Chupa Chups fighting for survival?

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The owners of Chupa Chups, the Bernat family, have agreed to
transfer trademark rights to the Chupa Chups name, but will this be
enough to save the ailing firm?

Last year was a difficult one for the Spanish confectionery group Chupa Chups, with revenues likely to fall short of the €370 million forecast, itself some 10 per cent lower than the €414 million posted in 2001.

The poor performance - the full nature of which will only become clear when the company's full-year figures are published later in the spring - has already prompted the Bernat family, which owns Chupa Chups, to take action to redress the situation.

A major restructuring campaign which began last year has already led to numerous job cuts, but it has as yet had only a negative effect on company profits, which are likely to be well into the red for 2002, sources close to Chupa Chups told the Cinco Dias​ newspaper.

Faced with this continued slide into the red, the Bernat family has agreed to an increase in capital in a bid to raise financing for the company and reduce its debts. But more importantly, the family has agreed to transfer ownership of the Chupa Chups brand to the company itself, putting an end to one of the most unusual licensing agreements in the food industry.

Until now, the Chupa Chups name has been owned solely by the Bernat family, not the company founded by Enric Bernat, which merely held the rights to use the name under licence. But with the company which makes the famous lollipops on the verge of going broke, the family was at risk of owning the brand rights to a product which was no longer being made, and decided that the time had come to transfer the rights to the company.

But the transfer of the brand name alone has not been enough to revive the fortunes of Chupa Chups, and the company has also been forced to look for alternative investors. Cinco Dias​ reports that Chupa Chups has debts of around €120 million, most of which is linked to a bank loan of €75 million. The increase in capital was necessary to ensure that the company maintains its debt to assets ratio at a level acceptable to its creditors.

If the Bernat family has taken action to try and rectify the company's difficult position, it must also shoulder some of the blame for getting the company into that position in the first place. Xavier Bernat, son of the company's founder, is the current head of the company, and he has been responsible for pushing the company into new markets, both in geographical terms and in product terms - one innovation introduced by Bernat was the launch of a range of children's toys under the Crazy Planet name, while he also oversaw the launch of the Smint line of breath fresheners.

But these moves have not been entirely successful, as the company's current financial position clearly shows, and the founding family is increasingly taking a back seat in the running of the company, bringing in seasoned professionals to try and turn it around.

Juan José Pérez Cuesta, a former Danone executive, was appointed last year as director general of the company, and he has already taken action to refocus Chupa Chups on its core confectionery business with the closure of the Crazy Planet business. He has also rationalised a number of the new international operations, for example selling half the company's production facility in Shanghai and joining forces with a local operator, Tingyi, which will act as distributor there.

He is also studying the future of a production facility in Mexico, and has already restructured the company's Russian operations. Production at the Chupa Chups plant in Barcelona is now running at 50 per cent, while staff have been laid off at another plant in Asturias where the group is producing a new range of confectionery which should be launched later this year.

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