Irregular pieces of chocolate

Turn to chocolate over the holidays? Discover luxurious Lindt a portfolio company in the European Focus Fund!

Lindt & Sprüngli (L&S) has been in Christian’s European investment universe since around 2005. The company has also been a core investment in European Focus since the inception of the Fund in August 2014.

L&S is a typical long-term ‘compounder’. The company aims to grow its revenues by an organic rate (i.e. by volume and price) of 6-8% annually and the business has an ambition to add +20-40bps to its EBIT margin per year. It may not seem to be a lot, but over time it becomes plenty as the unit cost per item continuously becomes smaller and thus, the profitability of the business is rising. L&S is primarily an ‘organic grower’. Other than in a few specific cases, L&S has refrained from making acquisitions, but every 3-4 years, the company embarks on a new investment cycle as it runs out of capacity.

What makes L&S such a fantastic business in our view is that it has evolved to become the world’s leading premium chocolate manufacturer. L&S is not about ‘revolution’ – it is about ‘evolution’. The company typically gains annual fractional market share in each of its geographies but over time this adds up. Large players, like Nestlé, Mondelez, Hershey etc., are generally too big to concentrate on the premium chocolate segment as the ‘volume-game’ is the cornerstone of these companies’ strategy. Put differently, it is much more important for Nestlé to concentrate on growing the volumes of its top-selling KitKat range than it is to expand its premium chocolate brand, Cailler. At the same time, smaller family-owned businesses, which tend to produce fresh chocolate, do not to have the capacity nor the inclination to seek expansion – let alone to grow abroad. This leaves substantial growth opportunities in the premium chocolate segment for a focused player like L&S which is at liberty to pursue a multitude of opportunities in different premium ranges, such as Lindor, various pralines and seasonal products, like Reindeers and Santas for the Christmas period, Heart-shaped products for Valentine’s Day and Bunnies for Easter. 

Enjoy!

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