M&A

Ferrero USA outlook positive with Fannie May Confections acquisition - analyst

Ferrero said its market share is much smaller compared to leading US chocolate makers, such as Hershey and Mars.  Photo:©iStock/Authenticcreation

Ferrero is to acquire all the equity of Fannie May Confections brands, including its subsidiaries Fannie May Confections and Harry London Candies from 1-800-Flowers.com for $115m.

1-800-Flowers.com is one of the leading food and floral gift providers in the US. It also owns snack brands such as Cheryl’s Cookies and the Popcorn Factory.

Market analysts said Ferrero’s move resonated with a recent trend led by Russell Stover a couple of years ago, which is another example of a European premium chocolate company (Lindt) coming in to the US to buy a locally grown brand.

Jared Koerten, lead analyst at Euromonitor, said: “Ferrero is doing really well in the US right now, and it has a lot of room to grow both organically and through acquisitions.”

Ferrero USA’s chocolate candy box/bag/bar under 3.5 ounces posted dollar sales of $37.4m, which represents a 10.4% increase compared to the previous period, according to IRI’s data that includes total US multi-outlets with c-stores for the last 52 weeks ending Oct 2, 2016.

First acquisition in the US

A spokesperson at the Ferrero USA said this is Ferrero’s first acquisition in the US, and also the first time the company will own chocolate brands that are manufactured in the country.

This site previously reported Ferrero acquired Delacre biscuits by mid-December last year. Although the biscuits are sold in the US market, the spokesperson said that acquisition was completed in Belgium through an “affiliate of Ferrero,” instead of Ferrero International.

Fannie May currently operates a production facility in Ohio, and distribution centers in Ohio and Illinois.

President of Ferrero USA

The president of Ferrero USA, Paul Chibe  recently told ConfectioneryNews at the State of the Industry Conference hosted by National Confectioners Association in Miami, Florida, that all Ferrero's brands are performing well in the US market. 

He said: "consumers will continue to see quality and their palates will continue to refine, and I think that's a trend in confectionery as consumers are looking for premium and higher quality chocolate in the market place." 

Ferrero only has an industrial facility in New Jersey for packaging, assembly, and re-packing

“We were making Nutella for a couple of years at our New Jersey facility, but we decided to move our operations to Ontario, Canada, around early 2000 with the price of sugar being one of the contributing factors,” the company’s spokesperson said.

Following the acquisition, Fannie May will continue to be a separate entity, and it will not become part of Ferrero USA, she added. It will be a stand-alone entity under the Ferrero group.

“Ferrero will support the Fannie May operation in whichever way they could use help. It will remain that way for a number of years,” the spokesperson said.

Expanding footprints in premium chocolate and e-commerce

Fannie May is a premium confectionery brand primarily sold in retail, and its operations are in the Midwest, Ferrero’s spokesperson told ConfectioneryNews.

“Our brand is ‘class-for-mass,’ the affordable premium brand, so it’s a really nice pairing of companies that have likeminded values,” she said.

“Just because Fannie May is based in the Midwest, it doesn’t mean we have to keep it there,” the spokesperson added. “Eventually, we will make Fannie May a national brand.”

She mentioned Ferrero currently has much smaller market share in the regular US chocolate category compared to leading companies, such as Hershey, but its share is “decent” in the premium space.

“I think we might be number two after Lindt in the US premium sector.”

Under a strategic partnership after the deal is signed, 1-800 Flowers.com will have distribution rights for Fannie May, Harry London and certain Ferrero confectionery products in its e-commerce channels as well as in gift basket and towers sold into the club, food, drug and mass channels in the US.

Some of the Ferrero brands 1-800-Flowers.com will help distribute include Nutella, Ferrero Rocher and Raffaello, CEO of 1800-Flowers, Chris McCann, said.

Ferrero’s spokesperson said its current e-commerce sales are “nominal,” but she hoped the acquisition can help boost the company’s digital channel.

Stepping up seasonal sales

Analyst Koerten said the acquisition may also boost Ferrero’s seasonal sales as Fannie May is strong in the gifting confectionery space during Valentine’s and Easter.

“Ferrero overall doesn’t have a strong seasonal portfolio as some other companies like Lindt, which just acquired Russell Stover a few years ago,” he said.

So why not investing in snacks?

US chocolate market leaders Hershey and Mars have been tapping the ‘snackfection’ trend as the chocolate category has seen slow growth in recent years.

Ferrero's US market share

According to Euromonitor's latest data, Ferrero's market share ranked 6th in the overall US chocolate category, with Hershey the top brand in the market. Mondelēz ranked 8th in the category.

Those companies either developed snack SKUs of their big chocolate brands, or acquired smaller-scale snack brands.

Hershey, for example, acquired snacking chocolate brand, barkTHINS, before launching Cookie Layer Crunch and Cookie Layer earlier this year; M&M’s maker Mars also brought snacking chocolate brand, Maltesers, to North America in 2017.

So why did Ferrero choose another direction by continuing to invest in its existing segment?

“Ferrero is targeting a very specific segment of chocolate (premium), which has actually been doing pretty well,” Koerten said.

The difficulties Fannie May has recently experienced have made it an easy purchase target, he added.

“[Fannie May] had a big fire in one of its warehouse around Thanksgiving in 2014, right before the big holiday rush for Christmas. That sort of set the brand back, and they lost the whole seasonal sales around the holiday, as well as all the inventory,” Koerten said.

Acquiring a US brand is a ‘good thing’ under Trump presidency

According to a recent survey conducted by ConfectioneryNews, the majority of respondents working in the confectionery industry believe the Trump presidency will have a negative impact on their businesses.

President Trump has since signed an executive order to withdraw the US from the Trans Pacific Partnership (TPP), which won plaudits from the many union organizations, including the BCTGM, which represents 1,000 members at Mondelēz’s Nabisco plant in South Side of Chicago.

Ferrero-owned Tic Tac Mints previously denounced Trump’s “inappropriate and unacceptable” comments on women on its Twitter account.

Given the uncertainty of the global trade environment caused by Trump’s presidency, acquiring a domestic US chocolate company can “always be a good thing,” Koerten said.

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