Lindt & Sprüngli booked strong first-half revenue growth this morning (20 August), driven by a category-beating sales performance in Europe and North America. The Swiss chocolate maker said it is gaining market share in the face of ongoing economic challenges and a constrained consumer environment. CEO Ernst Tanner spoke to Katy Askew about how the company is convincing consumers to trade up – and why he sees cause for optimism in developed markets for the remainder of the year.
Lindt & Sprüngli beat market expectations this morning when it delivered organic sales growth – stripping out currency exchange – of 8.7% for the first half of the year.
While the company saw dynamic development in emerging markets, such as China and Russia where it has recently established subsidiaries, CEO Ernst Tanner emphasises what really sets Lindt apart from the pack is its brawny performance in the sluggish developed markets of Europe and North America.
“North America is growing double digits. It is also encouraging that other mature markets in Europe, like… the UK, are growing very nicely. In big mature markets like Germany, France, Switzerland and Australia we are seeing very impressive growth,” Tanner tells just-food.
North American sales were up 12.7% while sales in Europe rose 5.8%, the company revealed in its first-half report. Given the downbeat economic sentiment that has shaped the grocery retail landscape in both regions over the past six months, the achievement is no mean feat.
Tanner says its impressive showing in Europe and North America comes as Lindt is able to bring new consumers to the premium chocolate category, on the one hand, and steal market share from rivals on the other.
“Our target is to [bring more people to the premium chocolate category]. When we grow 8% that is mainly growth in market share. That means we are growing at the cost of other people’s business.”
According to Tanner, while Lindt operates at the premium end of the global chocolate market, the company views its competition as coming from across the spectrum of mainstream chocolate brands. When Lindt attracts consumers to the premium chocolate sector, the company therefore frequently does so at the expense of these mainstream players.
“The chocolate market is what the premium chocolate market is. We have to convince the consumer that there is a better product in the marketplace. In the UK, our competition is [Mondelez International-owned] Cadbury. We have to convince the UK consumer there is a better product than what [they] are used to. This is the competition.”
It is also the challenge, Tanner concedes.
Given the poor consumer environment, Lindt’s premium positioning means the company must not only convince consumers it offers a “better product” – it must be a better product for which they are willing to pay a price premium.
“In today’s market environment, the consumer attitude is not necessarily to go out and spend more money. When I make store checks in England, I don’t go into London, I go into the countryside and look into people’s shopping baskets. What did ordinary people have in their baskets? Potatoes, vegetables, maybe a chicken – but nothing luxury. When you go into the countryside in England, in Europe, you have a lot of people that have to watch their nickels and dimes.”
Nevertheless, Lindt has been able to buck an industry-wide trend that has seen sales squeezed in Europe by growing its top-line in the region in the mid-single digits.
In part, sales growth in the region has been stimulated by an increase in promotional activity. Tanner suggests promotions have been used to drive volumes and stimulate trial purchases.
“[Promotional levels] depend on the opportunities that you have. We want to grow the business. If, let’s say, we get an opportunity in Tesco or Sainsbury’s to run a heavy promotion we jump on it,” Tanner says.
While promotions have been used to stimulate the top-line in Europe, they have meant margins in the region have come under mounting pressure. Over the past six months, operating margins in Europe dropped 20 basis points.
In terms of the group result, this was offset by first-half margin improvements elsewhere and the group said it expects full-year margin improvements to come in at the top end of its 20-40 basis point improvement target.
Looking specifically at Europe, Tanner shrugs off any concerns the company could see a dip in full-year margins.
“In our profitability you have to look at it at the end of the year. One day you are investing a little bit more here, or there… From that point of view, regional profitability is really only saying fundamental things at the end of the year.”
In North America – where Lindt has observed a more upbeat consumer – the company has driven growth through a focus on product development and innovation. This, Tanner says, has enabled it to expand its appeal to more consumers as well as strengthening its distribution presence.
“We are the only company who is really bringing news to the marketplace. Others are still selling the same stuff as they did 50 years ago,” Tanner claims. “We have a weight of distribution in the high 80s or 90s. But obviously, we gain additional listings with new products… Chocolate is an impulse buy and therefore the broader you make your products available the faster you should grow.”
Product launches have included new varieties and flavours to its established Lindor, Lindt and Ghirardelli brands. The company has also launched a “lifestyle” brand, Hello, that aims to appeal to a distinct consumer set.
“Hello [appeals] to maybe trendier people than the base chocolate product. We come out with trendier names, trendier packaging, trendier recipes. We have a strawberry cheesecake variety – nobody had ever heard of a strawberry cheesecake in chocolate before – we made one with marshmallows… These are for young people, or people who are young in their minds, who want to go out and try something new on an ongoing basis.”
Through this strategy of targeted promotional activity and investment in distinctive NPD that – Tanner says – separates Lindt from the competition, the company has been able to prosper at the premium end of the market in spite of cautious consumer spending.
Looking to the remainder of the year, Tanner sees further cause for optimism and suggests the macro-economic environment could be brightening in Europe and North America.
“North America is not booming, but we do see at least the negative things have stopped. Also in England, in Germany… We need a couple of quarters of good economic growth, stimulus, positive thinking, and then I think the consumer will change their mind.”
While Lindt is expanding in its stronghold of developed markets, the company is also looking to emerging economies to fuel mid- to long-term growth. Click here to find out more about how Lindt plans to expand in countries like China and Russia in part two of the just-food interview.