Using the data in Extract D, evaluate the two takeovers and recommend which one is most likely to have affected the profits of Ferrero International - Edexcel - A-Level Business - Question 1 - 2018 - Paper 3

To evaluate the impact of the two takeovers on Ferrero International’s profits, we will analyze each acquisition's potential influence on costs and revenues.

Takeover of the Oltan Group

• Cost Reduction and Vertical Integration: By acquiring the Oltan Group, Ferrero can reduce its costs related to hazelnut procurement, which is a major ingredient in products like Nutella and Ferrero Rocher. This backward vertical integration allows Ferrero to bypass middlemen, potentially increasing profit margins.
• Access to Hazelnut Supply: Given the volatility in the market for hazelnuts, controlling this supply mitigates risks associated with rising costs, thereby stabilizing profits in the long term.
• Production Facilities: The Oltan Group has five production facilities, enhancing Ferrero's capacity to meet growing demand, particularly in European and global markets. With an annual turnover of £600m, this group complements Ferrero's operations significantly.

Takeover of Thorntons

• Limited Impact on Core Products: Although acquiring Thorntons expands Ferrero's brand portfolio and retail presence, it may not directly boost revenues from key products like Nutella. The chocolate market is highly competitive, and integrating Thorntons effectively might take time and resources.
• Sales Synergy: The push into more stores and integration with supermarkets could, in the long term, enhance Ferrero's presence in the UK market. However, this is a slower process compared to the immediate cost benefits gained from acquiring the Oltan Group.
• Potential for Loss: Thorntons' existing struggles in the market could lead to short-term losses and distract management from more profitable ventures.

Recommendation:

Based on this analysis, the takeover of the Oltan Group is likely to have a more significant and immediate positive effect on Ferrero International's profitability due to the reduction in hazelnut supply costs and the enhancement of product availability. The Thorntons acquisition, while beneficial for market penetration, does not promise the same immediate impact on core product profitability.