Focus: Robust Lindt looks to drive growth
Lindt will look to marketing and NPD in developed markets and expand operations in emerging markets
Swiss chocolate maker Lindt has posted a robust set of first-half numbers given the weak economic sentiment that has prevailed in its largest markets. As it moves into the back half of the year - where the group generates the majority of its profits - the firm will undoubtedly be looking to increase its growth rate. Katy Askew reports.
Lindt yesterday (21 August) booked a 5.3% increase in first-half organic sales. While Lindt failed to meet consensus estimates of 6.1% sales growth, the group nevertheless delivered robust revenues in a challenging period. By expanding its market share the firm was able to drive a 4.4% increase in total sales volumes, with price/mix adjustments contributing 0.9% to sales growth.
During the six months to the end of June, Lindt said consumer sentiment in its major markets remained down, hitting demand in the premium chocolate category. In its largest markets - including the US, Germany, France and Switzerland - Lindt said its sales volumes remained flat as a consequence, while value sales growth was "low".
"The main overall chocolate markets in Europe were still flat in terms of both value and volume," chairman and CEO Ernst Tanner said. "Consumer sentiment remained rather weak and even deteriorated further, especially in southern Europe. In North America too consumers proved increasingly reluctant to spend money because of the prevailing economic uncertainty."
In Europe, the eurozone crisis weighed on revenues, which rose 4% in the period. However, according to MainFirst analyst Alain Oberhuber, it was the group's performance in the US, Canada and Mexico (NAFTA) that was particularly "disappointing", despite sales increasing 6.7%.
"We think that the European organic growth was all right, mainly driven by high margin markets of Germany, France and Switzerland. The high margin business of Rest of the World also showed good growth rates. In contrast to the once growth market of North America which was disappointing and the main reason for the miss of the lower organic growth rate. The high base of last year also did not help," Oberhuber suggests.
Moving into the second half of the year, Lindt emphasised its focus would be firmly placed on driving growth by expanding its market share in key developed markets.
Speaking during a conference call with analysts, management said it would "participate in strategic promotional activities to grow volumes" in developed markets.
The company intends to "build market share" through the introduction of "new and innovative products in mature markets", Tanner indicated.
As Lindt increases its level of promotional activity and extends the brand with new product launches, the firm will be aware of the dangers of diluting its brand equity. The need to extend the Lindt brand to drive higher sales must be balanced against the requirements of protecting the value of the premium brand. As a consequence, NPD will likely remain targeted at the high-end of the market.
Management also suggested it is upping its level of marketing spend in a bid to deepen engagement with consumers. However, the extent to which Lindt is developing its communication efforts in the increasingly important digital arena - where the group has much work to do - remains to be seen.
The group also revealed it will be pushing "selective price increases" through in "specific markets and products" to deliver further product/mix gains.
However, even as Lindt looks to drive continued growth in developed markets, it seems market share gains in a category that is flat to down can only do so much to lift revenues.
In recent years, Lindt has benefited from the development of the premium chocolate market in the UK and US. The group has built up from its strength in continental Europe to expand greatly in the UK and US, where it was able to meet the growing consumer taste for high-end chocolates. But the growth rate of these markets appears to be slowing, a factor compounded by the tough trading conditions and poor economic outlook.
Significantly, Lindt revealed it is mulling expansion into new markets and exploring the potential of new geographies while also increasing its investment levels in new subsidiaries, including its Chinese unit.
Tanner was upbeat on the prospects for Lindt's long-term growth in China, which he described as a "dynamic Asian market" which "still has high potential for the future".
Although Chinese consumption and penetration of premium chocolate continues to be low, the potential of the market is significant and Lindt is working on securing distribution in the country.
However, according to Kepler analyst Jon Cox, Lindt's drive into emerging markets is likely to remain limited in the short- to mid-term.
"Chocolate is a developed world story [due to] climate and culture issues. In the developing world, the chocolate majors first have to build a mainstream segment before Lindt can really enter," Cox tells just food.
In this context, the need for Lindt to growing its share in developed markets to drive short-term growth is clear. However, it is likely the group will be tested in the coming months by the tough conditions it faces in the US and Europe.
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