Latest / Family Business Stories with Fexingo: Succession, Legacy, and Multi-Generational Companies / How the Ferrero Family Turned Nutella Into 11 Billion
Transcript
- Lucas: So there's a photo from 1946 that I keep coming back to. It's Pietro Ferrero standing in a small kitchen in Alba, Italy, wearing a flour-dusted apron, holding a block of what looks like dark clay. That 'clay' was the first batch of what would become Nutella — a mix of hazelnuts, cocoa, sugar, and a little sheep's milk butter. He'd invented it because cocoa was rationed after the war, and hazelnuts grew everywhere in Piedmont. Luna: He was basically using local ingredients to stretch expensive chocolate. Makes sense for wartime. But that block — it wasn't spreadable, right? Lucas: No, it was a solid loaf. You sliced it and put it on bread. Pietro called it 'Giandujot' after a local carnival mask. And he sold it from a bicycle cart. Fast forward to today — Ferrero is an $11 billion company with brands like Nutella, Kinder, Tic Tac, and Ferrero Rocher. And here's the part that matters for this show: it's still entirely family-owned. Luna: That's rare at that scale. Most confectionery giants — Mars is the other big one — but even Mars had to bring in outside executives eventually. Ferrero seems quieter. Lucas: Much quieter. They don't do analyst calls. No flashy press. Michele Ferrero, Pietro's son, took over in the 1960s and basically built the modern company. And he had a very specific philosophy: never borrow money, never go public, and reinvest every single euro of profit back into the business. For decades, Ferrero had zero bank debt. Luna: Zero? That's almost ideological. Most companies at least use a credit line for working capital. Lucas: Michele saw debt as a risk to independence. He once said something like, 'The bank owns you if you owe them money.' And he was right to worry — because the third generation is where most family businesses fail. Statistically, about 70 percent of family firms don't survive the transition from generation two to generation three. Luna: That's the 'third-gen trap' — the grandchildren are raised in wealth, they don't have the same hunger, they sell out or run it into the ground. Lucas: Exactly. But Ferrero avoided it. When Michele stepped back in the 1990s, his sons Pietro and Giovanni took over. And they didn't just maintain — they expanded. They launched Kinder Surprise in Europe, bought the Tic Tac brand, pushed into Asia. And in 2018, they made their biggest move: they bought Nestlé's entire US confectionery business for $2.8 billion. Luna: Wait, that was the deal that gave them brands like Crunch and Butterfinger, right? That was a huge shift for a company that historically grew organically. Lucas: Right. For 70 years, Ferrero never did a major acquisition. They built brands from scratch. But by 2018, they realized that to compete with Hershey and Mars in the US, they needed shelf space fast. So they bought Nestlé's division — and suddenly doubled their US footprint overnight. It was a very calculated risk, and they financed it with cash on hand. Luna: So they still didn't borrow. That's discipline. But let's talk about the governance structure — because keeping it in the family isn't just about avoiding debt. How do they actually manage ownership? Lucas: They have a holding company, Ferrero International, based in Luxembourg. The family owns 100 percent of the shares. But here's the key: they separate ownership from management. Family members who want to work in the business have to prove themselves — they start in factories, not corner offices. And the board includes non-family professionals. Michele Ferrero's daughter, for example, studied law and spent years in the legal department before joining the board. Luna: That's the opposite of the 'nepotism disaster' you see in many family firms. But let's get concrete — can you give me one specific decision that shows how this approach paid off? Lucas: Sure. In the early 2000s, the company invested heavily in a new production line for Ferrero Rocher. The conventional wisdom was that the gold-foil wrapped praline was a mature product — you don't double down on a mature product. But Ferrero's analysis showed that there was untapped demand in Asia and Latin America. They committed over $500 million to build factories in China and India. Within a decade, Ferrero Rocher became the number-one-selling wrapped chocolate in Asia. Luna: But that's not a sexy tech bet — it's just a smart, patient capital allocation. And they could afford to think long-term because they weren't answering to quarterly earnings. Lucas: Exactly. That's the structural advantage of being private and family-owned. Now, let me shift to a challenge they face today. The third generation — Giovanni's children — are now in their thirties and forties. And the business is far more complex. You have global supply chains, currency risk, and changing consumer tastes. The question is whether they can maintain that same discipline. Luna: There's also the health angle. Sugar taxes in Europe, clean-label trends. Nutella's core ingredient is sugar and hazelnuts — that's not exactly a health food. How do they address that? Lucas: They've quietly reformulated Nutella to reduce sugar by about 7 percent in some markets, and they launched a 'Nutella with no added sugar' version in Italy last year. But they're careful not to alienate the core fan. They also diversified into biscuits and ice cream under the Kinder brand. The real test will be whether they can innovate beyond the hazelnut spread. Luna: Before we go further — I want to mention something. If today's episode was useful to you and you want to keep it ad-free, buy me a coffee dot com slash fexingo helps. It's a small thing that makes a big difference for us. Lucas: Yeah, and we mean that. Listener support is literally what keeps these conversations going. No ads, no sponsors — just a direct line from people who find value in the show. Luna: Alright, back to Ferrero. Let's talk about the recent leadership transition. In 2022, Giovanni Ferrero stepped down as CEO and handed the role to an outsider — Lapo Civiletti, a longtime executive from within the company. But Giovanni remains chairman. Lucas: That's a significant move. It's the first time a non-family member holds the CEO title. But the family still controls the board. It's a signal that they're professionalizing while keeping strategic control. Many family businesses wait too long to do that — the founder's grandson insists on being CEO even if he's not qualified. Ferrero seems to have avoided that ego trap. Luna: So what's the one lesson another family business could take from Ferrero's story? Lucas: I'd say it's this: the family business's greatest asset is its ability to think in decades, not quarters. But that only works if you have the discipline to stay out of debt, separate ownership from management, and treat the business as a legacy rather than a piggy bank. Ferrero did all three. Luna: And it helped that they had a product that people genuinely crave. But the structure amplified that advantage. Lucas: Exactly. Good governance doesn't guarantee success — but bad governance guarantees failure eventually. Luna: So what's next for Ferrero? They've made the big Nestlé acquisition, they've professionalized the CEO role. Do you think they'll ever go public? Lucas: I don't think so. The family has repeatedly said they have no intention. And they don't need the capital — they generate huge cash flows. But the real reason is cultural: going public would mean answering to analysts, short-term earnings pressure, and potentially losing control. The Ferrero family values privacy and independence too much for that. Luna: It's a bet that they can keep growing without external capital. And so far, it's working. Lucas: It is. But the next decade will be the real test. The third generation is in charge now, and they face a very different world from their grandfather and father. If they can navigate health trends, supply chain disruptions, and global competition while keeping the family united — that's the story worth watching. Luna: And we'll be watching. Thanks, Lucas. Lucas: Thanks, Luna.