Billionaires

Ferrero: A Sweet Tale of Capitalism

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Perhaps the best way to get to know Alba, a small town in the province of Cuneo, in the Piedmont region, is to open a book by Beppe Fenoglio, one of the major Italian writers of his time. He wrote extensively about the city and the surrounding hills, the Langhe, in novels and short stories about poverty, resistance and love.

The city is just an hour out of Turin and, since 2016, some thirty daily train connections make it easy to access the regional capital. This is all on account of the Ferrero family, which wanted its top executives to be able to travel easily between the two cities. Alba is also famous throughout Italy for its history as the first city to free itself, all on its own, from fascist oppressors. The town’s great writer Beppe Fenoglio sets his story I ventitre giorni della città di Alba [Twenty-Three Days in Alba] against the backdrop of the short-lived Partisan Republic. Alba was otherwise nothing but a somewhat sleepy town amidst a remote countryside. Until the “economic miracle” of the 1960s, most of its youth dreamt of a better future beyond Italy’s borders.

Yet Alba’s location is close to ideal, sitting halfway between Turin and Genoa, two of the three corners (along with Milan) of the so-called “industrial triangle” of Italy. Although Turin had, since 1899, been able to count on Fiat to provide jobs for the local working class and for farmers seeking to escape the miseries of Mezzogiorno, and although other smaller cities such as Ivrea reaped the benefits of Italy’s industrial champions like Olivetti, Alba has long seemed stuck with its “bad luck” – La Malora, as Beppe Fenoglio called it. The writer himself worked until his early death in 1963 in the agricultural sector, exporting wine to foreign markets. Wine is one of the few local riches, still under-exploited, along with the production of truffles. “I write,” he told his wife, “because in fifty years everybody will have forgotten how we starved here.”

From smalltime pastry chef to industrialist

The story that changed the fate of the Piedmontese town began in 1942. With fascism and war, Italians had to resort to ersatz goods. Exotic produce was scarce, leaving cooks, pastry chefs and ice cream makers to rely on their own resourcefulness and ingenuity.Their innovations, however, were not always successful. Pietro Ferrero was born in the Langhe and grew up in Alba, before trying his luck as a pastry chef in Turin’s upperclass areas. Although he was unsuccessful in Turin, and was forced to return to his childhood home, he didn’t give up on his ambitions, and his shop on via Maestra, the commercial and fashionable street of downtown Alba, carried a lustrous whiff of big city life. It was called “I Biffi”, named after a famous Milanese shop in Gallery Victor-Emmanuel II.

Pietro Ferrero also acquired a workshop in via Ratazzi, a quieter street a few hundred metres from his shop. As chocolate was both scarce and expensive, he took up the idea of substituting it with hazelnuts – an abundant local produce, which also happened to be five times cheaper. Although it is said that he was the first to come up with this combination, this is not entirely true. It could be found in Turin as early as the 19th century, under the name Gianduja, after the famous Italian puppet, similar to France’s Guignol of Lyons.

In 1946 Pietro began selling cheap hazelnut chocolates to children under the name Gianduja (then Giandujot). That same year, he turned his little workshop into an industrial firm, which met with immediate success. He bought a factory close to the railway station on via Vivaro – and the Ferrero Foundation still sits opposite the Nutella production site. In 1948, flooding brought torrents of mud inside the factory, all the way to the production line. Workers came to the rescue, however, and the company was able to quickly resume operations. Pietro Ferrero died of a heart attack the following year, at only 51, seemingly exhausted by unceasing labour, leaving his brother Giovanni and his son Michele to take over the business. They already owned a dozen delivery trucks, but they continued to build up their fleet over the 1950s, eventually becoming the country’s second biggest truck fleet after the army.

In 1949, the company created “Supercrema” – a chocolate hazelnut spread that was eventually to become Nutella. In 1957, Giovanni died and thirty-two-year-old Michele Ferrero became the sole boss. The year before, he had devised a brilliant publicity stunt using the “treno dei bimbi”: The truck, painted to look like a train, in Ferrero’s colours, travelled across Italy, distributing chocolates to children at fairs and carnivals. It was the dawn of consumerism. People were beginning to realise that business was no longer about meeting needs, but about creating them. “Good ideas conquer the world,” was Ferrero’s advertising slogan at the time.

A family business

Ferrero’s success was less about technical innovation than an obsessive preening of the Ferrero image. A 2009 survey revealed that, out of six hundred of the world’s biggest companies, Ferrero had the best image, just above Ikea. In a town with a long line of Christian-Democrat mayors, from the Liberation to the early 1990s, Michele Ferrero fitted in perfectly. As a devout catholic, he took his top executives every year to Lourdes. He was deeply respectful of his employees, continuing a paternalistic tradition that was very different from the socialism of Camillo and Adriano Olivetti, declaring that he “made his own kind of socialism.” Although, despite political differences, he later befriended Silvio Berlusconi , he ultimately remained a political moderate. More recently, his heirs have funded the new political party of Matteo Renzi, the former Democratic Party leader who now dreams of recreating the centre-right force that has dominated the Italian political landscape for nearly half a century.

In 1956 Ferrero opened its first factory outside Italy, in Stadtallendorf, in Western Germany. Four years later it opened another one in France, in Villers-Ecalles, Normandy. In 1965, a second Italian factory opened in Pozzuolo-Martesana, again in the North of the country, between Milano and Bergamo. It was also during these “Dolce Vita” years that two of Ferrero’s flagship products were launched: the “Mon Chéri” chocolates (1958) and “Nutella” (1965), the ultimate outcome of Pietro Ferrero’s innovations. The company followed the same model, developing pseudo-luxury products intended for mass-consumption, with names taken from different languages designed for a European market. Nutella was coined from the English “nut” with an Italian diminutive. “Mon Chéri” and “Rocher” play on the clichés of French chic. “Kinder” [children] was initially a brand created by Ferrero’s German subsidiary, established in 1967, but the name proved easily exportable and was adopted for the global market. And the “Tic-Tac” mints, created in 1971, plays on an Italian onomatopoeia that exists also in French and Spanish.

Ferrero seems to thrive on apparent contradictions. Its chocolates are mass-produced but have individual wrappings, usually reserved for artisanal delicacies. It opened factories in Australia and Ecuador in the 1970s while retaining its image of an Italian family business. Its expansion continued into the 1980s, and it wasn’t long before the company was present in all four corners of the world. By 2015, around 50 countries were selling Ferrero products. The company has twenty factories and ten agricultural sites. Italy accounts for less than a fifth of the net consolidated sales of what is now a powerful transnational corporation, the Ferrero International SA holding company, headquartered in Luxembourg since 1973. Only the headquarters of its Italian subsidiary remain in Alba. The Ferrero family is a tax resident of Belgium, its cash reserves are in Monte-Carlo, its assets in the Netherlands. Running the business, however, remains an exclusive family affair. Although it is the second biggest chocolate-maker in the world (after Mars), towering above Swiss giants Nestlé and Lindt, Ferrero is not a listed public company.

A well-respected local legend

For the people of Alba, Ferrero is a local legend. In 1983, Michele Ferrero established the Ferrero Foundation, and its various “social projects”, as a way to keep up the fiction of a family business. Retired employees that have spent 25 years within the company have access to the Foundation – although the increased use of casual, temporary work over recent years has meant such employees are becoming a rare breed. Since 2009, it has had its own kindergarten, and now also has a school. Located just across from Ferrero’s historic factory where lorries carrying raw materials come and go all day long, the Foundation’s building has the typical understated style of Piedmontese architecture, reminiscent of the austere, rectilinear façades of the stunning aristocratic palaces of Turin’s Monarchy.

Beyond the metal gates is a 1960s-inspired bar, where former employees can come for a drink. The building has several workshops, health and fitness rooms and medical facilities, and opens out onto a park full of lofty trees. Its corridors are lined with historic photographs of the family’s industrial saga. The second foyer boasts an exquisite collection of posters, designed by Franco Fontana for Alba’s truffle fair. Other posters in the collection can be viewed at Casa Fenoglio, a museum and study centre dedicated to Beppe Fenoglio, the great local writer... also funded by the Ferrero Foundation. The Foundation organises internationally-renowned art exhibitions every second year. The most recent, a surrealist exhibition, attracted more than 100,000 visitors and was developed in partnership with a Rotterdam museum – another sign of the Ferrero family’s close ties to the Netherlands and its attractive tax policies.

Most of Alba’s residents continue to cultivate the legend of the Ferrero family, whether they are former employees or not. They like to remember how, as the company began to expand, bus lines were created just to allow workers from the countryside to come work at the factory. They also like to tell stories about the terrible 1994 floods, which killed 70, and how many workers rushed to rescue their factory when it was devastated by the flooding Tanaro river, just as they had in 1948, several even neglecting their own homes. They like to compare the virtuous chocolate factory, which has maintained a local factory, to Alba’s other famous company, Miroglio, which now has its clothes made in factories in Eastern Europe. There are also the stories of the two companies’ very different working conditions. Many fondly point out that there has never been a strike at the local Ferrero factory.

Two particular moments form part of the town’s collective memory. In 2011, 47-year-old Pietro Ferrero, son and heir of Michele Ferrero, died suddenly of a heart attack, and his father stoically returned to work as if going back to his family duties. Four years later, the patriarch himself died at the age of 89. A local resident who attended his funeral stated that, although he didn’t know Ferrero personally, he was struck by a profound sense of loss. A city square now bears his name, with a sign that relays the town’s history. Michele Ferrero is depicted as an “outstanding businessman and human being”. Aside from the factory and the Foundation, the sign is the only place where the family’s name is publicly visible. There is no trace of Ferrero’s original shop; the company hasn’t opened a store in the city alongside the legions of wine and truffle dealers. Nobody seems to notice the pungent smell of cocoa that hangs over the city, sometimes referred to as the “cloud”, la nube; “We’re used to it,” is what most of the locals say.

A tarnished image in Italy and beyond

Things are not quite so rose-coloured, however, outside the family’s home town. In the spring of 2019, for the first time, there was a week-long strike at Ferrero’s largest production site, in Villiers-Écalles (France). Several months earlier, French supermarkets that had advertised massive discounts on the price of Nutella were confronted with full-scale riots, which revived criticism of the product’s hidden flaws. High in refined sugars, the famous spread has more in common with soft drinks and fast-foods than to the nutritious food that children need as a daily staple. In 2011, a mother from California sued Ferrero for misleading advertising, as it claims that its flagship product is “healthy,” and paints it as an example of a “tasty yet balanced breakfast.” The following year, Ferrero agreed to pay 3 millions dollars (2,7 millions euros) to settle the lawsuit. In 2016, the death of a three-year-old girl from Toulouse, who choked on a Kinder toy, raised the question of whether it makes sense to put a small plastic object in a food product, especially if intended for young children. The USA settled the question years ago, with its 1983 law banning all Kinder Surprise imports, even for private consumption.

Palm oil, which has become a symbol of both junk food and deforestation, is another bone of contention – at least outside of Italy, where public opinion so far has remained somewhat indifferent to the issue. The cheap oil is one of Nutella’s key ingredients, and competitors often point out that their own versions of the spread have “no palm oil.” Ferrero, however, refuses to give up on palm oil, arguing that it is highly nutritious and can be produced sustainably, even though existing labels are controversial because the companies that benefit from them are both judge and jury. Unlike its competitors, Ferrero has shown no interest in the organic market either, probably because the sector seems negligible compared to the masses lured in by the low price of Nutella. More recently, in 2016, the German NGO Foodwatch found fault with Ferrero’s individual wrappers, one of the company’s trademarks, as they contaminate food products with potentially carcinogenic substances. Again, Ferrero merely responded that its production processes comply with existing norms.

In its native country, Ferrero is the paragon of the Italian business, family-owned, innovative and proud of its traditions. Giovanni Ferrero, Pietro’s younger brother, is, like his father before him, the richest man in Italy. Since 2018, he has owned two thirds of the company, or about 19 billions euros (€21bn), which makes him number 47 on the world’s richest list. His management style, however, is radically different from his predecessors’, who emphasised moderation even as the family group expanded and became a European, and then international, food giant. From 2015 onwards, in order to achieve the annual growth rate of 7% which would double the size of the company in ten years, Giovanni Ferrero broke a family taboo by embarking on a frenzy of acquisitions. Against the prevailing trends in the sector, his targets have been producers of cheap low-quality merchandise, which could harm the company’s reputation in the long run, especially as it has lost its edge in developing innovative products.

Hazelnut monoculture is back to Italy

In July 2019, Stefano Liberti and Angelo Mastrandrea, two seasoned journalists, published a scathing report on Ferrero in the Italian monthly Internazionale. Stefano Liberti criticised the company’s stranglehold over large parts of Turkey’s agricultural sector, especially hazelnut production, one of the country’s main riches. It is said that Ferrero has pushed prices down, impoverishing what was until recently a prosperous agricultural industry. One of the journalists even portrays Ferrero as Turkey’s “real Minister for Agriculture”. For once, the company paid heed to criticism that it was profiting from cheap hazelnuts picked by child workers and Syrian refugees. As Ferrero used to source its hazelnuts locally from the Langhe, its proposed solution was to relocalise part of its supply chain. Coincidentally, the European Union’s new rural development plan for 2020-2024 also recommends the expansion of hazelnut monoculture in Italy.

But, as Angelo Mastrandrea points out, hazelnut monoculture would only superficially benefit the economy of the affected areas, and would be problematic from an environmental perspective. A few months earlier, the film director Alice Rohrwacher, who was born in the region of Orvieto and still lives there today, conveyed the concerns of small local farmers in the centre-left newspaper La Reppublica. These farmers are most likely to bear the brunt of the EU’s plans. Many of them have returned to the countryside after a spell of city life, and have chosen production methods that focus on quality produce and on respecting the environment. As Rohrwacher’s column did not elicit any reaction, there is increasing concern among them. “It is the first time that a company has had such an influence on EU policy,” say Elisa and Giovanni, who settled in the Viterbese six or seven years ago. After studying engineering and political science, they traded in potentially lucrative careers to produce organic oil and wine. They are active members of Comunità Rurale diffusa, an informal collective of about 40 people who sell their products together at a market twice a month. These markets are also cultural occasions, with book presentations and film screenings, and aim to preserve the social fabric of a neglected region, on the fringes of Tuscany, Umbria and Latium.

Members of the collective fear they will become the collateral victims of Ferrero’s plans. In areas that have already been converted to monoculture (wine and hazelnuts), pollution has put an end to swimming and fishing in local lakes. The long-term impact on groundwater is disastrous, and neighbouring farms face losing their organic certification. The owners that have opted for intensive farming typically don’t live on the land, leaving it to outside providers to care for their trees. Maintaining a hectare of hazelnut trees requires no more than 40 days of work over the first five years, before the trees are mature enough for production. The benefits in terms of job creation are therefore marginal, and local people don’t necessarily benefit from the jobs. Organic farmers must also wait five years before they can request financial support for organic production. It is therefore very probable that the first harvest will mean a return to conventional methods. This includes heavy pesticide use in order to keep the hazelnuts perfectly white, as required by Ferrero, as well as glyphosate spraying just before harvest to ensure the ground is bare, so that hazelnuts can be machine-picked off the ground.

For the moment, the high price of hazelnuts is attractive to many landowners, convinced they are getting a good deal. “But the ultimate client is a quasi monopoly,” argues Elisa. “Prices will fall, I’m sure of it.” Unfortunately, public opinion is not necessarily on her side. It’s all too easy for Ferrero to play the ethical “Made in Italy” card, even though, at this stage, these plans only represent a fraction of its supply chain. “It it also difficult”, Elisa goes on, “to explain to people that planting trees is not always a good thing, because all monoculture destroys the soil.”

Whether it be palm oil or hazelnuts, cocoa or sugar, both producers and consumers are on the losing side of Ferrero’s version of capitalism. Perhaps it is time to give some serious thought to the question used by Ferrero in one of its advertising campaigns: “What would the world be without Nutella?”

Olivier Favier

Pictures : CC Mads Bødker and CC Palazzo Chigi via flickr.

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