Nuts!

If you are lucky your business will be in the right pace at the right time, but will it last?

I don’t really understand why anyone eats Nutella, the jars of hazelnut and creme spread that are sold somewhere in the world every couple of seconds. I’m told it is delicious on bread but the person who told me also said they never had any in the house for fear of eating a whole jar in one sitting. I may be in the minority, but there are several reasons why I don’t want to eat Nutella, or similar products: I don’t like sweet things very much; I’m also wary of too many calories; and I’m concerned about the health and the environmental impacts of any product that uses so much palm oil.

Nutella is in the news at the moment because of the recent death of Michele Ferrero, who not only built the Nutella brand into what it is today but, and rather incredibly, also created Tic Tacs, Kinder Eggs, and Ferrero Roche. Building on his father Pietro’s small business he crafted a global confectionary powerhouse that today rivals Nestle, Mondelēz and Kraft, from Alba in the Piedmont, and he died Italy’s richest man. Whilst it was Michele who built the business it was Pietro who came up with the idea for Nutella. In the difficult postwar years he thought he could make a chocolate-like sweet using hazelnuts, abundant on his doorstep, rather than using the more expensive and remote cocoa.

Michele famously never gave a press interview and the company is still privately owned, which brings with it the inevitable reputation for secrecy. It is now run by Michele’s second son Giovanni who has the challenge of resisting the temptation to do something his father wouldn’t contemplate: selling the business. He has publicly said that it isn’t for sale, but there may be reasons to think that the renewed interest from predators, that the death of his father has stirred up, may be based on pressures and influences beyond his control.

Since Michele took over the business in 1957 global GDP per head of population has grown more than threefold whilst the global population has doubled. For many, admittedly mostly developed, countries we have never had it so good and the growth in wealth and consumer spending during this period has allowed the likes of Ikea, Sainsbury’s and Ferrero, amongst many other consumer brands, to flourish. Ferrero rode this wave of unprecedented economic growth to become what it is today. Looking ahead though the balance of consumer power will surely change with the emergence of new markets, helped along by the differential impact of climate change, during a period when overall economic growth is predicted to slow.

On top of that, the developed world is facing an epidemic of obesity. Postwar shortages and meagre diets have been replaced with superabundance; calorie-rich foods are now more of a threat to global health, as a staple part of many peoples’ diets, rather than the luxury they once were. Palm oil makes up about one fifth of Nutella and there are health and environmental concerns about its use that may soon become an issue for the brand too.

There is one other interesting perspective on all this worthy of contemplation: the Buddenbrooks Effect – how family firms often decline over four generations (more here…). Named after Thomas Mann’s story of the decline of a merchant dynasty, there are many examples where this has come to pass in the real world.

Ferrero is a truly remarkable story and Michele, the Willy Wonka of the Piedmont, led the business through a period of remarkable growth. He was able to ride the growing wave of consumer spending since the 1960s, at a time when diet and the environment were less of a concern to developed countries, and he wasn’t burdened by inheriting a global empire built by his father. It will be interesting to see what happens next in this intriguing family business story.

Timing is everything for entrepreneurs hoping to make it big. There have been periods in history when steel, food, computers, and now network services, have all been on fast growth trajectories, before settling down and consolidation rather than proliferation becomes the order of the day. I wouldn’t be surprised if, taking all of the above into consideration, business and wealth protection logic comes to the fore at some time in the next decade and Ferrero does what it says it will never do and joins forces, one way or another, with a competitor.

Mark

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