Ferrero SPA Corporation

Ferrero is Italian manufacturer of chocolate and confectionary products being founded in the modest beginnings of 1946, when Pietro and Giovanni Ferrero started the company as a confectionary shop in northwest Italian town of Alba (Datamonitor, 2009). Today Ferrero International is the world’s fourth largest companies in the confectionery Market with 16 plants and 36 commercial companies all around the world, having 20,000 employees generating 35,000 cores of turnovers in 2006. A wide and complex portfolio of products, including mainly: chocolate spread, candies, pralines, bakery, chocolate snack eggs with surprise, cold tea & chilled chocolate products. The company is owned and managed by the founding Ferrero family. (Nutella.com, nd).

1. External Environment

The Environment encapsulates many different influences, which can be difficult to analyze. The difficulty can be to identify: the environment diversity; the speed of change as managers feel that the pace of technological change and the speed of global communication change faster than even before; the last difficulty is complexity. Ferrero in order to face these difficulties can use different tools, such as: PESTEL (Political, Economical, Socio-Cultural, Technological, Environmental, Legal); Porter’s five forces; Market segmentation. In order to analyse: the macro-environment, competitors and market. (Johnson and Scholes, 2002, pp98).

2.1 Macro-Environment

Macro-Environmental consists of broad environmental factors that impact to a greater or lesser extent on almost all organizations. The PESTEL can help to identify those factors, as it looks at the way in which future trends in the political, economic, social, technological, environmental and legal environments might impinge on organizations. Moreover this analysis can help to identify opportunities and threats of the organizations in the market. (Johnson and Scholes, 2002, pp98). (Pestel, Appendix 1)

Ferrero is one of the biggest confectionary businesses of Europe. It is gradually increasing the product range in the Irish-British Market and in the rest of the Continent. Indeed Ferrero Group, during a global economic crisis which led a decrease of consumption, has grown by the 4.7%. The Group has closed the year with Net Sales in excess of 6.6 billion Euros, representing an increase of 4.3% over the previous year. (Ferrero.com, 2009).

According to the Ferrero’s Report (2011, pp. 3), this could be possible thanks an innovating strategy developed on three main points: Innovation, quality and social-environmental sustainability.

B.B.A Innovation

Ferrero Group is constantly investing in innovation, research and development and has, in particular, recently been focusing on energy-efficient installations in Italy, Germany, Poland and Belgium. Moreover Ferrero is studying and developing types of packaging that can improve conservation and extend shelf-life. Most significantly new technical solutions are being developed to ensure that packaging can protect products against extreme temperatures in challenging climates, as well as active packaging (that can protect and preserve foods, for example, by absorbing oxygen), anti-tampering packaging (effective in protecting products from possible tampering) and high oxygen barrier packaging (made with a highly impermeable film, which is particularly impermeable to oxygen), to limit oxidation. (Ferrero.com, 2009). B.B.B Quality
The “known bag” (in Italian: “Il sacco conosciuto”) is Ferrero’s way to define the quality and safety of the raw materials arriving at their plants. In the financial year 2007/2008, the total of raw materials used amounted to 860,000 tons, which grew to 925,000 tons in 2008/2009. Ferrero to ensure quality and safety of their products all along the production chain (in line with the EU White Paper on Food Safety of 12 January 2000), sets out the frequency of checks and organoleptic, chemical, physical and microbiological analyses . (Ferrero.com, 2009). The Group with the aim of sharing their principals of quality throughout the production and the chain distribution decided to implement the ABCDE plan (A Business Code Dialogue Engagement). The Code of Business Conduct is enforced to “business to business” relations, in compliance with the Ferrero Code of Ethics and it is based on 5 points:
1) Excellence of product quality and safety
2) Human rights commitment
3) Environmental protection and sustainability
4) Conditions of workplace environment
5) Business integrity
(Ferrero report, 2011, pp61)

B.B.C Social-Environmental Sustainability

The Ferrero Group has expressed its commitment to environmentally safe practices around the world and is committed to educating employees and suppliers of its environmental principles. The Group is involved in several activities in order to promote the Social-Environmental Sustainability, such as:

* Sustainable Operations & SCI (Supply Chain Integrated project), which compare and measure the Group’s environmental impact along the whole value chain. On the basis of those thorough investigations they have developed three indicators to measure the environmental impact of the whole Ferrero Group:

* Gross Energy Requirement (GER): total energy extracted from the environment * Global Warming Potential (GWP): the contribution to global warming of the greenhouse gases generated directly or indirectly

* Global Water Consuption (GWC): the volume of water consumed, directly or indirectly.

* Ferrero, with other 72 companies have signed a declaration that calls on the EU to adopt a 30% emissions reduction target below 1990 levels.

* The “Ferrero Social Enterprises”, based on investments and use of the deriving resources to improve the living conditions of the communities of developing countries, with particular attention to children

2.2 Competitors

According to Johnson and Scholes (2002, pp 110) an Industry is a group of firms producing goods that are closed substitute to each other. From a strategic management perspective it is useful for managers in any organizations to understand the competitive forces acting on and between organizations in the same industry, in order to choose the most effective and efficient way to compete. Thus it strictly important for Ferrero Group to analyse the impact of the competitive forces and industry structure, Porter’s Five Forces can be used as the framework that helps establish the industry structure in which Ferrero operates.

Cadbury Trebor Bassett strengthened its leading position as the leading company in chocolate confectionery in 2005, increasing its value share to just fewer than 30%. Most of that increase was derived from its Dairy Milk super brand launch, which strengthened its position as the leading brand by over one percentage point. The other two leading manufacturers, Masterfoods and Nestlé, lost value share in 2003, but managed to maintain their second and third positions respectively.

On the other hand Ferrero tries to grow and gain market, developing new products, according to a Ferrero advertiser: new product development is the most important part of this business and Ferrero has hundreds of ideas waiting to be launched.

2.3 Market Segmentation

In most markets there is a wide diversity of customers’ needs, so the concept of market segmentation can be useful in identifying similarities and differences between groups of customers or users. The consumer is always at the centre of Ferrero strategy. Ferrero’s relationship with its consumers is based on longstanding and mutual trust, built up over the years with expertise, experience, understanding and intuition. This is a measure of Ferrero’s interest in consumer needs, and this is a key factor of the company’s success. However Ferrero’s distinguishing characteristic is that it is “glocal” (think globally, act locally), a company which is both global and local, which focuses on international development, without losing sight of its relationship with local communities.

According to the Kapferer (2008, pp 397) Ferrero Groups has developed a portfolio that holds rigorously to segmentation by age, with the development of needs and situations corresponding to each age. The range of products goes from kinder eggs for the very young to snacks for adults. According to the consumer research (MIG, 1999), 44% of adults aged 18+ buy most of the chocolate and sweets for the children in their family, and 29% agreed that most of the confectionery they buy is chosen by the children in their family.

Ferrero's has gained in sales the children’s segment has consolidated and expanded. This is alongside its 24year and above segment. Mass marketing tactics will emphasise children and adults 18+ targets. The promotion will seek to influence sales positively by incorporating weaving together elements of promoting

2. Internal environment

3.4 Cost leadership

From the cost analysis, Ferrero operates differently to cut its cost and attain cost leadership. Ferrero follows a cost leadership strategy by manufacturing its products locally or through partnerships with local importers and through its wholly-owned subsidiaries. This allows Ferrero to be more cost effective through domestic production base, lowering product prices and enhancing its price competitiveness. (Allbusiness.com, 2010) Mergers and alliances are not common in the confectionary industry, although Ferrero allies with Hershey in the US as a way to attain cost leadership reduce costs and carbon print. Ferrero also counts on production costs being reduced, setting up new equipment operations and efficient distribution, in turn increasing performance in warehousing and distribution. Ferrero has reduced inventory levels and maximized corporate storage resources.
As a matter of fact, Ferrero plans to enter new markets like Turkey, being also as a strategic low cost production base for exporting back into mainland Europe, and according to Chirs Brockman, this may be just as important for Ferrero than the potential of local market.(Nierburg, 2011)

2.2 Innovation/Quality

Ferrero has rapidly expanded in Europe to become the leading European Chocolate Confectionery producer and the forth worldwide. (See Table 1 Appendix) Ferrero offers only products that are unique and of high quality and that result in an enjoyable eating experience because of their great taste, multiple textures, intriguing architecture and inviting wrapping. But the pleasure goes beyond the physical. Ferrero products also feed the soul with a sense of magic and delight all the senses with their ritualistic consumption. The Ferrero success story is due mainly to the strengths of its Brands, all leaders in their category: Ferrero Rocher, Nutella, Kinder Surprise, Kinder Bueno, Tic Tac and to its geographical presence in more than 80 countries (Eyre, 2009). Ferrero, which every year invests in applying organisational and technical innovations to its production lines. Many patents have been granted, protecting Ferrero’s creativity and imagination as applied to industrial production techniques. The constant emphasis on quality, combined with the need to create completely unique confectionery products, has often required the development of special techniques and machinery aiming at creating ever more innovative and unique products. Ferrero’s specialists examine carefully the taste and appearance of products and monitoring the food industry so as to detect and examine new and unusual systems to guarantee higher quality and efficiency with lower costs.

2.3 Corporate Strategy

A general philosophy comes from this company, its creed is: ‘Imagining and offering unique moments of pleasure’ (Ferrero 2009). Two words are particularly noticeable, ‘unique’ and ‘pleasure’. The first highlights the fact that Ferrero wants to detach itself from its competitors giving them a niche opportunity (See SWOT Appendix 5). The second word corresponds to the main objective of Ferrero: making the customer experience pleasure. In order to reach their goal, Ferrero with the corporate level strategy, pays particular attention to five points:

* Taste: providing its customers tasty products regardless of calorie with star ingredients, chocolate, milk, sugar, cream etc. * High quality: of its products is because children are its most important target. It implies a stringent choice of raw materials for its products and a responsible distribution of its products to its consumers. * The feeling and the atmosphere perceived by its customers is – ‘giving, sharing, and receiving’ i.e. festive occasions. Eating a Ferrero product is an experience to share with one’s family or one’s friends. Ferrero wants to create a convivial atmosphere around the consumption of its products. * The value of its brand. Kinder surprise, Nutella and Mon Chéri have become legendary brands for generations. * Innovation is the most important feature of Ferrero: creating new products and innovating have been the driving forces behind its growth.

Although threats can be made by healthy and organic consumption habits, in where Ferrero should be aware of the competition in this case for example (see Five Forces, Appendix 2).

2.4 Reputation & Image

In tough times luxuries are the first to go. Still, people love their chocolate and importantly their love for the Italian-based chocolate producer Ferrero. (Kneale, 2009). In 2009 Reputation Institute ranks Ferrero as the most reputable company on the planet.
In 2011 Ferrero receives an Award for Excellence from the British organisation Superbrands. Also the Employer Brand Positioning Survey revealed that young graduates and workers of all ages view Ferrero as the most attractive employer among all the companies operating in Italy. (See table 2, Appendix 4)
Ferrero ranks first for reputation in Italy. The recognition obtained by Ferrero during the last few weeks is the fruit of an ongoing drive toward innovation, great teamwork by all company managers and collaborators, and our incessant attention to consumer needs. This is the notion underscored by the Alba Group that expressed “great satisfaction” for these results, and pointed out that ''gratitude must go first and foremost to the consumers for their unwavering affection for Ferrero products”. . (Ferrero, 2012)
According to Michele Tesoro, corporate reputation has a primary strategic importance for companies: when positive, can be a source of value, but if it is weak or negative it can make the company vulnerable. (Cescut, 2011)

APPENDIX 1

PESTEL

POLITICAL http://www.telegraph.co.uk/foodanddrink/foodanddrinknews/7836423/Nutella-threatened-by-EU-label-laws-Italians-claim.html ECONOMICAL

* The Group employs 21,736 people worldwide, in line with the employment level during the previous year.

* Investments in industrial capacity amount to 383 million Euro, representing 5.8% of Net Sales. The Group is constantly investing in innovation, research and development and has, in particular, recently been focusing on energy-efficient installations in Italy, Germany, Poland and Belgium. The Group is also contributing to the development of some of the poorest areas in the world through its Social Enterprises.

* In time of recession people are willing to buy chocolate such as spread-chocolate (E.g. Nutella). According to Conad ltd (Italian supermarket chain) (2011) in Italy the consumption of spread-chocolate in the last semester of the year increased of the 4.7%. The Group has closed the year with Net Sales in excess of 6.6 billion Euro, representing an increase of 4.3% over the previous year, with an EBT of 893.

SOCIO CULTURAL * Ferrero has always encouraged a healthy lifestyle, especially for young people, based on physical activity and a responsible consumption of its products. * the Ferrero Foundation, devoted to maintaining the Group’s relations with its retirees through social and cultural programmes, as well as to strengthening ties with the local communities in which we operate; * The “Ferrero Social Enterprises”, based on investments and use of the deriving resources to improve the living conditions of the communities of developing countries, with particular attention to children * Ferrero Company Principles are in accordance with the relevant Conventions of the United Nations (in particular with the “Global Compact” and “Rights of the Child Conventions”), including the relevant Conventions of the International Labour and World Health Organisations

http://www.epode-european-network.com/en/partners/private-partners/58.html http://www.ferrero.co.uk/our-principles/work-create-donate/work-create-donate/ TECHNOLOGICAL

* Ferrero every year invests in applying organisational and technical innovations to its production lines. Many patents have been granted, protecting Ferrero’s creativity and imagination as applied to industrial production techniques. * Ferrero is also in the forefront as far as packaging is concerned, studying and developing types of packaging that can improve conservation and extend shelf-life * Most significantly, new technical solutions are being developed to ensure that packaging can protect products against extreme temperatures in challenging climates, as well as active packaging (that can protect and preserve foods, for example, by absorbing oxygen), anti-tampering packaging (effective in protecting products from possible tampering) and high oxygen barrier packaging (made with a highly impermeable film, which is particularly impermeable to oxygen), to limit oxidation. * Ferrero implement a high level of automation in its production lines, so as to improve the presentation of its products with standardised decorations, while keeping the number of production steps to a minimum. * Systems and machinery have been designed to work on many products simultaneously, while retaining the individual care and attention typical of a crafted product

http://www.ferrero.com/ferrero-principles/innovation/technology/technical-innovation/
ENVIRONMENTAL

* Ferrero started a program aimed at identifying and realizing specific actions towards eco-sustainability of its industrial system, based upon energy savings activities, more efficient ways to produce energy, introduction of renewable energy. * Ferrero, with other 72 companies have signed a declaration that calls on the EU to adopt a 30% emissions reduction target below 1990 levels.

http://www.ferrero.com/group-news/?IDT=12679
LEGAL

Ferrero being in the European markets must to respect EU requirements to cocoa and chocolate products intended for human consumption.

Chocolate. Product obtained from cocoa products and sugars must contain: * Not less than 35% total dry cocoa solids, * Not less than 18% cocoa butter, * Not less than 14% of dry not-fat cocoa solids, * Vegetable fats may be added, * When sold in assortments sales name may be replaced by assorted chocolates,

http://www.cbi.nl/marketinfo/cbi/docs/eu_legislation_cocoa_and_chocolate_products

APPENDIX 2
Porter’s Five Forces Analysis:

The key framework, along with the strength of each force for the confectionary industry has been noted as follows:

Potential Entrants
Buyers
Substitutes
Suppliers
The Industry
Threat of New Entrants
Bargaining Power of Customers
Threat of Substitute Products
Bargaining Power of Suppliers
Rivalry among Existing Firms
Fig: Framework for Industry Structure: Porter’s Five Forces
Ref: (Porter, 1980; Porter, 1983)
HIGH
VERY LOW
LOW
INTENSE
HIGH
Potential Entrants
Buyers
Substitutes
Suppliers
The Industry
Threat of New Entrants
Bargaining Power of Customers
Threat of Substitute Products
Bargaining Power of Suppliers
Rivalry among Existing Firms
Fig: Framework for Industry Structure: Porter’s Five Forces
Ref: (Porter, 1980; Porter, 1983)
HIGH
VERY LOW
LOW
INTENSE
HIGH

Threat of new entrants can be portrayed as low, due to the fact that companys are required high capital costs to enter the industry; although growth rates are not feasible for such a move. Looking at Mintel (2009), it can be noted niche segments of the industry are still growing strong among which premium confectionary segment is one of them, in which has medium threat towards new entrants.

Threats from substitutes in confectionary can be seen as high due to the increasing awareness of healthy eating habits and of organic nature (Keynote, 2009; Mintel, 2009). Although targeting the health conscious areas of the population, organisations operating within the industry have developed products that have high degree of organic and healthy products .i.e. low fat bars. The industry has also shed off substitution to other industries with the help of using fair trade ingredients which can be seen through corporate responsibly.

Bargaining Power of Suppliers (B.P.S) for global firms like Ferrero is very low in this case and can be suggested that there is a high degree of trend in the industry regarding vertical integration, which means that companies own major part of the value chain so that there is little or no bargaining power exercised by the raw material suppliers i.e. Ferrero is family owned and ran.

Bargaining power of customers (B.P.C) can be noted as high due to the fact that the products can rise up any barriers for them to choose alternative brands and products. Looking at Lynch (2003) due to little switching costs associated with change of brands, it should be noted that customers working in confectionary industry have very low bargaining power.

Intensity of competitive rivalry can be noted as very intense, as the industry grows at a slow rate, thus making organisations compete against each other as the market isn’t constantly flowing. Looking at Datamonitor (2009) it can be noted that Ferrero lacks economies of scale and movement when compared with its competition, like Cadbury, Nestle and Mars that have effective financial backing. It should be highlighted that the lack of scale can be disadvantageous for an organisation in the long run from intensive competitive rivalry.

Appendix 3
Table 1
The table below is an extract from this list, giving the top ten global confectionery companies that manufacture some form of chocolate by net confectionery sales value in 2011: Company | Net Sales 2011
(US$ millions) | | Kraft Foods Inc (USA) | 19,965 | Mars Inc (USA) | 16,200 | Nestlé SA (Switzerland) | 12,808 | Ferrero Group (Italy) | 9,612 | Hershey Foods Corp (USA) | 6,112 | Chocoladefabriken Lindt & Sprüngli AG (Switzerland) | 2,796 | August Storck KG (Germany) | 2,205 | Yildiz Holding (Turkey) | 2,095 | Meiji Co (Japan) | 1,791 | Arcor Group (Argentina) | 1,716 |
Source: The Chocolate Industry: Who are the main manufacturers of chocolate in the world? (2012)

APPENDIX 4
Market Segmentation

Table 2

Source: Brand Reputation: Italy’s best ones are Ferrero, BMW and Barilla, 2011

Strategic capabilities
a) Resources * Tangible resources Ferrero’s revenue in excess of €6.6 billion by 31st August 2010, representing an increase of 4.3% over the previous year. Investments in industrial capacity amount to €383 million, representing 5.8% of Net Sales. The Group is constantly investing in innovation, research and development and has, in particular, recently been focusing on energy-efficient installations in Italy, Germany, Poland and Belgium. The Group is also contributing to the development of some of the poorest areas in the world through its Social Enterprises. (Ferrero Group, 2012) * Intangible resources Ferrero brand is well-known in the chocolate and confectionary industry. Its brand image is well known in the global markets due to huge marketing & advertising.

* Human resources Ferrero employees 21,736 people worldwide. After Pietro Ferrero tragic accident in 2011, Giovanni Ferrero took over the family business. Employees are asserts – Ferrero Group recruits qualified and skilled employees in all its functions. It offers an unlimited number of professional challenges and opportunities for personal growth; the company takes care of its budding talents. This is part of the Group’s human resources culture of development and values. Ferrero believes that encouraging personal development is a fundamental factor in its success. (Ferrero Group, 2012)

b) Competences

The consumer is always at the centre of our strategy. Ferrero’s relationship with its consumers is based on longstanding and mutual trust, built up over the years with expertise, experience, understanding and intuition. (Ferrero Group, 2012)

Operations and distribution efficiency – Ferrero manufactures high- quality, innovative, and fresh confectionary products for consumers worldwide. To enhance its warehouse and logistics processes and meet growing product demand, the company deployed the SAP Extended Warehouse Management application at its central warehouse in Germany with a strategy to extend it to other warehouses. Using SAP software, Ferrero streamlined warehouse processes and improved shipping performance. (SAP Business Transformation Study, 2009) “The SAP Extended Warehouse Management application has provided a firm foundation for Ferrero’s streamlined logistics and fulfilment processes during a time of rapid corporate growth.” Enzo Bertolini, Group CIO, Ferrero.

Cost efficiencies
Economies of scale * The recent joint-venture with Hershey Company also happened to be a mean for cutting cost and carbon emission in the North American supply chain process, as both of the companies expect to cut gas emissions and storage by 30%. (Ferrero and Hershey partnership target supply chain efficiency, 2011). * Ferrero is making more products locally to cash in on growing consumer demand. With sales of certain brands crossing a critical level, Ferrero is moving with great urgency to make the most of lower production costs, save on import costs, and make their products more competitive and widely available. (Malviva & Busshan, 2011)

Experience * A vast amount of experience lies within Ferrero. Today many Ferrero products are global. Ferrero is now the fourth largest confectionery group in the world. The consumer is always at the centre of Ferrero’s strategy. Ferrero’s relationship with its consumers is based on longstanding and mutual trust, built up over the years with expertise, experience, understanding and intuition.

Product design * One of Ferrero’s strengths is its ongoing research, aimed at creating ever more innovative and unique products. This difficult and demanding challenge is in the hands of a company within the Group – Soremartec (Société de recherche de marketing et technique) where the Ferrero Group’s Research and Development department is located. Soremartec’s mission is to study, design and create new products which scrupulously follow Ferrero’s philosophy: completely original products that can create new market niches featuring exclusive ingredients, obtained using highly complex technological production processes. (Ferrero Group, 2012) * Among its strategic activities, it assigns a group of specialist engineers with the task of examining the taste and appearance of products and monitoring the food industry so as to detect and examine new and unusual systems, often borrowed from other manufacturing sectors, which can be useful in the transformation of raw materials for special products and devising production systems that can guarantee higher quality and efficiency with lower costs. (Ferrero Group, 2012)

Supply/Production costs * Ferrero Ireland undertook an energy cost reduction programme to save 46.1% on annual energy running cost.( Ferrero Cork save 46.1% on annual energy running costs with Munters MDU).

* With the SAP EWM application as a foundation, with a projected payback in just 3 years Ferrero is realizing tasty new benefits. Better visibility is improving management of corporate logistics resources. More efficient warehouse processing is enabling streamlined logistics and fulfilment operations. Increased performance in warehousing and distribution. Ferrero has reduced inventory levels and maximized corporate storage resources. Logistics users now require less support from IT to do their jobs, freeing technology experts to perform more value-added tasks. With growing corporate sales, the logistics organization is moving more products than ever, with greater efficiency and speed. Since the original deployment in Germany, Ferrero has been successfully implementing SAP EWM at facilities in Canada, Italy, and Russia as well. “SAP EWM is the first global solution to cover extended warehouse management processes with integration to other business applications,” says Enzo Bertolini, group CIO for Ferrero. “The standardized integration and automation it provides are a real revolution, one that will help us sustain Ferrero’s growth well into the future.” (SAP Business Transformation Study, 2009).

Marketing mix
Ferrero has a real concrete operational strategy, to understand it; there is a marketing-mix: * Place: Ferrero products are present in a lot of places like grocery stores, super and hypermarkets. Ferrero wants to set off its products; therefore they are often exposed in special display stands. In super and markets, Ferrero products are scattered in all the sections of the stores, then Ferrero products can be seen several times by the same person when shopping. * Product: The production mix is the whole range of all the product variation that Ferrero as a company offers. With the wide range of product that Ferrero offers, the perception of every customer is to buy what will satisfy their need. Ferrero customers expect the product that will be of good quality at a reasonable price. Below is some of Ferrero product mix that makes them unique in that industry. Ferrero packaging has instant customer recognition; their product comes in a very unique packaging for each occasion or season. Their product comes in cube shape, Christmas tree shape and Easter egg formats. It’s also comes in different sizes to meet the consumers needs all around the whole year. The unique packaging of Ferrero is one of those things that made them stand out among their competitors. Ferrero has also introduced a new diamond design to further increase the best value of the brand.

* Price: Profit is the benchmark of every business, Ferrero is not an exception. Price has a reflect issues on consumers buying behaviour because customers determine standard/quality in term of their mind-set of what benefit they are getting for the money spend on buying the product. There is certain degree of concept that influences the way Ferrero set price for their product.
Ferrero product is available in numbers ranging from 3 to 24. Their product is unique and highly expensive that a common man in the society cannot afford it. Ferrero product are quit unique and of standard but the problem is that it’s for the average and rich not for the poor people of which is a problem to the company.

* Promotion: Public holidays are always a great and an appropriate opportunity for Ferrero to set off its products. It offers special sets in the frame of its Ferrero collections, making its products for adults – Ferrero Rochers, with some Ferrero Raffaelo and Mon Chéri. This company offers sets for children too, with products like Advent calendar, full of products that appeal to children, like Kinder surprise, etc.
Communication is a strong feature of Ferrero, promoting its products throughout the year, with advertisements targeting adults with proper language to assure them that its products are good for the health of their children. These ads appeal to children too because of the children playing soccer and mascots can be seen. Ferrero shows through its operational strategy, its drive to differentiate from its competitors. An important point is that it lays emphasis on the family and friendly atmosphere coming from this company and its products. Public holidays like Easter and Christmas are for them the best opportunity in a year to sell a number of products to both children and adults.
Value Chain Analysis Value chain analysis is a powerful tool for managers to identify the key activities within the firm which form the value chain for that organisation, and have the potential of a sustainable competitive advantage for a company. Therein, competitive advantage of an organisation lies in its ability to perform crucial activities along the value chain better than its competitors. (What is value chain analysis? 2006) Donelan & Kaplan (1998) cited in Alvarez (2001), also highlights a series of steps in the value chain analysis: * Identify Value Chain Analysis; including looking for discrete activities, identify the organisations structural, procedural and operational activities and focusing on the organisations structural and procedural activities. * Determination of strategic activities * Tracing costs to activities * Improvement of value chain management activities

Ferrero’s value chain can be divided into the following areas:

Research and Development Ferrero has a set goal to create unique products, developing innovative research and production processes and using our own technologies. A fundamental element of its success is the accurate selection of highest quality raw materials, sourced in full respect of a strict ethical code concerning their origin, harvesting and manufacturing. In a global context of growing attention to themes such as nutrition and physical activity, Ferrero focus its research strategy and its production investments on the creation of high quality products, carefully developed in terms of their nutritional value and portioning, so that they can be integrated into a balanced diet, with particular attention to the needs of children and families. (Ferrero Group, 2012)

Suppliers The excellent quality of our raw materials is a key factor in the success of Ferrero products. To this end, Ferrero is directly and indirectly committed to constructive dialogue with all our partners, supporting governments and institutions that are intent on regulating sustainable cultivation and marketing of agricultural products, providing assistance whenever necessary. Ferrero is committed to finding new sources of raw materials, particularly in developing countries, with the aim of guaranteeing the continued improvement of quality and the growth of local economies. The main raw materials used in Ferrero products are cocoa, hazelnuts and milk.

Manufacturers It has been highlighted that Ferrero attempts the achievement of economies of scale making more products locally to cash in on growing consumer demand. Ferrero has 15 factories around the world and the group has developed 80% of all of its factory machinery and technologies internally and all production processes for Ferrero brands are proprietary-owned, which ensures the highest standards of quality and freshness are maintained. This also means that Ferrero products cannot be readily copied and remain unique offerings (Ferrero Invest big, 2009). In some case Ferrero products are available through its partnerships with local importers and its wholly-owned subsidiary manufacturing. (All business, 2011)

Marketing Ferrero has always believed in the crucial role played by parents in educating their children to a balanced diet and a healthy and active lifestyle. Therefore, advertising & marketing communications concerning its food products are directed primarily to the adults who make the household purchasing decisions and to young people 12 years and older, in terms of content as well as of media purchasing. Although the existence of a direct link between advertising and children’s eating habits has not been proven, Ferrero believes that particular care should be exercised when commercial communications are directed primarily to children, especially when children are most likely exposed to such communications without parental supervision.
Create a competitive advantage Innovation is still one of its cornerstones, and all new products are invented within Ferrero. As the group does not do mergers or acquisitions, growth is achieved through supporting its core brands as well as ensuring that new products keep up to date with changes in consumer tastes and preferences. Says Terry: "Innovation is one of the competitive advantages of Ferrero, which is normally ahead of its time. For instance, when Kinder Joy was invented in the 1960s the guidelines for it included portion control in order to assist parents in moderating their children's consumption. This became one of the reasons why Kinder Joy has become such a popular choice among parents across the world. Now, 40 years later, in response to concerns about global obesity, issues such as portion control have become buzzwords throughout the confectionery industry." (Nick Terry, MD of Ferrero Ithemba SA, Ferrero invests big, 2009) According Cohen (2011) to Ferrero competitive advantage can be seen on these interesting practices: * Social Enterprises projects, in which Ferrero production operations assign budgets to fund social projects in Cameroon, South Africa and India. * Objective to make all European plants self-sufficient in energy sourcing by 2013, with an increasing share of renewable. * ABCDE Plan (A Business Code Dialogue Engagement) to share the Code of Business Conduct with internal and external stakeholders. * Use of sustainably certified raw materials. * Research to investigate the metabolic impact of sweet products. * Energhe, a new Group company, was set up in 2007 to achieve environmental efficiency in the production, management and use of energy. (Cohen, 2011)

Sustain a competitive advantage As Giovanni Ferrero, said: “Today, the group’s main objective is to expand internationally, by establishing its products globally,” added Ferrero, saying that the company’s growth strategy will be based on brand development, innovation and markets outside Europe. The group reached its successes not only by launching excellent products, but also by inventing real myths, consumers’ ‘love marks’, such as Nutella, Rocher, Kinder and Tic Tac. Great brands are … [a] source of a competitive advantage.”(Cambieri, 2011)
Innovation
Market Pull Assisted by his wife, Piera, and brother, Giovanni (sales and marketing), the triumverate turned a local pastisserie into a strong national business that captured the hearts of all Italians. Ferrero rapidly expanded in Europe to become the leading European Chocolate Confectionery producer and the forth worldwide (third after the acquisition of Cadbury by Kraft) (Brioni, 2009). Ferrero’s mission is to reward the consumer with a confectionery experience unlike any other. Ferrero offers only products that are unique and of high quality and that result in an enjoyable eating experience because of their great taste, multiple textures, intriguing architecture and inviting wrapping. But the pleasure goes beyond the physical. Ferrero products also feed the soul with a sense of magic and delight all the senses with their ritualistic consumption. The name Ferrero is identified with enduring values: family, credibility and trust-characteristics which have remained integral to the Company throughout its history. (Ferrero Group, 2012) The Ferrero success story is due mainly to the strengths of its Brands, all leaders in their category: Ferrero Rocher, Nutella, Kinder Surprise, Kinder Bueno, Tic Tac. For example the Kinder brand is one of the company’s crown jewels. It is ranked by Euromonitor 2008 as the number one global brand in the chocolate confectionery category, and this leadership has been achieved thanks to its wide portfolio (chocolate snacks, tablets, chocolate eggs, chilled snacks, baked cakes, and novelties) and to its geographical presence in more than 80 countries (Eyre, 2009). The success of Kinder, like for all Ferrero Brands, has one secret: the ability to convert a TRADEMARK into a strong and powerful BRAND that sits in people’s minds and has a strong attachment to their hearts (Brioni, 2009).
Technology Push The only way a company can supply millions of high quality confectionery products to the market every day all over the world is to concentrate on a policy of continual innovation, applied to production and packaging processes as well. This is the case for Ferrero, which every year invests in applying organisational and technical innovations to its production lines. Many patents have been granted, protecting Ferrero’s creativity and imagination as applied to industrial production techniques. The constant emphasis on quality, combined with the need to create completely unique confectionery products, has often required the development of special techniques and machinery. This is the case of Ferrero Rocher, a spherical wafer. This special feature – its unusual shape, which has since been applied to other Ferrero products – involved the study and construction of unique machinery, which until then was unknown in the market. Ferrero is also in the forefront as far as packaging is concerned, studying and developing types of packaging that can improve conservation and extend shelf-life. These are guaranteed by carefully testing the physical, chemical and microbiological conditions. Most significantly, new technical solutions are being developed to ensure that packaging can protect products against extreme temperatures in challenging climates, as well as active packaging (that can protect and preserve foods, for example, by absorbing oxygen), anti-tampering packaging (effective in protecting products from possible tampering) and high oxygen barrier packaging (made with a highly impermeable film, which is particularly impermeable to oxygen), to limit oxidation. Even simple procedures, such as tying a ribbon or decorating a product, can be problematic if they need to be done on large numbers of finished products. In fact, it is not possible to manually oversee such a procedure without putting the quality of these products at risk. For this reason, Ferrero has had to implement a high level of automation in its production lines, so as to improve the presentation of its products with standardised decorations, while keeping the number of production steps to a minimum. Systems and machinery have been designed to work on many products simultaneously, while retaining the individual care and attention typical of a crafted product. (Ferrero Group, 2012)
Research and Development It has been highlighted that one of Ferrero’s strengths is its ongoing research, aimed at creating ever more innovative and unique products. Ferrero’s specialists examine carefully the taste and appearance of products and monitoring the food industry so as to detect and examine new and unusual systems to guarantee higher quality and efficiency with lower costs.
Benchmarking
Advertising may not be a strong point for Italian company Ferrero, but its hold on the markets is increasing, along with its range. The family-run company, which owns the Kinder, Tic Tac, Nutella and Ferrero Rocher brands, is one of the biggest confectionery businesses on the Continent. Established in 1946 by brothers Pietro and Giovanni Ferrero, the company built its reputation on manufacturing high-quality products. When the brothers died in the 1950s, Pietro's son Michele took the reins and expanded the business while continuing to develop the range. For example the Kinder product range sold in the UK, which includes Surprise, Bueno, Happy Hippos and Country, is relatively small compared with that available in mainland Europe. Observers say that each Kinder product has a unique quality, from texture to shape, which helps it to stand out from the competition. It is widely agreed that the company's strength lies in development. As one advertiser who used to work with Ferrero says: "New product development is the most important part of this business; and Ferrero has hundreds of ideas waiting to be launched." Another executive who once worked for the company comments: "The secret of Ferrero's success is that the owners completely understand what to do with chocolate and nuts." (Harwood, 2005) Apendix 5 Strengths and Weaknesses

Strength | Weakness | A large number of successful products (Nutella, TicTac, Ferrero Rocher, Mon Chéri etc.) | Almost all their products are made of chocolate | A third of the worldwide production is done in Normandy | Craving, Ferrero products are not indispensable for daily life – they are occasional | Packaging is attractive and noticeable (red and white) | Associated with a particular occasion | Associated with Christmas, family, friends, convivial atmosphere | Full of calories | Brand extension to target grown-ups: Ferrero Rocher, Mon Chéri etc. | Prices may be too expensive | Advertisements perfectly reflect its atmosphere | Products made with high quality chocolate, during summer Ferrero products cannot be stocked for a long time without damaging the quality of the product. Rapid renewing of stocks is expensive | Old brands are like legends and well-known by customers, new brands enjoy the excellent reputation of Ferrero | Offer limited to just one chocolate product (Nutella) | The company commitment, a total and global commitment to better the society | Temperature variations damage the product (cold and heat) | Clearness of the nutritive value of the products | Same old product, same taste, no evolution and brand extension | Small portions, individual packing | | No communication to children, only to adults with proper language | | A continuously growing company since 1975 | | Innovation, their driving force behind their growth | | Quality and taste | | Ferrero is a champion in advertising – the first investor in advertisements | | Innovation – new products each year, 2008: Ferrero Garden | |

SWOT
ST
* With the reduction on purchasing power, Ferrero has to look in cost reduction. And Ferrero strategy of making products locally, cutting transportation costs making their products more price competitive and widely available when exploring emerging markets such as Asia, Latin America, Russia and Eastern Europe. It will drive 70% of growth within the confectionary business in the next five years. (Gambieri, 2011) * The threat of substitution and competitors are the biggest issue in any industry. With competitors offering lower prices Ferrero unique products need to be innovated and developed at all times to keep its share of the confectionary market, keeping the same quality and attractiveness.

WT * The future of the confectionary industry is into healthy and nutritious products. With growth of anti-obesity campaigns Ferrero needs to be aware that its unique products are not seen as nutritious neither healthy. Surely, consumers are getting more eating conscious, but they still feel the need to eat something that is special, enjoyable and with reasonable price * Prices may be too expensive when compared to competitors. With the economic crisis threatening households luxury products will be cut and with this Ferrero’s product might be excluded from special occasions and substitutes with more attractive prices might be selected.

Opportunities | Threats | Large market-shares in each market | Anti-obesity campaigns | Wide target | Price | French leader of the chocolate confectionary market | Competitors in some markets (chocolate with mars) | First media investor for food in France (drinks not included) | Competitors charging lower price for same kinds of products | Large list of well known brands | Threat of substitute – Nutella vs. jam. Threat of jam – penetration rate of the households = 66%, a timeless product too | Ferrero products are made exclusively with chocolate – Ferrero Garden, fruits | Some serious competitors – Cadbury Schweppes plc has 19.5% of the market shares on the French confectionery market, Nestlé S.A., Altria Group Inc, Mars | Social initiatives of the group Ferrero, for its employees, for the developing countries, for the environment. | Competitors offer lower price (Crema Choco costs € 0,90 whereas Nutella costs € 2, 31 for a 400 gram pot) | Nutella breakfast – equilibrated | Government regulation | Nutritional quality | Decreasing purchasing power | Nutella is less caloric than its competitors | . | Few serious competitors for chocolate spreads | Competitors offer lower price | Brand extention with Nutella & Go | Many substitutes for snacks – for example fruits or bundles of cereals, biscuits, yogurts etc. | Sponsorship The X Factor Live Tour 2012 | Not perceived as nutritional products | Associated -thank to ads- with sport, actions, good health and well-being. | | Perceived as sane products associated with sport | | Promotions during public holidays | | Associated with conviviality and family – Breakfast family adverts. | | Adverts, promo’s and gifts presented with the products | | Convivial atmosphere | | Impluse of children | |

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