Ferrero could make inroads in China via Ferrara deal, says consultant
Kuiler is the founder of The Silk Initiative, and his firm has previously worked with many major CPG companies, including Campbell Soup, PepsiCo, Mars Wrigley Confectionery and McCain Foods on their brand strategy engagements in China and other parts of Asia.
He said the reason why the acquisition could be beneficial to Ferrero’s business in China was partly due to its current portfolio:
“Nutella sort of has the struggle of being adopted into the breakfast occasion as a spread because of the ‘cultural baggage.’ So [Ferrero’s] headquarters has been trying to develop different product formats in different occasions to make its way into Chinese people’s life,” Kuiler said.
He added, “I also know that Kinder Surprise and Bueno have reached their limits in terms of kids entertainment… meeting the growth [for chocolate confectionery] is something else, but the bigger challenge is that there are very limited options for Ferrero’s global headquarters in terms of what they can do.”
The Ferrero Rocher brand, however, has penetrated the Chinese adult chocolate market very well, said Kuiler. His judgment is also backed up by Euromonitor’s latest data, which shows that Ferrero’s share currently ranks second in the nation’s chocolate confectionery market.
Following Nestlé’s footstep?
Kuiler suggested that Ferrero’s entry into the candy space was an “obvious” move. “Candy is an adjacent category to Ferrero’s [chocolate portfolio], but there are not particularly any well-organized brands in the market that are doing very well,” he said.
The question is: Can Ferrero guarantee that Ferrara appeals to Chinese consumers when products like Trolli and Black Forrest gummies are introduced to the country? Kuiler said to look at some of Ferrero’s competitors for an answer.
“It’s still early days, but international companies can certainly explore the candy space in China with a good range of products… it’s just that few have done it in a very organized manner,” he said. “Nestlé Australia, for example, is trying to bring Allen’s (a chewy candy brand) to China.”
Nestlé previously acquired Hsu Fu Chi (徐福记), a native Chinese confectionery and snack company, for $1.7bn in 2011. Hsu Fu Chi’s own branded gummies and its Dr Bear (熊博士) gummy rank third and second respectively in China’s pastilles, gums, jellies and chews category in terms of retail value, according to Euromonitor.
In addition to Want Want Holdings-owned Wang Zai QQ (旺仔), which is currently the largest gummy brand in China, “there are some Japanese and Korean gummy products in the country, and Haribo’s Gold Bears from Germany is also doing quite well,” added Kuiler.
Adapting product formats
Kuiler told ConfectioneryNews low sweetness, small portions, and the novelty of color usually resonate well with the Chinese consumers – “that’s probably why gummies are popular here,” he said.
“I don’t think Chinese consumers are eating confectioneries for treat or indulgence sake. It’s bit more of modest consumption.”
According to Euromonitor’s latest market report, volume sales of chocolate confectionery saw a 2% decline in 2017 in China due to “strengthening consumer awareness of healthy diets.”
Because of the healthy trends, Kuiler said, “product profile is the number one priority” especially when a western indulgent confectionery player brings its products to China.
“We have done a lot of work for brands like Pepperidge Farm, Dove and Hershey’s Reese’s before. Many of them had to adapt to smaller portion, less intensity of sweetness to fit the Asian palate,” he said. “In order to entice consumers to try new products, [those brands] also need to have single-serve packs available in convenience stores.”
It is uncertain if Ferrero will eventually bring Ferrara’s gummies to China, but Kuiler said as long as an international confectioner wants to do business in the country, it needs to have a brand new marketing plan because “everything you learned back home that could drive your brand doesn’t necessarily work here.”