Coupling of Ferrero, Fannie May could be blissful

I’m hoping I haven’t spoken too soon.

In my March 8 column, I praised Fannie May’s emphasis on its Chicago connection, which it nurtures through packaging, marketing and retailing. These efforts have made the 97-year-old Fannie May brand synonymous with Chicago for tourists and residents alike.

Most recently, the company held a promotion celebrating the Windy City’s 180th birthday and developed new Cubs-themed items to build off buzz over a phenomenal 2016 season. Both are great examples of location- and event-specific marketing.   

But a week later, 1-800-Flowers.com, Fannie May’s New York-based parent company, announced it would sell the brand — along with the Harry London brand, an Ohio manufacturing facility, two warehouses and 79 retail stores — to Ferrero International for $115 million. The Italian group, best known for its Ferrero Rocher hazelnut truffles, will also enter into a partnership with 1-800-Flowers to sell Fannie May and Ferrero products through 1-800-Flowers’ website.

The purchase is set to close May 30, pending regulatory approvals. However, I’d imagine 1-800-Flowers and Ferrero are pretty confident in the deal to have already announced it.

The news came as a surprise to me. Being born and raised in the Chicago suburbs, Fannie May has been a fact of life — now more than ever after moving back to the area for this opportunity with Candy Industry. And, of course, Chicago’s long-held candy-making tradition makes doing this job doubly sweet.

Despite my initial alarm at an international group assuming a largely regional (and well-loved) brand, it seems this arrangement could be advantageous for all parties involved.

But first, some history.

Fannie May’s original store opened in 1920 on Chicago’s LaSalle St., and by 1934, the company had 48 stores throughout the Midwest. After experiencing more rapid growth in the ‘90s and early 2000s, Archibald Corp. — Fannie May’s parent company at the time — filed for Chapter 11 bankruptcy in 2003.

Alpine Confections, headed up by Dave Taiclet and Taz Murray, snagged Fannie May for $38.9 million in an 8 ½-hour auction, not long after acquiring Harry London. Two years later, Alpine Confections sold the Fannie May and Harry London brands and associated assets to 1-800-Flowers for $85 million. Taiclet remained in a leadership role, most recently serving as president of 1-800-Flowers’ Gourmet Food Group.

Taiclet, who will stay on with 1-800-Flowers after the transition, said Fannie May began working with Ferrero on a commercial relationship when “one thing led to another,” and in late 2016 and early 2017, talks about the transaction got serious.

“It caught us a little off guard because we weren’t shopping the Fannie May and the Harry London brands,” Taiclet said Wednesday. “Strategically, it made sense for them because of their desire to grow aggressively in the United States and North America. It made sense for us because of the financial part of the business.”

Without brand-specific figures we don’t know the extent, but it appears Fannie May had been struggling after a fire at its Ohio warehouse during the 2014 holiday season. The 2016 annual report appearing on 1-800-Flowers’ website says the acquisition of Harry & David and continued growth of its Cheryl’s cookies and 1-800-Baskets businesses helped “offset lower performance of Fannie May” in FY 2015.

The report said 1-800-Flowers instituted several changes, including “significant reductions to the brand’s cost structure; enhanced product assortments; new packaging designs; and enhanced store merchandising and local marketing programs.”

“We believe these changes will enable Fannie May to grow its top line, enhance its gross margin and drive significantly improved bottom-line function,” the report reads.

We’ve seen those objectives in action through the recent promotions and an overhaul of Fannie May’s flagship store on Chicago’s Michigan Ave., completed at the end of last year. Obviously, it caught Ferrero’s attention.

In a news release announcing Ferrero’s acquisition, 1-800-Flowers.com CEO Chris McCann pointed to the move’s financial benefits.

“This transaction will further strengthen our balance sheet while concurrently reducing the working capital requirements in our business model,” he says.

As an international group — and the third largest candy company in the world, by our count — Ferrero has considerable resources. An infusion of capital is likely the boost Fannie May needs.

Also, Ferrero’s focus is on confections — versus many types of gifting — as evidenced through its major brands: Ferrero Rocher, Rafaello, Kinder, Tic Tac and Nutella, the chocolate hazelnut spread that has gained a near-cult following in the States. Hopefully that know-how will be applied to Fannie May without significant changes to its traditional recipes or Chicago link.

Taiclet believes that’s the case.

“They’re chocolate people. They get it, and they understand that,” he said.

Ferrero didn’t immediately respond to a request for comment, but a spokeswoman told the Chicago Tribune last week the company plans to expand its reach.

"We fully intend to keep the manufacturing in Ohio and keep these distribution centers," she said. "As we hope to expand the Fannie May brand across the nation, we might even have an opportunity to expand our industrial footprint as well."

With Fannie May’s strong retail and manufacturing framework, 1-800-Flowers’ online prowess and Ferrero’s desire to make additional headway in the U.S., this could be a winning partnership. This native of suburban Chicago (and Trinidad lover) hopes it proves true.