Course Title: Principle of Marketing

Academic Year: 2020-2021

Semester: Summer
Course Code: ADM160

NUTELLA® AND THE USE OF PALM OIL: A CASE STUDY

EXECUTIVE SUMMARY
Ferrrero Spa faced a business and ethical dilemma when its flagship product Nutella®, was linked to
potential health issues. Specifically, the European Food Safety Authority warned that contaminants in palm
oil, Nutella®’s main ingredient, could cause cancer if processed at high temperatures. While some food
manufacturers and supermarket chains elected to eliminate palm oil from products, Ferrero selected a
different course of action. The case discusses the steps taken by the company to assure consumers that the
product was safe for human consumption.
The case highlights the challenges faced by multinational organizations that produces and sells a single
brand across multiple countries and cultures. Students are asked to evaluate the company’s action plan from
an ethical and risk perspective. The case also serves as an experiential learning opportunity since students
will be utilizing the Committee on Sponsoring Organizations (COSO) Enterprise Risk Management (ERM)
Framework to formulate responses.
Nutella’s company, Ferrero is the largest confectionary group in Italy and the fourth largest in the world.
As written on the jar, Nutella is a “delicious blend of fresh hazelnut, skim milk, and cocoa.” We have
identified and divided the American market into three promising segments:

• Children between the ages of 4 and 13 and their parents (targeted for peanut butter-Nutella swirls
and Nutella-peanut butter swirls)
• College students (targeted for Nutella bars)
• Southerners along with wealthy/successful individuals and elders (targeted for Original Nutella
chocolate hazelnut)
By implementing our marketing plan, we hope to achieve several goals and objectives within 3 years:

• Improve brand awareness

• Become leading general spread and breakfast in the U.S.
• Achieve greater market share by 35 % increase in profits.
Marketing Goals and Objectives
Nutella’s Mission Statement
Due to their great success in the European market, Ferrero is ready to introduce Nutella to all
American people, from various backgrounds, ages, and lifestyles. At Ferrero, our primary mission
is to introduce Nutella to all people around the U.S., as being a unique and of excellent quality in
taste and ingredients.
Market Definition
Nutella- the original and supreme chocolate hazelnut spread in the world- will deliver taste,
nutrition, versatility, and convenience to the American breakfast tables. In addition, both the
mission statement and the market definition for Nutella indicates Ferrero’s incentive to introduce
itself to the US market as a unique product that will promise ultimate satisfaction and excellence
to its buyers.
Financial Objectives
• Increase the overall sale by 35 within the first 12 months and 50 percent within the
following two years.
• Ferrero will try to increase sale by 35 percent by 2003, and 50 percent by 2005.
• The first-year increase in sales won’t be affected by technological changes.
• Nutella’s annual sales has been estimated to be 1.2 million a year in U.S. market, which is
relatively low compared to overall spreads in the U.S.
• Allocation of the required funds for our advertising campaign.
• Proctor and Gamble, the manufacturer of Jif Peanut butter spends several million on
advertising for an established name brand, which has accounted for its success.
• Accordingly, for Nutella, in order to create strong brand awareness, a similar size budget
will be required.
• We estimate that we will spend approximately between 35-45 percent of our profits on
advertising and promotions.
Target Market
For the most part, Ferrero has captured the European market with Nutella hazelnut chocolate
spread. Some of these countries include: Germany, France, and Italy. Our goal is to make Nutella
an all-American Breakfast and convenient spread. Three market and three versions of Nutella
Product line extension of Nutella will consist of:
• Original Nutella chocolate-hazelnut spread
• Peanut butter-Nutella swirls and Nutella-Peanut butter swirls
• Nutella bars
 Target market Nutella product
4–14-year-olds and parents Peanut butter-Nutella swirls and Nutella-
Peanut butter swirls
Collage Students Nutella bars
Southerners and elders Wealthy/Successful Original Nutella chocolate-hazelnut spread
individuals

Children Between 4-13 And Their Parents

Concisely, for the children between the ages of four and thirteen along with their parents we will
propose a combination of Nutella and peanut butter spread swirls as a transition product.We predict
that this group will like the Nutella chocolate and peanut butter swirls so much, that they will
eventually go for a Jar of original Nutella hazelnut spread instead of a jar of peanut butter or Nutella
and peanut butter swirls.
College Students
Similarly, for the college students, we will propose the Nutella bars. Since most college students
are busy and don’t have much time to cook breakfast, Nutella bars will be a great alternative. It is
made especially for people on the go who want to have a quick breakfast.

COMPANY HISTORY AND OVERVIEW

Ferrero SpA, the privately-held manufacturer of branded chocolate and confectionary products,
was established in 1942 during World War II, when Pietro Ferrero Sr., the son of a croft farmer in
Piedmont, opened his laboratory in Alba, Italy. He experimented with mixing chocolate with
hazelnuts to develop Giandujot, the predecessor to Nutella®. The war caused a shortage of cocoa,
which enabled Pietro to create premium candies but at affordable prices. In 1946, the Italian
Department of Commerce declared the family-run pastry shop as an official company. Ferrero Sr.
died in 1949, at which time his son Michele Ferrero took on the leadership role.
Michele Ferrero expanded operations into foreign markets and began to build plants globally. In
1956, the Germany plant opened, and shortly afterward one in France. To keep the business
thriving beyond the Eastern Hemisphere, Michele did an international relaunch of the company’s
brand in 1964. The relaunch led to the still-in-use secret recipe, in the iconic glass jar Nutella®.
In the following decades, Ferrero created companies and plants throughout the world including in
Eastern Europe, Africa, Turkey, Mexico, and China. The company also added other successful
products including Kinder Chocolate in 1968; Tic Tac mints in 1969; additional Kinder products
such as the Surprise in 1974; and Ferro Rocher, known for its distinctive gold foil wrapper, unique
packaging and deluxe hazelnut chocolates in 1982.
In 1969, Ferrero established Ferrero U.S.A., Inc. with its headquarters in Parsippany, NJ. Ferrero
introduced the smallest product, the Tic Tac into this market but delayed the launch of the flagship
product, Nutella®. One challenge faced by the company was the existence of a market segment
leader, peanut butter. Facing an uphill battle to compete against such an established leader, the
company decided to wait until a more opportune time to launch its flagship brand. Over the next
decade, Ferrero investigated and performed continuous research until it found an alternative
solution. Instead of directly competing with peanut butter, Ferrero simply marketed Nutella® as
part of a nutritious breakfast that could make life easier and healthier for families in the US. The
Nutella® brand was officially launched in the US in 1985.
In 2014, Ferrero’s sought to diversify the company through small acquisitions starting with the
Oltan Group (Turkey) which was rebranded as Ferrero Findik in 2015. It is now the leading
company for collecting, roasting, and trading hazelnuts in Turkey. Expansion continued in 2015
with the acquisition of the UK confectionery firm, Thorntons; and the Belgian biscuit maker
Delacre. Ferrero is also building its US presence through acquisitions. In early 2017, it purchased
the Fannie May and Henry London brands; and in late 2017, it acquired the Ferrara Candy Co.
Ferrero reported sales of 10.3 billion euro (approximately $11.05 billion) for the fiscal year ending
August 2016 (most recent data available), an 8.2% increase from the previous year. The company’s
top performing products are Nutella®, Kinder (Surprise, Joy, and Bueno), and Tic Tac. It is now
the third largest confectionary manufacturer in the world as depicted in Table 1 below.
Table 1: Global confectionery market: Leading companies 2016, based on net sales
Company Sales (in million
dollars)
Mars Inc. $18,000
Mondelez Intl 12,900
Ferrero Group 10,637
Meiji Co 9,850
Nestlé SA 9.138
Hershey Co 7,461
Pladis 5,200
Lindt & Sprůngli 3,968
Ezaki Glico Co 3,437
Haribo GmbH & Co KG 3,180
Source: Statista (n.d.)
The Ferrero Group is comprised of 86 subsidiaries worldwide, 22 operating manufacturing plants,
and is present directly or through authorized distributors in over 170 countries. These entities are
managed by the parent company, Ferrero International S.A., a Luxembourg based company.
Ferrero SpA, the chocolate and confectionery subsidiary company, continues to maintain its
headquarters in its birthplace – Alba. The entity retains its family linkage with a third generation
Ferrero at its helm. The diagram below provides an overview of the company’s global reach.
The Ferrero Group prides itself in its social responsibility initiatives. These include a focus on
quality and innovation, transparent communication, the care of people, and the support of local
communities. These are best capsulated in the company’s core values namely its loyalty to
customers and the trust they place in its products as expressed through their everyday purchases.
The company rewards this loyalty by ensuring transparency in business processes and excellence
in product quality.

NUTELLA® – A MAJOR PRODUCT

Nutella® was developed in 1964 and its iconic jar created in 1965. It was introduced to the German
market in 1965 and continued its European expansion to France in 1966. Nutella® acquired iconic
status in Europe which encouraged the company to expand the product internationally, starting
with Australia in 1978 and to the US in 1985.
Today, Nutella® is one of the most popular and successful global products (brands) and generates
about 2 billion euro in annual sales, approximately 20% of total company sales. Part of this success
might be attributed to the company’s marketing campaign which portrays Nutella® as a key
ingredient to a nutritious and balanced breakfast. In addition, Ferrero positioned the product as
family-friendly, which allowed Nutella® to strive as a holistic and balanced breakfast food. The
best description of the product is provided by the company which notes that “With Nutella® we
spread positive energy in families to bring more optimism to the world”.
Nutella® has a loyal and committed fan base and these fans were motivated to create a World’s
Nutella® Day on February 5th, 2007. The event gave Nutella® lovers the opportunity to unite and
celebrate the product.
So, what’s inside the jar? Nutella®’s ingredients includes sugar (beet and refined cane), palm oil,
hazelnuts, cocoa, milk (skimmed and milk powder), lecithin (extracted from soy beans or
sunflower seeds), and vanillin (synthetic). A small amount of vanillin is used to heighten and
stabilize the product’s flavor and fragrance.
The ingredients are sourced from a number of global suppliers including:
• Palm Oil (Malaysia, Papua New Guinea, Guatemala, Solomon Islands)
• Hazelnuts (Turkey, Italy)
• Cocoa (Ivory Coast, Ghana)
• Lecithin (Brazil, India, Italy)
THE KEY INGREDIENT: PALM OIL
Palm Oil is a widely used product whose role in human nutrition dates back to over 10,000 years.
Its diverse usage includes domestic cooking is Southeast Asia, Africa, and parts of Brazil. In
western countries, it is used in its refined form as a natural ingredient in many food items such as
margarine, confectionary, ice cream, convenience foods (including chips, snacks, and frozen
foods), and bakery products. It is also used in toothpaste, cosmetics, shampoos, and soaps. This
wide use of palm oil makes it the most consumed vegetable oil in the world with a market value
of $65.73 billion in 2015 and is expected to reach $92.84 billion by 2021.
Palm oil itself is a key ingredient in Nutella® since it gives the product its smooth creamy texture
and enhances the shelf life. It also heightens the flavor of the other ingredients used to produce the
product. Ferrero uses approximately 185,000 tons of palm oil annually to produce Nutella®.
Derived from the mesocarp (reddish pulp) of the fruit of the oil palms tree, palm oil is an edible
vegetable oil high in saturated fats. Unlike other vegetables, palm oil trees are particularly
profitable because they can be harvested year-round, can bear fruit up to 30 years, require less
fertilizer, fewer pesticides, and can yield more oil from smaller portions of land. The vegetable oil
used in Nutella® is sustainable palm oil, 100% certified segregated RSPO (Roundtable on
Sustainable Palm Oil). This means that the palm oil used in Nutella® is kept separated from
conventional palm oil along the whole supply chain. RSPO was created in 2014 to advance the
production, procurement, financing, and use of sustainable palm oil products.

THE COMPANY’S RESPONSE AND RESOLVE

As noted earlier, in 2016, the EFSA issued a report in which it warned that the use of palm oil
could increase cancer risk for consumers when it is refined at high temperatures to manufacture
consumer goods. Ferrero which uses palm oil as a key ingredient in Nutella, accepted the risk
associated with the warning and took a public stand to defend the use of palm oil in its signature
product. It launched an advertising campaign in Italy to assure the public that the palm oil used in
Nutella® was safe to eat. Furthermore, the company suggested that replacing palm oil in Nutella®
would produce an inferior substitute for the real product and would be a step backward.
The company reported that its palm oil is safe since it is derived from freshly squeezed fruits and
then refined at just under 200 degrees Celsius, using a low-pressure process that minimizes GE
levels. Furthermore, the company reminded the public that the EFSA did not call for a ban on the
use of palm oil since it’s not a regulatory body and thus does not have the authority to implement
regulations.
To overcome the negative press and continuous defense of palm oil usage, the company is
providing transparency in its production and manufacturing processes. It is also ensuring that any
potential health hazards are fully disclosed to the public. Through its social media outlet, the
company continues to promote its membership in the RSPO and the Palm Oil Innovation Group
(POIG). RSPO and POIG are both focused on ensuring responsible palm oil production practices
by key players in the supply chain.
DISCUSSION QUESTIONS
Answer The Following Questions:
1. Nutella has a clear marketing objectives and strategy. Discuss into details the marketing
mix of the Nutella company while focusing on the 4 P’S.
2. As learned during the online classes, the SWOT analysis is an essential strategic tool for
any organization to reach their long-term objectives. Draw a SWOT analysis for the case
studied.
3. Discuss the main challenges faced by the global organization in brand building such as
positioning, communication, environmental change, product life cycle, market share,
consumer behavior?
4. Discuss Nutella’s brand equity strategy while giving clear examples form the text.
5. What is the ethical responsibility of an international company such as Ferrero to customers
when negative information is made on a worldwide product? Based on information
provided in the case, did it satisfy this responsibility?
6. Should the company stop using palm oil to produce Nutella®? Justify your answer.