How Michele Ferrero Made His Billions

Sweet billions

• Michele Ferrero is an Italian entrepreneur and the owner of Ferrero Group.

• His personal wealth according to Forbes is $27.7 billion.

• He is the richest man in Italy and the 20th richest person in the world, according to Bloomberg.

All images courtesy Ferrero Group.

Sweet company

• His company, Ferrero Group, is one of the biggest producers of confectionary and chocolate products.

• Its most recognized brands are: Nutella, Kinder, Tic Tac, Mon chéri, and Ferrero Rocher.

• Revenue: €8.1 billion ($11.4 billion) in fiscal 2013, up 5.6% year over year.

Sweet opportunity• During WWII, a scarcity of many traditional pastry ingredients (particularly cocoa) led

Michele Ferrero’s dad to introduce a revolutionary product.

• He started producing a new frosting-like spread that combines hazelnuts and cocoa butter called “Pasta Gianduja.” Hazelnuts were abundant in Italy, making the product tasty and affordably priced.

• At a very young age, Michele joined the company and improved the product. Four years later, after getting a creamier, more easily spreadable version of the paste, he changed Gianduja brand name to Nutella. The rest is history.

• Last year, Ferrero sold 365,000 tons of Nutella.

• For every 100 hazelnuts grown on Earth, 15 end up in a Ferrero product!

Sweet opportunity

• While trying to deliver to a closed Milan wholesaler and after noticing a huge crowd forming around Ferrero's van asking to buy the product, the family recognized the potential for selling directly to customers.

• In the late 1940s, Ferrero began developing its own distribution network. This enabled the company to cut costs and add advertising by using the company's own fleet of trucks, which carried the Ferrero logo.

• By the early 1950s, Ferrero had 200 delivery vans, and a few years later the number had quintupled, making it the biggest fleet outside the Italian army. They even supplied Venice with their own boats!

A wise risk-taker

But he also had to penetrate the American market, and how he did this was his wisest move so far.

He envisioned that launching Nutella straight away in the U.S. would have been a disaster. Why? In that market Ferrero would be in head-to-head competition with the peanut butter market. The price war and advertising costs could be disastrous. Changing everyday consumption patterns when there is a direct and inexpensive product is not easy or cheap.

He instead chose the Tic Tac brand as its key to entry, and it worked!With a "Tree" display appearing at every U.S. checkout and a catchy line, he managed to increase product recognition and turn it into today’s best-selling breath mint in America.

After the huge success of Nutella, Ferrero took some more risks.

In 1956, he opened his first plant in Germany, and three years later he entered the French market acquiring a local confectionery company. His European empire was growing.

Cost-savings turned into profits againMichele Ferrero is not only a visionary and a product innovator. He’s also a marketing genius.

In 1968, he launched the Kinder brand, which aimed directly at kids. After that, he designed the + milk - cocoa campaign. It was a neat marketing trick that kept cocoa input costs down while playing to an emerging health-consciousness among consumers.

The campaign showed the parents – who actually buy the product -- that the Kinder brand was more nutritious than the rest due to its higher concentration of milk.

Kinder’s iconic product

• Ferrero happens to like challenges as well.

• Under the Kinder brand umbrella he mastered another true iconic product. Apparently, after very good seasonal sales, Ferrero bid his staff to “make Easter every day.”

• He designed Kinder Surprise, a chocolate egg that contains toy figurines inside. The variety of toy collections that come inside the eggs continues to expand, ranging from Ferrero’s proprietary character designs to Disney licensed toys.

But not every strategy works everywhere

• You might have not heard from Kinder Surprise, though. This is because it cannot be sold in America.

• The U.S. prohibits candy with toys embedded inside because they pose a choking hazard for children.

• The whole idea of the product is that the toys that come with the Kinder Surprise chocolate eggs have to be "embedded" inside the eggs.

• Funny enough, the same toy could be legally put into a cereal box and sold with no problem.

Ferrero’s premium brand

• Ferrero always aims for quality, novelty, and distinction. Price is not a key component for Ferrero and in fact, on average, Ferrero products cost 50% more than competitors.

• The company’s most premium product is Ferrero Rocher, the world's best-selling boxed chocolate.

• It is the only company product that holds the family name in its brand.

• Ferrero knew what he was after, and it took him five years to discover how to bend the wafers that go inside this product.

Innovation

• Ferrero has been the mind behind all the company’s new products and brands. And he is still in charge of Ferrero’s innovation.

• When he left the CEO position to his sons in 1997 he moved to Montecarlo, where he started his own research facility, Soremartec, in charge of studying new product concepts.

• What is he after? According to the company’s own words: “Completely original products that can create new market niches featuring exclusive ingredients, obtained using highly complex technological production processes.”

Things we can learn from Ferrero

• Learn to identify market opportunities and niches, and make the best of them. You’ll probably have to resolve technical difficulties.

• But when success arrives, don’t stop; keep researching, improving your products, and creating new ones.

• Product positioning and marketing are key. Consumers will identify novelty and quality when they see it and taste it.

• Learn your limits, especially your market reach and expansion capabilities. A wrong step could mean disaster. Think.

• Build solid family values that can continue your legacy while you successfully focus on the core of your business.

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