Updated: Apr 25, 2019
Why is it that Ferrero bought the US confectionery business of Nestle for $US 2.8 billion?
Specifically we have:
Butterfingers Wonka BabyRuth 100Grand Raisnets
Sweetarts LaffyTaffy Nerds
In 2017, it acquired Fanny May Confections Brand US 115 million and Ferrara Candy for an undisclosed amount. These last two are some of the most famous and well-established in the US confectionery business.
The ethical, environmental and social goals associated with these acquisitions are questionable and the targets for a sustainable future are hard to envision based on such acquisitions. By acquiring such businesses Ferrero will become the 3rd largest confectionery business in the US, country in which we all know obesity and health-related issues to be problematic and the food consumption path unsustainable under all points of view. However, what would happen if Ferrero entered this market using a new approach developed with the question in mind
“How can I transform my business to make it sustainable and socially valuable for the areas of the world that I work with?”
This question could be looked at as an extension of putting clients’ first, thinking about the environment in which they live and the health of the individual and of the community.
Today, consumer’ demands are shifting rapidly not only because of the visible consequences of an unhealthy food consumption but also because of the environmental disasters that it causes. Indeed, Ferrero Group has already seen complaints from UK NGOs and customers who are dissatisfied with the amount of plastic and aluminium present in the Ferrero Rocher Collection Box (about 89%) making packaging around 42% of the total weight of the product. Disruptive technologies such as blockchain could inform customers about their products’ supply chain, increasing their power, trust and loyalty in Ferrero’s standards and procedures. At the level of image and reputation, the interrogation goes to the core identity of the company: to what extent are social and ecological goals parts of its mission or culture?
Ferrero’s efforts to comply with stakeholders’ and NGOs demands have been an incentive for Ferrero to take action on the sustainability matter. Indeed, it now dedicates a whole website to their Corporate Social Responsibility. After the extensive public pression to only use sustainable palm oil and raw materials, Ferrero demonstrates in their F-ACTS their efforts to satisfy customers (see below). In fact, they are proud to be the first food industry in the world for their reputation.
Besides, Ferrero has said to be using renewable energy and energy efficiency methods and has said to be on the path of reducing their environmental impact as all businesses are forced to do so for the environment but also as a strategy for their business’s survival and success. Although the positive news that this brings about, the majority of Ferrero’s emissions come from Raw Materials, Packaging and Supply Chain (in total accounting for 90.8%).
To tackle pollution and play an active role in diminishing its activities’ environmental impacts while generating new opportunities for the business as well, Ferrero could redesign their manufacturing and packaging division. Ferrero still uses lots of plastics in its packaging which if not up-cycled, recycled or in any way re-used is not only highly polluting but is effectively a missed opportunity cost. If Ferrero’s objective was to attempt to purchase the materials for packaging once and then through a smart design re-using them, what will be the gains? (Economic, social, environmental). To facilitate the design step, it could partner with different start-ups throughout the different geographical locations where the waste materials is to be found. The many upcycling and recycling startups as well as the ones specialising in plastic reuse are rich of innovative and creative designers. This could not only support the growth of sustainable practices which could allow Ferrero to be more transparent about their complete product supply chain for the benefit of consumers, but it would also mean interesting and new opportunities for Ferrero such as creating a potential new business line or finding new sources for cost reduction in materials’ use. If this sounds impossible, have a look at the many upcycling startups which partner with multinationals like McDonald’s, IKEA and many others. One example is DekoEko in Poland which connects multinationals such as the ones I just mentioned and designers working successfully on the B2B line.
Initiatives launched in 2013/2014 by Ferrero such as Ferrero4Future and FER-Way-Ferrero Environmental Responsibility Way are meant to support and promote the development of a circular economy, an economy planned to self-regenerate and erase the linear model of production-consumption-waste. One of the four areas of work precisely concentrate on waste management. At the end of use in the supply chain, Ferrero’s website shares tips for customers to recycle effectively each of its products explaining which materials the packaging is made of. However, as Ferrero’s total production amount to 1.265.950 t more effort needs to be taken. The opportunities are there, the goodwill is what seems to lack. At the efficiency level, Ferrero needs to ask: How can embedded sustainability contribute to greater savings along the lifecycle value chain?
Many sustainability and green advocates in the business press would define Ferrero’s approach to sustainability one that is bold on rather than built in (or embedded).
"Embedded Sustainability is the incorporation of environmental, health, and social value into the core business with no trade-off in price or quality – in other words, with no social or green premium."
The decision to acquire some of the ‘worst’ brands within the US confectionery business shows an interest from Ferrero’s management board to expand their market share in US but with which goal in mind? This acquisition was expensive for Ferrero and those brands will need some complete rethinking in order to be sustainable throughout the supply chain. Do the circular economy initiatives taken by Ferrero in 2013/2014 align with the board decision to acquire Nestle’s brands in 2017 and 2018 for $2.8 billions? Or are the circular economy initiatives a marketing strategy to create an appealing brand?
Ferrero is on a tricky line, where their board needs to take a strong decision. In Ferrero, unlike in Unilever or General Electric, sustainability is not the core strategy of the business. Instead, Ferrero’s approach to produce CSR reports and demonstrate care and effort for the environment and people suggest to be considering sustainability as a cost rather than an opportunity, missing the point. Superficial efforts will satisfy stakeholders and consumer in the short term, but with other businesses embedding sustainability as their core strategy, Ferrero will struggle to keep up with competition in the long term if continuing this business-as-usual strategy.
Building sustainability in the core strategy of big businesses is challenging but the ROI shows to be positive and exponential for the century into which we are heading. However, Ferrero seem to have chosen to be victims of the tsunami as it quickly reaches the shores rather than riders of the new wave.