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  • Subject area(s): Marketing
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  • Published on: 14th September 2019
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In 1946, Pietro Ferrero founded the company Ferrero SpA in Alba which was an area rich in hazelnut plantations. Pasta Gianduja was the first product that had launched Ferrero as a company. The company had expanded greatly since 1956, first with a plant in Germany, and then with the commercial network in the rest of Europe. Ferrero had developed some of their iconic products that made the company initially famous under Pietro's son, Michele Ferrero. Under Michele's leadership, the company moved from a regional to a global confectionery company. In 1997, third generation Pietro and Giovanni Ferrero, sons of Michele, became joint CEOs. Giovanni became the sole CEO in 2011 shortly after Pietro's death. The company's main goal was to satisfy customer needs through its shared values; high quality, product freshness, careful selection of raw materials, and respect of customers. Its culture consisted of several values, including loyalty towards customers, mutual trust within the group and among stakeholders, respect toward the employees, responsibility for other stakeholders, and natural resources, integrity and sobriety in communication, passion for quality of raw materials and products, and learning by doing.

The top issues facing the company included the scarcity and price volatility of primary raw ingredient's such as cocoa and hazelnuts and the environmental concerns of palm oil. Both of these ingredients were used in these chocolate products however, there were downfalls in using them. Price decline and volatility were common issues for cocoa of crop as a result of high levels of competition in the chocolate industry, the farmers' lack of bargaining power, and the changes in supply volumes caused by political issues, climate, and pests. The lack of training and expertise for cocoa farmers was an additional obstacle to satisfying the demand growth.   

Hazelnuts were another issue that the company faced. Using 25 per cent of the world's production, Ferrero was the largest buyer of hazelnuts. Hazelnuts were significantly affected by weather patterns, making the prices volatile. For example, in 2014, a series of severe frosts in Turkey damaged the hazelnut crops, reducing them by almost half and increasing the price to more than double.

Another issue that the company faced was the use of palm oil. Palm oil was at the core of environmental concerns due to the damage caused by the deforestation that provided palm oil plantations. Animals, people, and the environment were all affected. The use of fire to clear the land damaged the ecosystems, while the emissions of greenhouse gases also caused climate change.

It is safe to say that Ferrero was active in all aspects of the value chain, beginning with the raw ingredients. It was directly involved in procurement and quality control through the ownership of hazelnut plantations. Among the company's competencies, the design and production of the toys included in Kinder Surprise eggs were made by one of its business units. The plants for specific product lines were established as near as possible to the reference markets. Plants and machinery were designed by the company's own engineers to respond to its specific product requirements. The packaging and logistics were mostly handled by the company, focusing on efficiency and eco- sustainability. Marketing, sales, and after-sales services were managed by the group. The products were primarily distributed to wholesalers, supermarkets, travel markets (e.g., ports, airports, and in-flight sales). Some products were also sold through Ferrero's own retail stores, which mainly sold Ferrero Rocher products.

In terms of structure, Ferrero managed all the core activities from its Luxembourg headquarters, which included research and development, operational planning, production and processing, and marketing. The board of directors was composed of both family and non-family members; the chairman had a guiding role. The shareholders' meetings also played a fundamental role in defining the company's corporate strategies. The Group Leadership Team, an executive committee comprising the highest representatives of the main corporate functions, was responsible for organizing these meetings. The audit committees were mainly external to the group, providing recommendations to the board regarding internal control and risk management.

One example of an intertype competitor would be Nestle. Nestle is also a well-known chocolate company. Ferrero and Nestle would be considered intertype competitors because they sell similar merchandise but use a different format. An example of an intratype competitor would be with Hershey because they are both not only two chocolate selling companies but they also sell similar products.

In regards to the scarcity and volatility of the primary raw ingredients cocoa and hazelnuts, Ferrero established the Ferrero Farming Values Cocoa Program to support smallholder farmers with a focus on sustainability of the crops, livelihoods of the farmers, protection of ecosystems, and elimination of child labor. The company was also involved in field initiatives for sustainability, working with farmer organizations and non-governmental organizations to educate and train farmers in Nigeria, Ghana, and Côte d'Ivoire. For hazelnuts, to mitigate the uncertainty, ensure all year around supply, and reduce dependency on the Turkish market, Ferrero had been investing since the 1990s in new hazelnut plantations in Georgia, Serbia, Chile, South Africa, Argentina, and Australia. Ferrero's goal was to be able to trace 100 per cent of its hazelnut production by 2020; to guarantee this quality, the company needed to be involved from the origin of production. With traceability, Ferrero could readily identify and solve sustainability related issues affecting the hazelnut farmers. It implemented the Ferrero Farming Values Hazelnut (FFVH) program in 2012 to establish a long-term relationship with hazelnut farmers, educational events, and training to guarantee quality and safety along the entire supply chain.

To address the environmental concerns with palm oil, Ferraro had been recognized by Greenpeace International as “one of the more progressive consumer-facing companies” by being certified by the Roundtable on Sustainable Palm Oil as 100 per cent sustainable. One of the main goals was to assist smallholder farmers in improving their livelihood. Ferrero also partnered with The Forest Trust, a non-profit organization that focused on improving the supply chain for the benefit of people and nature. Ferrero was also a member of the Palm Oil Innovation Group, an initiative to demonstrate responsible palm oil production through innovation. By addressing these issues, the company is specifically focusing on social corporate responsibility which is the voluntary actions taken by a company to address the ethical, social, and environmental impacts of its business operations, in addition to the concerns of its stakeholders by trying to do what is right for not only the customer but also for the environment.

These opportunities/areas will help them to build a sustainable competitive advantage however it would be more helpful if the company provided services. One of the many ways to gain a sustainable competitive advantage is to offer customer service however, article talked more about what Ferrero has done to build corporate social responsibility however it did not discuss the services they offer.

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