In buying a clutch of Fox’s Biscuits assets from UK manufacturer 2 Sisters Food Group, Ferrero has bought a tired brand in a mature category. The Italian giant believes in biscuits and in the Fox’s brand but might the deal have come for another reason? Dean Best reports.
Italy-based sweet-snacks giant Ferrero has gobbled up another biscuits business, acquiring the bulk of UK manufacturer Fox’s Biscuits this week from 2 Sisters Food Group.
There’s no doubt the Nutella and Ferrero Rocher owner sees opportunities in biscuits. The GBP246m (US$320m) purchase of a clutch of Fox’s assets is the third time Ferrero – either itself or through a holding company owned by boss Giovanni Ferrero – has acquired businesses in the biscuits sector over the last 18 months, after buying brands including Keebler cookies in the US from Kellogg, as well as Kjeldsens Butter Cookies from Campbell Soup Co. in Europe, last year. Four years ago, Mr Ferrero’s vehicle also acquired Belgian biscuits business Delacre.
On Wednesday, Ferrero announced that, through its executive chairman’s vehicle, CTH, assets including two Fox’s manufacturing sites that primarily produce Fox’s branded biscuits had been acquired. A third factory that manufactures own-label biscuits for “major retailers” is to stay in the hands of 2 Sisters, which saw its parent company, Boparan Holdings, acquire Fox’s as part of its purchase of UK manufacturer Northern Foods in 2011.
Asked how Ferrero believed the Fox’s assets can grow under new ownership, a spokesperson told just-food: “The Ferrero-related company [CTH] decided to acquire Fox’s as the maker of much-loved, prestigious brands. The business has a history in the British biscuit market going back to 1853, with a very strong heritage, brand awareness among consumers and leading positions in every segment of the biscuit category. We believe that there is significant scope to grow the business.”
Two Fox’s factories in Batley and in Kirkham in northern England are to change hands, with the deal expected to close by the end of the month. Some 1,500 staff work across the two sites. The spokesperson said the third facility, in Uttoxeter in the English Midlands, was not part of the deal as it would “represent an over-capacity in our development strategy”.
Ferrero said the businesses acquired generated sales of approximately GBP157m “during the last 12 months”.
However, the competitive UK biscuit market could prove a challenge even for a business that believes in the sector and, it insists, the Fox’s brand.
Ferrero knows the UK well, selling Nutella and confectionery including Ferrero Rocher, Kinder, Thorntons and Tic Tac in what is one of the group’s largest European markets.
Therefore, Ferrero will know how tough trading can be in UK biscuits, even if, in recent months, Covid-19 would have boosted sales across the category amid elevated demand for food for at-home consumption.
McVitie’s owner Pladis and Mondelez International, with its Cadbury and Oreo biscuits, present formidable competition in a market forecast by GlobalData as being set to have a compound annual growth rate of 2.7% by 2024. Even allowing for a boost from Covid-19 in recent months, that growth signals how mature the market is in the UK, with intense promotional activity and private label significant challenges.
Ferrero has experience in building brands and will be looking to boost the performance of Fox’s, which GlobalData says had a market share of 3.1% in 2018, ranked 7th behind the likes of McVitie’s and Cadbury.
In years gone by – many years, some would argue – Fox’s had something of a premium cachet, which Ferrero might decide to try to re-capture, albeit in a segment where there are a plethora of rivals.
“It was always a very good business. I think it somewhat lost its way when the whole biscuit market became hugely competitive and Fox’s was almost obliged to play that game,” Julian Wild, a corporate finance partner at law firm Rollits, suggests. “Having been a premium business and pricing in a premium way, I think it got sucked into a much more competitive market.”
Wild, a former Northern employee, said Fox’s was an “oddity” in the portfolio of 2 Sisters, which, he argued, “had no experience of running an ambient, branded biscuit business”, adding: “I think what Fox’s needs is long-term security and an owner who is willing to invest and grow the business and that clearly that hasn’t been the case for probably 15 or more years now, going back to before the Millennium really, when it was still in Northern Foods’ ownership. “I think it was struggling, even at that point, so I hope it works out well for them. I think the UK market is a difficult place to be. We have some very aggressive retailers here. We’ve got aggressive discounters and I think this is a difficult marketplace.”
Ferrero does have the resources to back in the Fox’s brand in terms of product development and marketing, while the group may also be able to capture synergies in areas like raw-material procurement to fuel that investment.
That said, could this deal be less about the Fox’s brand and more about the manufacturing assets acquired? Today, we also reported how Ferrero is set to spend EUR80m (US$94.5m) on upping the production of its Nutella biscuits in Italy. Might the key rationale for Ferrero’s move for Fox’s be to boost its manufacturing capability in biscuits through which it can then roll out more products, including under its own brands?
“I think they bought Fox’s as much for its capability, its know-how and its assets as for the brand,” Hamish Renton, managing director at UK-based international food and drink consultancy HRA Global, says. Renton says there could be opportunities for Ferrero on product development but argues those might be stronger with Ferrero’s current portfolio than on the “tired” Fox’s brand.
“I think [Ferrero] can develop a positioning whereby they insert their own brand into Fox’s to create a tier of ‘Fox’s plus’ or ‘Fox’s Special Selection’,” he suggests. “It would surprise no one if, in six months, a tier of those came out but you would wonder if Fox’s is the vehicle to do that or whether Ferrero have more joy doing Ferrero brands using the Fox’s assets?
“As a commercial/NPD guy, I would say go with the stronger brand, using the physical assets of your new acquisition. I reckon you would make more of a dent in the market and grow volume and value more.”
It may take a lot of work for Ferrero to drive better growth rates from Fox’s itself. There might, though, be sweeter opportunities with the Italian group’s existing confectionery brands and biscuits. Look, after all, at the cross-selling Mondelez does with Cadbury and Oreo.