietro Ferrero, looked for an alternative to chocolate for his pastries and realised that hazelnuts, which were plentiful in the area around Alba, could be used. He and his younger brother Giovanni created a hazelnut-based product called the Giandujot, which was the consistency of hard cheese and was meant to be sliced and put onto bread. The product was successful enough for Giovanni to set up a company to concentrate on it.

But then serendipity – in the form of a particularly hot Italian summer – intervened. The Giandujot ingots melted into a cream. As it turned out, the customers loved being able to spread it rather than slice it. After some further refinements, the first jar of Nutella was produced in 1964.

Widening its appeal

The company quickly outgrew Italy and became popular in France and Germany. Nutella was, somehow, a natural in a world heading towards globalisation.

A 2012 OECD report, Mapping Global Value Chains, noted that the world food industry was now structured around global value chains led by food processors and retailers. Ferrero was one of the report’s case studies, an example of a firm that grabbed the opportunities presented by liberalisation of foreign investment and trade in both developed and developing countries.

The report observed Nutella’s care in placing production close to its largest markets, from Argentina to Russia, while drawing its raw materials from economies such as Turkey, Nigeria and Malaysia.

Padovani reports that a great deal of research is conducted on any new country market before moving into it, often including trials in selected locations and with a focus on competitors to Nutella. For example, Britain was considered a difficult proposition because the spread market was dominated by Marmite. A country-specific campaign was developed and, eventually, Nutella overtook Marmite.

Speaking to the heart

Giovanni and his son Michele, who would take over the company after Giovanni’s death, seem to have had an intuitive talent for branding and effective marketing. In the early years, there was even an arrangement whereby children who brought a slice of bread into a Nutella-connected store could receive a free smear of the spread. The Ferrero family realised the importance of building a special connection with customers, well before marketing theorists began writing about it.

“Iconic brands manage to stay young forever, because they bridge generations and establish an emotional relationship with the consumer,” says Padovani. “Cult products speak to the heart as well as the mind.”

He believes that Nutella has become what Kevin Roberts, former CEO of Saatchi & Saatchi, called a “lovemark”. Part of this was due to nostalgia: the initial advertising of Nutella was directed at children, easily attracted to something chocolately, sticky and sugar-laden. The problem with such a strategy is that eventually children grow up, and while they might retain an attachment to the product, that attachment might not extend to actually buying it. Realising this problem, the Ferrero image managers began to re-align the marketing to embrace teens and adults as well.

In part, this succeeded because Ferrero was willing to embrace new methods of advertising, moving seamlessly from poster-based advertising into television and then later into social media. The most senior people of the company have always been closely involved with branding, advertising and image decisions. The linkages have been with de-stressing, mature enjoyment and family time.

Padovani notes that inside Ferrero, brand extension is viewed as a dangerous practice, because it could detract from the company’s original brand equity. “The product life cycle has been replaced by a promotion life cycle,” he says.

Yet Nutella has successfully extended into one new field: the commercial food sector. Restaurants and cafes proved to be big customers of Nutella in bulk. Any fears the company executives might have had about this detracting from the domestic focus of the product proved unfounded.

Cracking a supply problem

The global expansion of Nutella soon raised a problem of supply. Many other Ferrero products, such as its pralines, also use hazelnuts. Ferrero quickly became the world’s largest buyer of hazelnuts but also realised that eventually there would not be enough. The answer was for the company to become a planter of trees, a process it began in the 1990s, setting up a string of agricultural subsidiaries for the purpose.

This might sound obvious, but it should be remembered that tree-planting requires a great deal of investment and a good deal of patience as the trees grow large enough to yield. About 6.6 million trees have been planted, many in developing economies. Most are now mature enough to produce nuts, and further expansions are planned.

Padovani sees a capacity for this sort of “patient” investment as a strong point relating to Ferrero’s private corporate structure.

Another factor has also helped Ferrero to continue to grow: its solid reputation grounded in a strong sense of corporate social responsibility. The company can point to its use of palm oil from sustainable sources, for example: the most common post on its Facebook page is that “100 per cent of the palm oil in Nutella is RSPO certified as segregated and sustainable”.

RSPO is the Roundtable on Sustainable Palm Oil, whose members include WWF and Oxfam. Ferrero is also a member of the International Cocoa Initiative, an organisation that works with the cocoa industry, cocoa-growing communities and governments to help eliminate child labour.

Navigating social media

Ever conscious of the need to win new generations of customers, Ferrero was one of the first corporates to make the leap into social media. This connected with its “lovemark” status – it seems that people like to talk about their experiences with the product through blogs, tweet about them and exchange recipes through Facebook pages. In 2014, there were 17 million tweets containing the word “Nutella”, and 440,000 were launched with the hashtag #Nutella.

YouTube has also exploded, with 15 Nutella channels on the website. The most popular is the Italian channel, with more than 11 million views. The Australia-New Zealand Nutella Facebook page has had more than 30 million likes.

Padovani extols the plan to move into social media and points to figures suggesting that Nutella has successfully made another generational leap.

“In 1964, there were only television commercials,” he says. “Today, Nutella is all grown up and knows how to navigate the great seas of global communications. Ferrero can take advantage of the most innovative technologies out there.”

Padovani believes that Nutella will continue to make headway in developing markets, including the growing markets of Asia. The newest Nutella production facility, in Lithgow, New South Wales, will produce not only for the Australian market but for Japan, China and Singapore as well.

The facility includes a hazelnut plantation – Ferrero’s newest – which is expected to begin yielding in 2017 or 2018, with a production level of about 5000 tonnes in-shell.

In this capacity to invest for the long term, to push into new markets and to grasp new ways to sell the product without losing its essential discipline, this family company from the Piedmont shows itself as something else – the very model of a globalised enterprise.

Australia’s Nutella surge

Australia was long considered a difficult market for Nutella, in part due to the popularity of Vegemite. But the company has slowly built its position, so that in 2013 the Australian Ferrero company generated revenue of A$166 million.

The past few years have seen significant increases in Nutella consumption, with peaks near 10 per cent a year. In 2015, there was a shortage of Nutella in Australian cafes. Suppliers of commercial-sized tubs could not keep up with demand, so chefs had to buy smaller tubs from supermarkets.

In particular, Melbourne’s cafe culture has embraced Nutella, with many eateries offering a doughnut with a plastic syringe full of Nutella, so customers can inject the amount they want.

Nutella’s global value chain

  • One jar of Nutella is sold every 2.5 seconds worldwide.
  • About 350,000 tonnes of Nutella is produced every year. This amount could be spread over more than 1000 soccer fields.
  • More than 11,000 tonnes of Nutella is produced at the company’s facility in Lithgow, New South Wales.
  • In 2013, five tonnes of Nutella was stolen from a parked van in Germany.
  • There is a World Nutella Day, 5 February, originally established by an American blogger but eventually taken over by the Ferrero group.

Ferrero by Nutella

Given Ferrero’s size and profitability, the Ferrero product line is remarkably limited, and each product has its own underpinning strategy.

Ferrero Rocher pralines, now the largest-selling chocolates in the world, are presented as a luxury product, albeit one within the reach of ordinary consumers.

Tic Tacs are marketed for adolescents as a “fun” product. Kinder products are pitched as treats for younger children and families to share.

 

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