Small fortune

When I met him in London his opening remarks were emphatic. "We are in the confectionery industry and it is really about pleasure,"​ said Walter. He went on to point out that Ferrero's premium quality chocolate brands, which include favourites such as Ferrero Rocher (of the iconic TV commercial fame) and Kinder products, were the smallest confectionery products on the market.

"We are an easy target the industry as a whole is an easy target,"​ remarked Walter. "The whole confectionery industry is about 3% of your calorie intake."​ He further rebutted criticism of his company supplying highly calorific products that were high in fat and sugar.

"We at Ferrero did the right thing. We have small portions, which allows you to indulge in the product but not over-indulge. A normal chocolate bar is around 50g, ours are 12.5g the biggest one is 21.5g."​

Expansion in the UK ​

This difference has helped to establish Ferrero's positioning in the market as a premium chocolate product that, weight for weight, can command a price premium some 2550% above the average on the UK market. And it has been particularly successful in the UK, witnessing "double digit" annual growth and achieving a turnover of around £200M.

Now the family firm which has headquarters in northern Italy and boasts of being the fourth largest confectionery company in the world after Kraft-Cadbury, Mars and Nestlé, with a euro 7bn turnover has announced ambitious plans to double its UK turnover by 2015.

Ferrero currently has 38 operating companies and 18 factories (including its base in Alba, where all new product development is carried out), employing over 21,600 employees across the globe. And if its plans for the UK are as successful as it anticipates, it also intends to set up production here too probably somewhere centrally located to serve the whole country. Walter said the new facility would produce Nutella, which is expected to generate much of the growth in sales.

At the moment, Nutella is supplied from a factory in France, while Kinder products come from plants in Italy, Germany and Poland and Ferrero Rocher is made in Alba in northern Italy and at Stadt-Allendorf in Germany. Tic Tacs come from the company's factory in Cork in Ireland, which opened in 1975.

While Ferrero's present growth in the UK has been impressive, doubling sales to £400m in just four years will be no easy task especially given the flat confectionery market that exists here. But Walter is confident of stealing market share from his major competitors.

"We have a market share today of about 4%," ​claimed Walter. "If I double I go to 8%. If you look at our competitors, Cadbury-Kraft on about 33% and Nestlé and Mars are behind Cadbury, but still far ahead of us."​

Kinder surprise?​

Walter is confident there is further potential for growing premium, high-quality confectionery products in the UK. Even in a recession, there is a need for quality and that need is growing, he remarked.

Thus, the growth will come from two areas. As well as expanding sales of Nutella, he plans to expand the Kinder franchise through its existing product ranges such as Kinder Surprise and Kinder Chocolate, and by adding new products that are currently not on sale here.

These include its chilled snack product ranges, which have been available on the continent for several years, and new hand-held products with 30-day shelf-life, which Ferrero plans to introduce here over the next three years. "The next step [in the UK] will be to bring the brand into another area of the supermarket the chilled area,"​ said Walter.

Walter admitted that rising prices and problems with availability of ingredients have probably presented the biggest challenges to Ferrero over the past few years, as they have other manufacturers.

Most recently, it has been the civil war in Cote D'Ivoire that has destabilised the market, since it supplies around 40% of the world's cocoa crop, said Walter. He was hopeful that with a resolution to hostilities in the Cote D'Ivoire, it would eventually become as reliable a source of sustainable, high-quality cocoa as Ghana has become.

There had been pressure from retail customers to force their suppliers to absorb price rises in raw ingredients, said Walter. "But, in the end, some price increases you have to pass through,"​ he remarked. He added that Ferrero was not prepared to "re-engineer"​ its products to reduce their quality or cut costs.

While recognising that an adverse economic climate had the potential to stall Ferrero's ambitious growth plans here, Walter was confident that success primarily lay in the firm's own hands. He dismissed the suggestion that pressure from powerful retailers in the UK was any different to that in France, Germany or Spain.

And while he would like Ferrero to be able to do more promotions here, their high cost was a limiting factor, he noted. "Yes, of course, [retailers] would like to have more, but at a certain point you have to resist."​

Sustainability targets​

Walter was at pains to stress Ferrero's sustainability credentials. He noted that, as a private company, it was not obliged to publish its corporate social responsibility targets. It started doing so last year, he claimed, to meet the growing expectations of its customers and consumers. "Consumers are demanding more transparency about where a product comes from, sourcing, how it is produced, and your production processes,"​ said Walter.

Ferrero has set targets for the sustainable sourcing of palm oil, sugar and cocoa. It is part of the Round Table on Sustainable Palm Oil and aims to source 100% certified product by 2015 up from its current 30%. It has set the same target for sourcing coffee. Furthermore, it has ambitions to source 100% of its cocoa sustainably by 2020 and is involved with various initiatives to achieve this. It currently sources just 10% of its cocoa sustainably.

The company is also part of the Better Sugar Cane Initiative, which commits it to certain social responsibility principles. And it sources around 30% of the milk used in its products from dairy herds local to its factories.

"We have just signed an agreement, as hazelnuts are very important to us, with Turkish suppliers about biodiversity and sustainability,"​ noted Walter.

About 15 years ago Ferrero also began a project to grow hazelnuts in the southern hemisphere, starting with about 4,000Ha in Chile, said Walter. The advantage of sourcing from Chile is that it enables Ferrero to obtain a second crop and complement hazelnuts from the northern hemisphere. This will enhance quality and help with continuity of supplies.

Efficient production​

Improving the efficiency of production has also been key to the firm's success to date, according to Walter. Looking ahead, Ferrero has committed to becoming 100% self-sufficient in electrical energy at all of its European plants by 2020 (compared with 35% in 2009), with 30% of this from renewable sources. As a mark of its achievements, it has managed to reduce energy consumption by 27% across its plants since 2007.

Looking ahead, it has made a commitment to a 20% reduction in water consumption per production unit. Meanwhile, it has also reduced its packaging weight and increased the amount of product transported by rail (currently around 6% in Europe).

If the company does go ahead with its plans to set up a Nutella factory in the UK, this is certain to be welcomed by those interested in reversing the recent trend for offshoring confectionery manufacture, set by some of Ferrero's competitors. Whether it makes health lobbyists happy is another matter.