Forget the World Cup…The Italians Win Chupa Chups
Spain’s Chupa Chups is changing its nationality. The Bernat family, which has owned Chupa Chups for more than 50 years, has sold the famous lollipop company to Italy’s Perfetti Van Melle, the world’s fourth-largest manufacturer of chewing gum and candy after Cadbury, Wrigley and Haribo. Perfetti Van Melle had revenues of 1.434 billion euros in 2005, and owns such brands of candy as Mentos and Golia, as well as the Happydent chewing gum, so Perfetti could afford to pay about 400 million euros to the Catalonian family that owned Chupa Chups. That’s how much it cost for the entire company, although neither party to the deal has confirmed that figure.
Perfetti will also become the owner of the Chupa Chups brand in businesses unrelated to candy. According to the company, the Italian company is “very interested” in developing the potential of these businesses, which currently comprise 20 companies that manufacture clothing, watches, shoes, eyeglasses, stationery, toys and accessories. “Perfetti is interested in the Bernat family’s brands, which are now its property,” says Robert Tornabell, a professor at ESADE. “That’s why they have not divided up the brands in the acquisition. For Esteban Garcia Canal, a professor of business management at the University of Oviedo [Spain], the deal makes sense for Chups because “it was not clear what the future of the company was if it acted on its own because of its reduced range of products, its poor earnings in recent years, and the difficulty of replacing its charismatic founder.”
The reason for the sale was quite apparent. Jaime Llopis, a professor at IESE, says, “The Bernat family has been unable to control the company by itself. What was lacking was structure, and the future of the management group that was heading Chupa Chups.”
Perfetti has committed himself to keeping the company’s central office in Catalonia, as well as its marketing and research departments. He will also keep its two Spanish factories, located in Sant Esteve Sesrovires (Barcelona) and in Villamayor (Asturias), the region where the company is registered as a corporation. However, experts do not expect the Bernat family to play a very significant role in the company’s future. “When multinationals buy a company, if that company is listed on the stock exchange, the first thing they do is take it off [the exchange]. Because Perfetti is not publicly traded, Perfetti will, little by little, eliminate various parts of the company. Ultimately, only a minimal amount of its production will be left in Catalonia; perhaps, its distribution. Certainly, there will be problems with the labor unions, because it is almost certain that there will be personnel cuts,” explains Tornabell.
García Canal believes that operational synergies will result when it comes to distribution, since such products require a very developed distribution network in each country, sufficient from the sales point of view. In that sense, “The company that results from the deal has greater negotiating power with its distributors. It can offer them a wider range of products that have a good image with consumers. These products are also very complementary with one another,” he adds. For Llopis, the takeover is not going to strengthen leadership at the Spanish company. “However, the competitiveness of the resulting company is going to strengthen. In addition, Perfetti will have a brand that is a leader on a global scale,” he explains.
García Canal says that this deal reflects the consolidation process in an industry “where there are fewer and fewer players who are [each] larger and larger.” In this sense, he adds, Perfetti is positioning itself to strengthen its position in the global market by “acquiring one more company that brings recognized brands that complement its own brands, and with which it can achieve a greater presence and penetration on a global scale.” Llopis says that Perfetti is clearly seeking growth, and it wants “to enter a market, such as Spain, where it has barely had any presence.”
Along those lines, Perfetti will maintain its plans to construct a new plant at Sant Esteve Sesrovires at a projected cost of 25 million euros. Following the closing of its plants in China and France, Chupa Chups has two other production facilities abroad, in Russia and Mexico. “I do not believe that this will strengthen the Spanish firm’s leadership. The Bernat family has sold 100% of its shares. Now, the earnings from the brand will belong to Perfetti. The error is in not having separated the brands. As a result, all the profits from Chupa Chups now belong to Perfetti.” Llopis agrees. “The future of the brands will be guaranteed, but not the future of the company. Continuity will be guaranteed but the management and the brand will no longer be Spanish, and will be in Perfetti’s hands.”
Following a series of denials, the Bernat family ultimately decided to sell its company to an old friend. Perfetti and Chupa Chups have been commercial allies for more than ten years. The two firms currently have a distribution agreement in Poland, and two joint ventures that sell products in Germany and the United Kingdom.
Back in 2001, the company headed by Augusto Perfetti paid 600 million euros for Van Melle, based in the Netherlands, another family-owned business. Xavier and Marcos Bernat, until now the owners of the Chupa Chups Company, will continue to cooperate with the new company for an undetermined period, in order to guarantee “the smooth and orderly integration” of the two companies. Experts agree that this was the best direction for the company to take.
“The situation was very critical,” says Tornabell. “Previously, the Bernat family had received acquisition offers but it had rejected them. Perhaps it was the close ties that bind it with Perfetti that impelled the Bernat family to make this sale.” Garcia Canal adds, “When one company buys another company with which it has already maintained satisfactory corporate relationships, that facilitates the integration of the two companies. It is always a key if the synergies that the two companies have in theory can materialize.”
It was during the mid-1950s when Enric Bernat decided to get into the candy market with a product that people could eat on a stick. His goal was to make it more comfortable for children to chew without getting their hands dirty.
It was a very simple idea, and Bernat got the biggest possible return from it. He even turned his novel candy into a supermarket product that has become popular around the world, and has even traveled into space. The success of Chupa Chups can be explained by Bernat’s capacity for innovation; his keen vision of the market; his entrepreneurial spirit; and his firm commitment to globalization.
The brand has become a symbol of Spain. According to research by the Forum of Renowned Spanish Brands, the Chupa Chups brand is famous in a greater number of countries [than any other Spanish brand]; recognized by between 20% and 95% of the local population [outside of Spain]. Nevertheless, changes in consumer habits; its focus on a single product; a renewed outbreak of competition; and the accelerated growth of the company overseas all contributed to restricting the company’s progress. In 2002, it suffered a loss of 18 million euros.
“For years, Enric Bernat, its founder, tried to diversify its strategy and find another star product,” says Tornabell. “His sons, who currently control the company, have tried again to diversify it. However, no product apart from Chupa Chups, has achieved the same level of success as that product.”
The family tried to address the situation by closing some factories, selling divisions, and launching products with higher added value. But these efforts did not prevent sales from continuing to decline. In 2004, the company’s sales dropped by 11% to 264 million euros. According to some sources, that figure dropped even further in 2005. After a continued cycle of rumors and denials, the Bernat family announced on July 3 that it was selling the company to the family-owned Italian firm, Perfetti Van Melle. Perfetti is considered the fourth-largest producer of chewing gum and candy in the world, behind only Cadbury, Wrigley and Haribo. With sales of 1.434 billion euros in 2005, Perfetti owns such outstanding brands as Mentos and Golia candy, and Happydent chewing gum. Perfetti Van Melle is, itself, a company that resulted from the 2001 merger of Italy’s Perfetti and Holland’s Van Melle. Last year, it established an alliance with Chupa Chups to market their respective products in Germany and the United Kingdom.
According to sources close to the company, at the insistence of Xavier Bernat and his brother Marcos, Chupa Chups tried to preserve its independence until the very end. The other three siblings – Ramon, Marta and Nina Bernat – were no longer involved with the day-to-day operations of the company. They had always been more open to the possibility of selling their company, especially after their father, Enric Bernat, died in December 2003.
Augusto Perfetti, president of the Italian firm, has assured the public that “the acquisition of such an important company makes it easier for us to diversify even further into the candy business.” Tornabell says that the new company will be “an Italian multinational that is fully integrated internally. Little will remain from the Bernats’ company as it exists today.” Llopis predicts that, in the medium term, investment will be required to make the firm profitable. “Previous commitments made to labor unions and its workers will not be honored, and there will be cuts in personnel. The new company will be a unified company, managed from both Italy and Holland, and the revenues will add up on the Perfetti balance sheet. Structural costs will be reduced, and I do not discount the possibility that they will close the four factories that Chupa Chups operates. The Perfetti company will boast two renowned brands – Chupa Chups and Smith. [However,] Spain completely loses the company’s control and its management, which pass entirely into Italian hands.”