SWITZERLAND: Lindt & Sprungli: premium paying off (COMMENT)
Profits at Lindt & Sprungli, the prestige Swiss maker of Lindor and Ghirardelli chocolates, reached new highs on the back of consumers' increasing penchant for luxury treats. However the growing push to premium in many developed markets may bring with it the competitive threat of mass market rivals muscling in on Lindt's territory.
Lindt's share price has risen six-fold since 1992 and these latest profit figures continue to present an impressive picture. In 2004, net profits rose 23.5% to €97.8m, (US$131m) while operating profits climbed 16.3% to €141.9m. Group sales broke through the €1.3 billion barrier for the first time on the back of a 12% increase.
In particular, Lindt is growing fast in countries such as the UK, Russia and Japan where consumption of dark chocolate with higher cocoa content traditionally has been lower than in continental Europe. With the European market for premium chocolate forecast to grow by 13% over the next four years, Lindt's prestigious offerings are becoming ever more relevant to discerning chocoholics.
However, Lindt is set to target North America next as a key expansion opportunity, with bosses suggesting that the US market is ripe to receive more imaginative and innovative chocolate products, which current confectionery players seem unable to provide.
In recent years, Lindt has been dealt a favourable hand, but played it well. Changes in consumer behaviour, lifestyles and needs are impacting the chocolate market and driving the premium segment. Consumers in both Europe and the US are seeking more luxury from their consumption choices in order to satisfy their increasing lifestyle aspirations. This, together with rising affluence, added time pressures and subsequent stress levels, causes them to trade up to indulgent, luxury items such as premium quality chocolates. Lindt's uncompromising luxury position means it can capitalize on this.
Yet while Lindt will continue to benefit from this trend, one of its greatest challenges in the coming years will be to protect its strong position in premium chocolate from the undoubted influx of products from more mainstream competitors which have traditionally targeted the mid-market consumer.
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