Upmarket chocolate maker Lindt & Sprungli had something of a bitter 2009. The downturn, higher cocoa prices and restructuring in key markets hit profits. With consumer confidence fragile, there are questions over whether Lindt will fare much better in 2010. However, the Swiss firm remains confident and, as the business published its 2009 results in Zurich, Dean Best spoke to marketing director Uwe Sommer.
You would hardly expect the head office of a chocolate maker to be a gloomy place to work.
And even the morning rain on a Tuesday in early March does little to dampen the sense of fun at Lindt & Sprungli, the upmarket Swiss chocolate maker and one of the world’s ten largest chocolate firms.
Lindt has adorned its HQ in the Swiss city of Zurich with all sorts of Easter paraphernalia as it welcomes the press to the publication of its annual results last week. Giant gold rabbits are sat on the lawn outside Lindt’s offices and Easter eggs of all colours nestle in the trees guarding the building as the chocolatier marks the run-up to one of the most important selling seasons of the year.
However, while Easter is one of the defining periods of the year for a chocolate maker, 2010 could be a defining year in the history of Lindt. After a challenging 2009, when the downturn, soaring cocoa prices and restructuring in key markets like Italy and the US hammered profits, all eyes are on whether a premium chocolate maker like Lindt can bounce back this year. Some have even warned that Lindt could be a takeover target this year, with Nestle cited as a potential buyer.
Nevertheless, along with the aroma of chocolate wafting through the air at Lindt’s head office and manufacturing facility at Kilchberg, a few miles south of Zurich, there is a mood of confidence among the company’s senior management. For Lindt, 2009 – a year in which profits slumped – was merely a year of “transition”.
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The company is targeting organic sales growth of 5-7% in 2010 after a year when revenues grew by a little over 2% and were boosted by price increases as volumes fell. Lindt has also forecast EBIT of CHF300-340m (US$284-321.9m) for 2010 after booking EBIT of CHF264.8m for 2009. Lindt’s 2010 EBIT forecast may not take operating profit up to the level seen in 2008 (when EBIT reached CHF361.2m) but the company is upbeat about its prospects.
“We revised our organic sales growth target from 2-5% to 5-7% and we are proud of that. We had a good start [to 2010] so let’s see what happens,” marketing director Uwe Sommer tells just-food on the sidelines of Lindt’s results press conference.
Much of Lindt’s confidence comes from the robust performance of its businesses in the UK and in the US amid the downturn. Lindt does not disclose profit figures for each market but, while sales in Spain and Italy slumped and were flat in Switzerland and Germany in 2009, the company revealed its revenues in the UK and the US rose last year.
The UK and the US, so often stagnant, mature markets for many a food maker, have “great potential”, according to Lindt. The two countries are the world’s two biggest markets in terms of chocolate sales but Lindt points out that premium products make up a small but growing portion of each market. Citing data from 2007, Lindt said premium products accounted for 19% of chocolate sales in the UK and less than 10% in the US.
Last year, Lindt’s UK sales rose 4.4%. Sommer says Lindt boosted its advertising spend and launched a series of products in the UK, both strategies that will continue in 2010. However, Sommer admits Lindt saw “pressure” on consumption in 2009 as the company “dramatically” increased its prices. While retailers in the UK fought keenly on price to attract cash-strapped shoppers, Sommer insists Lindt had managed to secure price increases to help offset raw material costs and the weakness of sterling against the Swiss franc.
“We have excellent partnerships with the big grocery outlets. They have been happy with our performance in the market – but they have not been happy with the price increases,” Sommer smiles.
However, he quickly adds: “We have managed with the retailers to increase our promotional prices. We are very happy with our results in the last year. We are very bullish about the UK. We will keep on increasing our marketing spend in the UK and we are continuously launching innovations under the Lindor range.”
In the US, Lindt’s sales were up 7.9% in 2009. The figures came as something of a surprise, given the company started to restructure its business in the US, a revamp that, by the end of this year, will lead to the group having just 30 stores in the country.
Other chocolate makers, notably Hershey, spent much of 2009 warning investors that US consumers had moved away from the “trade-up” category and down to “everyday” brands as the recession hit spending. However, Sommer insists Lindt, which also owns the Ghirardelli business in the US, had bucked that trend – although he gave a nod to the Mars Inc. brand Dove.
“Consumers moved away from all the Hershey premium concepts – Starbucks, Schaffenberger and all those. Also, other companies in the premium area like, for example, Cote d’Or and Green & Black’s, didn’t make it in the US. The two guys who really made it in the US in premium are Lindt and Ghirardelli,” Sommer explains. “But, in the States, we also consider Dove as a premium approach. They have been very successful in the last five years. They were slightly negative in 2009 but we consider them as the only real successful entry in the premium area by the big guys.”
Elsewhere, countries in the East remain niche markets for Lindt, like many a chocolate maker, with chocolate not being a traditional treat for consumers in Asia-Pacific. However, Lindt has promised to give more attention to markets like China – particularly Shanghai and Beijing, as well as Hong Kong – and Japan.
“What we want to do in Asia is seed the ground for further growth. We have to anchor our brands in a premium way. It will be very rewarding for the future,” Sommer insists.
However, no major company worth its salt will focus solely on organic growth without having at least half an eye on acquisition opportunities. Kraft Foods’ acquisition of Cadbury has prompted industry watchers to speculate on what could be the next big deal in chocolate and a possible move for Lindt from Nestle has been mooted.
Nevertheless, Sommer maintains that Lindt would look instead to be an active player in any further consolidation of the category. To acquire rather than be acquired.
“Obviously, we would fight like hell to be independent. We have a good shareholder structure and, believe me, I don’t want to report to a European head of Nestle,” Sommer insists, with a grin.