Cloetta Fazer, Scandinavia's largest confectionery firm, has faced rumours that tension among its owners could lead to the company being split in two. CEO Jesper Åberg says that's very unlikely and insists Cloetta Fazer's recent acquisitions - including today's deal to buy Finnish gum producer Fennobon - is proof that the company is going from strength to strength. In this month's Just the Answer, Åberg told Dean Best about Cloetta Fazer's expansion outside chocolate - and ambitions to move into Russia.

just-food: Today (30 November), Cloetta Fazer made another move to expand beyond the chocolate market with the acquisition of Finnish functional gum firm Fennobon. What was the rationale behind the acquisition and what can Fennobon add to your business?

Åberg: We want to fill in the white spots in our portfolio, as we did when we bought Karamellpojkarna, the Swedish confectionery company, a couple of months ago. Chewing gum was not part of our own portfolio. We have represented Wrigley in Finland, which has given us quite a nice position but of course, over a long-term perspective, we want to develop our own brand. Fennobon makes gum with xylitol and minerals, which means we are going into the healthier segments [of the gum market], which we believe is a potential growth segment.

j-f: Is Fennobon sold across the Nordic region?

Åberg: Fennobon is mainly present on the Finnish market but it has some interesting products on export to the US and Japan. Of course, [moving the brand across the Nordic region] is all part of our strategy and we will evaluate each move and the next phases for the brand. We will put a lot of effort behind the product.

j-f: How will this affect your relationship with Wrigley?

Åberg: We haven't had discussions with Wrigley yet as the deal was only finalised this morning but we have had a good relationship with Wrigley and I am sure we can find some solution. At the moment, the Wrigley and Fennobon assortments complement each other: Wrigley focuses more on over-the-counter packages and Fennobon is big in bigger packets of gum, which is something of a Finnish phenomenon.

j-f: What has given Cloetta Fazer the confidence to expand in recent months, given such a challenging business climate right now?

Åberg: The growth is needed for the company to be successful in the future. We need to grow our position on our home market and through that create possibilities to expand outside our home region. Of course, commodity costs are affecting the cost structure and the company's profits - this is a short-term effect. We have to believe that consumers and the trade will accept this kind of commodity price fluctuation. Consumers are used to dealing with it. I mean, when the oil price increases, you see the effect at the gasoline station the next day. This is just a short-term effect and prices will be adjusted accordingly.

j-f: Have you found it easy to ask retailers to increase prices?

Åberg: Well, that's never easy but anybody with common sense understands what the situation is. The industry cannot absorb these kind of price increases on our major raw materials.

j-f: Do you see raw material costs continuing to rise in 2008?

Åberg: The situation is a little bit different than we are used to. Within the chocolate business, we are used to seeing cocoa prices fluctuating over the year. Now, what we see on milk powder especially, on wheat, oils and so on, is more related to demand and I don't see that this demand will drop. It is more realistic that this demand will continue to grow due to the increasing purchasing power in China and India. It's just a situation we have to face and we have to adjust our business accordingly.

j-f: How will your business adjust?

Åberg: One of our major ideas in our strategy is to look at the white spots in our portfolio. As the local company in the Nordic region, we are covering the whole confectionery category - sugar confectionery and chocolate. We have a few of these white spots; we are also looking hard to enter those segments that we are not covering today.

j-f: Looking at those gaps in your portfolio, which other segments is Cloetta Fazer looking to move into?

Åberg: We are looking at categories that are close to confectionery. For instance, we see nuts and dried fruit as interesting segments as well. We have a product range in that segment but that could be one of those growing segments near to traditional confectionery.

Cloetta Fazer's CEO Jesper Åberg

j-f: How are chocolate sales developing in the Nordic region?

Åberg: Chocolate is slowly increasing, no big jumps but the clear trend is that consumers are consuming more chocolate and I think that will continue.

j-f: Will Cloetta Fazer focus more outside chocolate?

Åberg: Chocolate is about 60% of our business and will be the main focus area. Of course we also look at sugar confectionery; we have a goal to also increase these sales and there is potential outside our home market to sell high-quality sugar confectionery. But chocolate sales will still grow on the Nordic market. We strongly believe that chocolate brands and taste preferences are very local and that's why we are investing in our home markets. There is also the environmental question about keeping production close to our consumers and by this avoiding high transportation.

j-f: Is concern over the environment an important trend in the Nordic region at the moment?

Åberg: My best guess is that there will be a greater awareness of the issue. At the moment, there is a lot of discussion about fair trade and organic in chocolate but I believe awareness of environmental and ecological issues will grow. People don't actually know where products are coming from, where they are transported - but these things will be raised in the near future. Part of our strategy is to keep production close to our consumers. We have no thoughts to move our production to so-called low-cost countries. There's added value to have production close to consumers.

j-f: How much multinational competition is there for you in the Nordic region?

Åberg: All the major multinational players are to some extent present in the market. But I believe in the 'local-ness' of chocolate and the local heritage and tastes preferences for local brands. It is very difficult for global players - even with their financial strength - to enter the local market.

j-f: Is the company looking to expand outside the Nordic region?

Åberg: Our main focus is the Nordic and Baltic area but we are also looking [at] and following the Russian confectionery market.

j-f: Indeed. Sales of chocolate in Russia are booming and there is a lot of investment from the likes of Kraft, Mars and Nestlé. What role can Cloetta Fazer play in Russia?

Åberg: There is a lot of growth potential in that market and the expectations for that market high, and that can also be seen in the prices that are paid for the companies. The size and especially the growing consumer power is the potential and I think that's the fact that is behind the high prices that are paid today for the companies.

j-f: Should we expect any acquisitions by Cloetta Fazer in Russia in 2008?

Åberg: Unfortunately, I cannot comment on that. We have been in discussions. We are following the Russian market. We export products from our Nordic factories and we have a sales company in Russia. It's close to our home market, has a big potential but at the moment the prices of the companies for sale have been quite high. It's a question of finding a strategic fit and also a question of price. If everything matches, we are interested in entering the Russian market by acquisition.

j-f: In September, there were reports in Finland that tensions between the company's owners could lead to Cloetta Fazer being split in two. What's the relationship like between the owners at the moment? Could the company be divided?

Åberg: That's very unlikely. The acquisition of Fennobon shows the owners' commitment to grow the company and that they believe in the company's future. I think a split is very unrealistic.