Cloetta said talks with employees over potential Covid-19-related layoffs have concluded but the confectionery maker was reluctant to provide specifics on numbers at this stage as the impact of the virus halted eight consecutive quarters of growth.
The Sweden-based company, which supplies markets in Europe including the UK and Italy, has been hit hard in the pick-and-mix part of its business, prompting measures to try and shore up sales in the category. Earlier today (24 April), the Candyking brand owner issued first-quarter results to the end of March showing an across-the-board decline, and said profits in the current quarter will be “significantly lower” than last year.
Around two weeks ago, Cloetta said it had started talks with employees about the prospect of temporary layoffs. However, speaking this morning, chief executive Henri de Sauvage-Nolting would not be drawn on numbers but he did give a bit more colour on how the business is performing, particularly as it has seen a negative impact from the lock downs on the convenience, entertainment and travel channels.
“We concluded talks yesterday but it more or less changes week by week and I don’t feel comfortable to discuss that with the fact our competitors could be listening,” the CEO responded. “Be assured that we try to strike the right balance to reduce costs as quick as possible by using furloughs in those countries where we can.
“The balance needs to be on cost on the one hand, and on the other hand, the fact that we still want to service the stores in such a way that the customer and the shopper are still happy with the pick-and-mix offering.
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“We don’t want to be in a position where, when the retailers open up again, that ‘now you have to wait for three months because we have no people left’; we need to start recruiting and training.”
Cloetta said shoppers have avoided the unpackaged pick-and-mix category over fears they might contract the virus and are also refraining from any impulse purchases. It has therefore made arrangements with retailers to replace that section with “finished” goods and to sell pre-pack versions in boxes and bags.
The firm’s pick-and-mix category saw sales fall 8% in the first quarter, from flat in the prior three months, and growth of 6.4% in the third quarter. Its branded lines dropped 2.5% following a 3.8% increase in the final three months of the 2019 fiscal year.
Pick-and-mix has also been impacted by the loss of a contract in Sweden, which had been previously flagged, but Cloetta has little confidence in any rebound in that market in the short term. The CEO was hoping the country would reach a break-even point by the year-end.
“We do not expect our plan to get the Swedish business to break even will play out, so that is a forward-looking statement to make,” de Sauvage-Nolting told analysts. “But we need to find out how this business is going to operate in the coming quarters. The ambition is still there but there are so many things that have now changed that we need to recalculate when the situation is a bit more stable.”
However, the CEO noted the challenge in bringing shoppers back to the pick-and-mix category once the current crisis has passed.
“A little bit longer term, how do we regain the trust of shoppers who were doubtful about pick-and-mix due to the Covid situation, either in the coming months but also of course when Covid is behind us? According to my own personal interpretation, there will still be work to be done to bring shoppers back to pick-and-mix and that’s what we call the Reignite plan.”
Cloetta expects its branded segment sales to be down again in the second quarter and pick-and-mix to continue to be “significantly reduced”.
Asked if the drop in sales will leave Cloetta exposed to the risk of having to write down inventories, de Sauvage-Nolting said: “At the moment we don’t see a risk but of course we need to closely manage that.”