Chocoladefabriken Lindt & Sprüngli AG (LISN) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, everybody. It's my pleasure to welcome you to the telephone conference for Lindt & Sprüngli's 2019 sales results. As you might have noticed, this is the first time that we have done a conference call after the release of the sales results in January. And the reason for this is to give us the opportunity to discuss some one-off factors affecting 2019 profit and, more importantly, our new streamlining for growth initiatives in the United States. During the presentation, I will provide some additional comments on the charts that were uploaded this morning to our website. I will guide you through the slides via a webcast. The presentation will take approximately 10 minutes, after which, I will hand over to the operator, who will then administer a Q&A session. Let's move to the agenda. During the presentation, I will cover the following topics. The sales performance for the full year '19. After that, a chapter on the profit guidance 2019 followed by outlook 2020 and beyond. And then as I mentioned before, we will go into the Q&A session. So let's have -- let's first take a look at the sales analysis in local currencies. Organic growth for the whole group achieved a very good 6.1% growth, which means that we have grown in both the first half and the second half at around 6%. This is fully in line with our 2019 full year guidance of 5% to 7% growth. This development needs to be seen in the context of the following facts. One, the chocolate markets on a worldwide basis have been recovering slightly and have shown some positive momentum. Two, the trading environment remained difficult. Although the chocolate industry was able to benefit from lower raw material costs in recent years, this has simply led to greater price and promotional pressure in many markets. Three, we have witnessed a difficult political environment in several markets, such as Hong Kong and various countries in Latin America. The good news is that on a global basis, the premium chocolate segment was again clearly outperforming overall chocolate market growth. Group organic growth of 6.1% also implies an improved performance at Russell Stover, which has been a focus of attention in recent years. Indeed, sales at Russell Stover were positive in 2019 and fully in line with our expectations. The other 2 U.S. companies, Lindt and Ghirardelli, also performed well in 2019, both having grown faster than the market. I will provide more details later. The next chart shows our sales growth in Swiss francs over the last 5 years. Typically, Swiss francs growth has been negatively impacted by the strengthening of our domestic currency. In 2019, this was again the case mainly due to the weaker euro and pound sterling. The negative impact at group level was 1.6 percentage points. Organic sales growth by geographical segment shows a continued excellent growth in Europe at 6.2%, which is an acceleration versus the 5.6% in 2018. This is at the higher end of our 5% to 6% guidance for the European segment given that we have had a very good second half after growing 5% in the first half. We had a quite positive result in important markets such as Germany, Austria, Switzerland, Italy and France. In fact, the good results in Germany in 2019 and also in the years before, demonstrate that we have -- we can achieve strong growth even in large, mature and price-sensitive markets. In the U.K. and in the Eastern European markets, we even grew double digit. In all markets, we benefited from the late Easter season, which led to an additional sales boost in the first quarter. North America grew by 5.4%, which was also above our guidance of 4% to 5% growth, the Lindt, Ghirardelli and Russell Stover all enjoying a very positive 2019. When looking at the performance in the U.S., it has to be taken into account that the U.S. chocolate market growth as a whole has slowed down in recent years and that the trading landscape has been experiencing significant shifts with certain channels suffering from the increase in e-commerce. In this challenging environment, the Lindt, Ghirardelli and Russell Stover brands all managed to outpace the market and develop positive sales momentum. In the U.S., the 3 brands, Lindt, Ghirardelli and Russell Stover have seen extremely positive growth across the entire wholesale channel and in e-commerce. This growth more than offset weaker sales in outlet malls, which have been suffering from a reduction in foot traffic. To trend away from mall-based retailers to wholesale and online retailing is a general consumer trend, which we also believe to be structural. This is the main reason why we have decided not to renew the lease-up on maturity of some of our U.S. retail stores in '20 and '21, leading to impairments, and I'll discuss this later. I am pleased to confirm the sales at Russell Stover are positive also in the second half and fully in line with our guidance and expectations. We have seen a very positive sales momentum in 2019 with the Russell Stover sugar-free range with stevia extract as a sweetener. Also, the relaunch of the Russell Stover boxed chocolate bowline, which is the core business for Russell Stover, has worked well, boosted by TV advertising in the final quarter. As mentioned in July, Russell Stover has also benefited from the later Easter in 2019. In the segment Rest of World, underlying growth remained strong. Here, too, we grew faster than that market and above the group average, reaching 7.6% growth. Growth is coming from virtually all countries within this segment. In particular, it is great to see that our key focus markets: Japan, China and Brazil have grown above average. Unfortunately, a couple of unusual factors had a temporary dampening effect on overall rate of the world growth compared to the 10.3% achieved in 2018. Australia, which is the biggest market in the segment, had a difficult year mainly driven by the very hot weather during this Christmas season and grew in low single digits. Also included in the second is our distributor business, where we sell to a large number of third parties. We distribute our products within smaller countries. In some of those countries, mainly in Latin America and Hong Kong, business growth has been subdued as a result of the respective political issues. Looking at the sales bit by markets, I would like to highlight the progress made in North America, reaching almost 40% of sales in 2019. Another important pillar, Germany, is reaching 15% and the U.K. is getting to 6%. Rest of the World and rest of Europe is at above 20%, thanks to the excellent contributions mainly of our key markets: Russia, Japan, China, Brazil and Eastern Europe in general. After having giving you an overview of sales, let's move on now and talk about the important topic of profit guidance for 2019. Over the past couple of years, we announced and started various projects in the U.S. to further leverage the Russell Stover acquisition and to streamline our operations for overall growth. These projects have been -- have mainly been focused on the areas of merchandising, logistics, procurement and IT. At the time, we communicated that we expected bottom line benefits from these projects in the coming years, which can in part be reinvested in the brands. Benefits from the projects that started in 2017 and 2018 will start to kick in from 2020. In addition to the steps initiated in 2017 and 2018, we have decided to accelerate our plans to streamline for growth in the U.S. We are taking 4 actions to achieve this. The first action is in the area of logistics. As already communicated, we moved in 2018 to a shared logistics network with 5 warehouses, shared between Russell Stover, Ghirardelli and Lindt. We have now found new ways to optimize the temperature zones within different warehouses. And as a result, we no longer need all of the old warehouse capacity anymore and we'll impair all the unused warehouses. Secondly, we are simplifying our manufacturing network in the U.S. by closing the smallest and oldest Russell Stover factory and moving from a total of 6 to 5 factories in the U.S. We will move some of the machinery to the old auto manufacturing sites and will generate significant fixed cost savings in the coming years from the site closure and from further automation of processes in the remaining factories. Thirdly, as mentioned above, foot traffic has significantly declined in the U.S. outlet malls, especially outside of the main metropolitan areas. Some of the outlet malls in which our own stores are located are now struggling. As a result, we have now decided not to renew the expiring leases of about 30 U.S. mall-based stores over the next 2 years. Finally, we are outsourcing the merchandising services to a third party. After in-depth analysis, we have come to the conclusion that employing our own merchandising force is no longer cost-efficient, and our new specialist partner can give us the same or even better service at a lower cost. So what's the profit impact in '19? All our streamlining for growth initiatives in the U.S. are expected to result in an overall restructuring and impairment charge of approximately CHF 80 million gross in 2019. Net of tax, the charge is expected to be CHF 60 million. More or less offsetting this charge are some positive developments on the tax side. As a result of the recently announced Swiss tax reform, we'll book a tranche of our intellectual property at group level, which can be depreciated over the coming years. This will lead to a deferred tax asset in the balance sheet with a positive P&L impact. Also, we will benefit in 2019 from a Swiss Federal court decision related to the recovery of flat rate tax credits, and there are a variety of other small tax benefits at group level. Overall, we expect positive tax effects in 2019 of approximately CHF 60 million. In summary, this means the following for our 2019 financials. One, the EBIT margin before impairment and restructuring will be in line with our guidance of 20 to 40 basis points improvement versus 2018. Two, including the planned adjustments, the EBIT margin will be reduced by about 180 basis points. Three, thanks to the positive tax effect of CHF 60 million, there will not be any impact at the level of net income margin neither will earnings per share be impacted. Four, there will be no impact for the free cash flow as none of these adjustments are cash flow relevant. So let's now move to the outlook 2020 and beyond. Looking forward, there is no change to the -- to our existing guidance, and the group confirms its new long-term goal of an organic sales growth target of 5% to 7%, combined with an average annual increase in EBIT of 20 to 40 basis points. You should not assume increased profitability as a direct result of this new U.S. streamlining initiatives as the benefits will be reinvested to underpin future growth. With this, I come to the end of my presentation, and I hand over to the operator to start and lead the Q&A session.

The first question comes from Jon Cox from Kepler.

John Cox, Kepler Cheuvreux. I have a couple of questions for you. Well, I probably got a bucketful of questions, but I'll try and keep it to a limited number. The first one is just on the U.S. top line growth in the second half of the year. We -- there seems to be that your organic sales growth was below 4% in the second half of the year, obviously below the target. Comparable was pretty easy. You had 7% plus in H1, which obviously everybody is very excited about thinking that Russell Stover and that North American business had turned the corner. Are you concerned about the U.S.? Maybe you can talk us through that. That's the first question. Just on the -- and then just on the savings, you're talking about a -- just on the charges, what's coming in and out. I wonder if you have a cash figure for those ins and outs. Is it all cash on both sides? I don't think it is with the impairments. Maybe you can break it out so we can just get an idea of what the impact will be of that tax credit and the restructuring charges, impairments on your debt figure for the year. Following on from that, typically, FMCGs, if they do something like a CHF 60 million plan, they're looking for something like CHF 30 million savings. Is that a fair assessment? And you can obviously answer that question either by breaking down the different lines or just saying, "Yes, that's a fair assessment." And then just another one on -- you're going to close 50 stores. You mentioned 30 in the U.S. Just wondering where the other 20 are coming from. 50 stores, if you're going to close those in the next year or 2, that's probably over CHF 1 million per store. Should we expect your top line growth in the next couple of years to maybe come in towards the lower end of that 5% to 7% goal as you go through that store cleanup? And on the other side, do you still think there's room to expand stores? Obviously, now you're over 500. I think that was the original plan at one point. I'm wondering if you think now the network is probably the size that you want to maintain that. Sorry for the load of questions. I guess, it's me being about unfortunate going first, but if you could rattle away at those, that would be much appreciated.

Yes. Jon, thanks for the question, of course, and I will try to go 1 by 1. And if I should not remember exactly what the question was, I will get back to you. So first, I think your question was about the U.S. growth in the second half, if it was disappointing. No, because when we talked about the first half. And of course, the nice growth there of about -- a bit above 7%. I mentioned the special effect on Easter, mainly in Russell Stover, and therefore, I also said, "Hey, the guidance actually for the full year is between 4% and 5%." And now we're coming at 5.4% for the full year. So for us, it's exactly in line with expectations. We had a good last quarter. We grew -- also when you look at Nielsen, we had very nice growth with Lindt, with Ghirardelli. We also had a good performance with Russell Stover. We had some special effects because we pulled out of some promotions that we are still done into drop channel last year in 2018, so this was basically not repeated. So we had there some external effects. And we had the launch of the bowline of the new copper box, which is the core product for Russell Stover. We actually -- we didn't relaunch all of the old SKUs in this new box. So basically, there also some SKU rationalizations move once there. That's why when you look at Nielsen for the last quarter and we look at Russell Stover, it's still -- it's in line with our expectation, but the market results when you look at sell out does not 100% reflect how we look at the numbers internally. So in summary, we are pleased with the performance in the U.S. We grew within our guidance, our own -- grew above our guidance 4% to 5% at 5.4%. And as I had said in July, at the end of July when we talked about half year, we do not expect a 7.2% to also continue in the second half. So it was really as expected by us, so we are not concerned. Then the second question you had about cash restructuring for 2019. Almost all of these adjustments will actually be cash-neutral because it's really impairments, and it's write-downs. And also on the tax side, we are talking about writing up assets and the tax benefits that I talked about, they are also not, from a cash point of view, relevant in 2019. So for 2019, I don't expect any negative impact from the restructuring on the cash flow. Then the next question was about your -- the savings question about the savings that we would normally announce savings as well. You mentioned CHF 30 million or so. How we look at this, we have a restructuring of CHF 80 million, CHF 60 million net of tax, and the payback of this somewhere between 5 and 6 years. That's roughly the payback. And as I mentioned in my guidance, we do plan to reinvest basically. So the benefits in future growth. And therefore, we also keep the guidance the same at 20 to 40 basis points overall. But the payback is between 5 and 6 years. You also asked the fourth question was about 50 stores. Yes, we have identified 50 stores in the U.S. I should mention all of them in the U.S. so none of the other stores are impacted, all of the other countries are impacted. We have currently 500 stores in the world. So out of the 50 stores that we have identified for which we do not plan to renew the lease, 30 stores to the -- basically expires in 2020 or 2021. So that's why I mentioned 30 of the 50 we close in '20, '21, and the other 20 are then further down the line, the possible closure or the possible nonrenewal of the lease. For growth, this all already factored into our plan. So there is no -- of course, there's an impact, yes. If you close 30 stores over 2 years, so let's say, about 15 per year. But with -- these are smaller stores in outlet malls, so the impact is less than CHF 1 million per store. There is some of the smaller stores in this outlet malls there anyway, if the sales were great, we would not close the stores. They are anyway, stores that were not performing so greatly in terms of sales, so we can absorb the impact on NPS on our sales number. And therefore, we also -- we are still confident to achieve this 5% to 7% overall of the midterm as well. And then your other question about expansion of stores. Yes, if we actually look at our overall retail strategy, there is clearly still the plan to grow, to expand stores. We have many markets where we very successfully expand stores, add additional stores. Example, Japan; example, Brazil; example, Germany; et cetera, et cetera. We will probably not see that many additional new stores in the U.S., but we also constantly are testing good locations that are closer to the city centers, that the stores that I'm mentioning are more the ones that are in outlet malls, which are outside of the metropolitan areas. So even in the U.S., we look at possible store locations. But for the next years, I would, of course, expect more of the store growth to come from outside of the U.S. and our guidance has been between 30 and 40 stores, and it remains for the time being that we want to add 30 to 40 stores. Of course, you have to exclude the ones that we close here from that, so that would be excluding these stores that we do not, basically, for which we do not renew the lease. But yes, we still plan to open stores, for sure. The next --

Yes, just 1 follow-up. Can you just define what you mean by payback in 5 years or so? You're talking about...

I mean, if you take the CHF 80 million, you know when you have a 6-year payback. It means that within the 6 years, you get the CHF 80 million back, which means per year on average around CHF 13 million, CHF 14 million.

The next question comes from Jean-Philippe Bertschy from Vontobel.

The first question is back to the CHF 80 million. You said it's mainly noncash items. But do you have some cash cost especially when you're like transferring some of the production lines from 1 factory to the other? And maybe if you can tell us which factory it is that you're closing down at Russell Stover. And the second one, to keep up to 2 questions, would be on the CapEx. How much you spent last year? And how does it look like for '20 and '21 as you are like now ramping up the capacity in the U.S. in Stratham?

As I mentioned before, out of the CHF 80 million restructuring, what we booked in '19 because we booked the CHF 80 million in '19, it's basically all impairments. Taken now, of course, further down the line in '20 and '21, there will be a little bit of cash impact as well because we have to, as you mentioned, we have to transfer production lines. We have to -- we are fair with our employees. If you close a factory, some of them will probably transfer to another production site. Others will decide not to transfer. And to those, of course, we will honor the contract, and we will also pay a severance. So there will be in '20 and '21 a bit of cash outflow but not in '19. So which factory are we closing? It's the smallest and oldest factory in Colorado. We operate a network of total 6 factories in the U.S. between all the 3 brands. And the one we close is the smallest factory of Russell Stover. We will transfer some of the machinery to the remaining sites, and therefore, get good leverage out of this. Factory closure will happen in '21, but we now book already all the accruals and the impairments that we have to book because once we have decided, we have to book this. What does it mean for CapEx? We expect 2019 CapEx somewhere between CHF 250 million and CHF 300 million. And then for 2020 and 2021, I expect it to be higher. As I mentioned, right, given the actual guidance of CHF 300 million, CHF 350 million for 2019, we are now a little bit lower than this, I believe, as I said CHF 250 million to CHF 300 million for 2019. Going forward, it will go up because as you probably remember well, we are expanding our factory in Stratham, New Hampshire and have there an investment of around CHF 200 million over the next 2 years. So I would expect CapEx for the next couple of years, 2020, '21, more in the range of CHF 300 million to CHF 350-ish million. It's always difficult to exactly predict the phasing of the CapEx investments but more or less in that range I would expect it for '20 and 21.

The next question comes from Patrik Schwendimann from ZKB.

I was a little bit surprised to see that you outsourced the merchandising in the U.S. What was really the reason behind it? And what is the situation maybe in other countries? How do you handle this merchandising? And what is the number of stores you currently have in the U.S.? And regarding Russell Stover, you have mentioned, is it sales growth in 2019? Could you give a little bit more precise number of it each half the sales growth of North America, each low single digit? And what's your best guess here for 2020 for Russell Stover and maybe also for Northern America overall for 2020?

Yes. So let's first talk about the outsourcing of the merchandising, which you said was surprising for you. First, maybe just a couple of words about what merchandise -- what the merchandising function does. It's not the sales force that does active sales. It's not account management. It's really the people or the staff that make sure that we are not out of stock, that make sure that the shelves always look perfect and are basically refilled with products. When you have June the season, for example, then on a daily basis, quite a lot of products are sold out of the shelves. Actually, most of our competitors in the U.S. work with specialized third parties. And in the past, we had built this up ourselves. And then the last couple of years, we have analyzed what it costs, what the benefit is, et cetera, and we have talked to third parties, and we have come to the conclusion that it's actually much more cost-efficient. And even from a quality point of view, we also believe we will do a better job by using a third party. The main benefit is that if you imagine somebody doing the merchandising in a big Target store or in a big Kroger store, that person -- if that person has Russell, Ghirardelli and Lindt, that person will not be occupied for the full day during those 3 brands. So there is a lot of commute between stores, so you lose a lot of time in traffic and in the car. But if you have somebody from a third-party that has also other brands, other brands in other categories, then you have basically 1 person fully dedicated to that Target store in a specific city, and therefore, you get benefits from that. That person has probably even better connections to the store manager, et cetera, et cetera. So there's really 2 reasons. It's really quality. We believe we can even get to a better quality. And two, we believe we can get to this better quality with a lower cost. And as I mentioned, it's common practice in the U.S. to do this with a third party. Most of our competitors do it with a third party. And our employees who have, of course, a good knowledge about the brand, they will also have possibility to work for this agency that we are partnering with. So we also can avoid losing all the knowledge. Then your other question was about how many stores do we have in North America. Overall, in North America, it's about 150 stores. And so out of those, we have identified this 50 that we do not want to renew the lease. But as I mentioned before, when Jon asked, we're always looking for other locations, of course, that are more closer to the inner cities where we believe that we can be more successful. And where you have less this trend of less footfall because in the outlet malls outside of the city, you can really see that those malls, they are even closing and they are struggling. So then the other question was about Russell Stover and the Russell Stover sales. So we are -- for the future, we expect Russell Stover for 2020 to grow low single digits, somewhere in the range between 1% and 3%, as I had already mentioned also in July. So we are fully on track for our -- with our business plan. And in '19, we have also -- if you exclude this extraordinary Easter impact, which has given a special boost to the Russell Stover sales, but we have to exclude that because that was extraordinary. If you exclude that, Russell Stover's also growing in the low single digits. And then you asked about North America sales in 2020, what is the guidance. It's somewhere around 5%. So similar to 2019, around 5%.

Okay. Perfect, Martin. So did I get this right? So you have mentioned Russell Stover, excluding Easter, was low single digits? So including Easter, it was then around 5% or something like this?

Yes. Around that, it was yes.

Merchandising in all the regions, is there also a topic of outsourcing it? Or what's the situation there?

Actually, most of our countries, we were present -- be the provider with a third party. There are just a few exceptions where we do this. There is no plan right now to outsource it also in the few exceptions where we do it with our own merchandising force. We will keep it for the time being. No plans. The U.S. is a bit of a special one because, of course, it's a vast country, and you have many more key accounts than you would have in a European market. In the U.S., we have at least 20 very important customers. Oftentimes, the retail landscape in Europe. This is a bit more simple in terms of the big customers, the big sales customers. So therefore, for the time being, no other plans actually to change our way of operating.

The next question comes from Alain Oberhuber from MainFirst.

Alain Oberhuber, MainFirst. Also from my side, Happy New Year. I have 2 questions. Regarding the CHF 80 million, could you give more granularity where did you spend it on the regional side? Or do we have expect everything was or will be spent in the U.S.? And the second is regarding the organic growth rated U.S. of the 3 brands, the pecking order. So you said Russell Stover was 5%. How much was the growth rate then of the U.S. brand Lindt and Ghirardelli last year?

So for the granularity on the CHF 80 million, actually, all the restructuring is in the U.S. Just the U.S. So nowhere else, 100% in the U.S. And then organic growth, Lindt and Ghirardelli both, they were a bit above-average growth in North America and Russell Stover slightly below. And Lindt and Ghirardelli, they grew both in a similar way.

The next question comes from Graham Hunt from Morgan Stanley. We will take the next question, Faham Baig from Crédit Suisse.

It's Faham Baig from Crédit Suisse. I've got a few questions as well. So firstly, can I start off with Europe? Second half performance, 7% was quite strong. Are there notable one-off factors we should consider going into 2020? That's my first question. Secondly, in -- with regards to stores, this 40 -- is it 40 or 40 additional stores this year, where we did you open these stores? Because I guess it would have had a significant benefit to your organic sales growth. And is it more than you expected to open? That's the second question. And sort of related to the restructuring and impairment charges you're taking in the U.S. You've been streamlining your business and consolidating logistics, transport, marketing, et cetera, over the last couple of years, which has resulted in North America margins of around 8%, significantly below the other 2 regions. Where do you see North American margins normalizing over the medium term?

Okay. First question, Europe. Second half was quite strong. Yes, indeed. Was there something notable as a one-off factor? Actually, overall, in all markets, we had very good Christmas sales and good Christmas sell-through as well. So there was actually nothing really special to mention other than what I have already said in my general speech. U.K., Germany, had very strong second halves so did most of the other markets and Russia, which is one of our key markets in Europe, grew double-digit also in the second half. So you should also bear in mind, in the second half, Lindor sales are really important, Lindor being one of the key items, especially the milk one with the red color for Christmas. And because Lindor, in general growth above group average, we have been able, again, to grow Lindor above group average, and that has helped us also in Europe in the second half. And so no particular one-off factors actually happening there in Europe. You asked about the stores. 40 additional stores. That's correct. It's actually a bit lower than that. It's -- we opened about 35 stores, so close to the 40. A lot of them happening in rest of world, about half of them in rest of world. I always talk about Japan and Brazil as 2 core markets for retail because we have the strategy to really expand in Japan, mainly through retail as one of the premium chocolate players and grow there the stores count every year by around 10. And in Brazil, a similar story where we work together with a partner, where we also focus a lot on retail. So half of the retail expansion is coming from rest of world. And then also Europe. In Europe, you have very successful store concepts in most markets. So we also grew about 15 stores in Europe. So it was really a quite diversified approach. Then restructuring, yes, we have initiated different projects in 2017, basically a lot in logistics and procurement item, now some merchandising to get more profitability out of the U.S. business. I think at the end of the day, this is a journey. You cannot just have 1 project started in 2017 and that's it. I think it's a continuous improvement process. And I think it's now these measures, of course, they will also help us to a higher profitability in the U.S., respectively. We will reinvest some of the money into growth, as I mentioned as well, because the guidance at group level is actually not changing. So a lot of the benefits will also be reinvested in growth. And in the midterm, it's always a question what is midterm, right? Where do we get U.S. margins? We believe the U.S. margins we should be able to grow them over-proportionally compared to the group level. But for us, it's important to have a well-balanced approach in all. Of course, we want North America and the U.S. also to be a driver of the top line. We have good opportunities there to grow in sales as well. Household penetration is still relatively small. So it has to be a balanced approach. We don't just push for profit in the U.S., we really want to ensure as well that we get to a very sound top line growth.

Can I just ask 1 additional question? Could you kindly break out price/mix and volume for your organic sales growth for FY '19? And how do you see pricing evolving in FY '20?

This is, of course, not yet the full year call or discussion, which we have in March. I mean, I can give you a rough guidance for price/mix, which will be somewhere between 1% and 1.5% in 2019. So up to 1/4 is price mix and 3/4 is volume. So it shows actually that volume growth was very healthy, which we like because it means that we have sold more pieces of chocolate to more consumers, so that's positive. And we have also, I think, as I had announced earlier on as well, we have done price increases, especially in the U.S. in 2019. And now I'm sure you have also observed the cocoa bean price out of West Africa is going up because of this living income differential of $400 per ton. So the chocolate view in general will get higher most likely. It depends also on what happens with the future markets, but most likely, the chocolate industry will have higher input costs in 2021. So we have not decided yet what we will do exactly in 2020. But it's possible, of course, that in general, the chocolate industry will increase prices in 2020, 2021. It depends. It's a bit early days now because we are still beginning of '20. So a lot can happen in the next 8 to 12 months with the cocoa future price. But it's a matter of fact that this living income differential, which will kick in from October 2020 and which is $400 per metric ton of cocoa out of Ghana and out of Ivory Coast. That's a fact. But I cannot give you any exact guidance yet on '20 or '21 with regards to price/mix. But '19 is somewhere between 1% and 1.5% is price mix and the rest is volume.

The next question comes from John Ennis from Goldman Sachs.

Just a few follow-ups for me, please. The first was on the retail stores. I wondered if you could roughly break out the organic sales growth contribution from the store openings this year. And then I just wanted to confirm, when you do close these circa 25 stores that you highlighted in 2020 and 2021, is this going to be impacting organic sales growth? Or are you going to make any adjustments that we should know about? And then the second question, just following up from Faham's one is on pricing. Did you think you priced below competitors in the market, if you're talking about 1 -- roughly 1% price mix this year? Is that your view?

So can you just specify in the last question? Your question is if you are increasing prices, lower in '19?

Yes. Was that -- were the price increases you put through in 2019 below your competitors? Are your price premium has maybe narrowed, or do you not think that's the case?

No, I believe it's the other way around. And do you know it's -- I think it's 1% to 1.5% more or less. I believe in the markets that we observed, it's actually -- our competitors have rather done more aggressive promotions in many, especially in the Anglo-Saxon world. So I do not believe that we are now less expensive compared to the -- to our competitors with regards to pricing. Retail store organic growth, we do not at this time publish it. And store closures, 2021, 5% to 7% growth will be achieved. I believe it's still our guidance so we can absorb this closure of the stores because, as I mentioned, they are smaller stores, they are not the bigger stores. They are stores that were not successful in the last 2 years, that's why we do not renew the lease. So we can absorb it actually within our sales number. It should be okay.

Perfect. So still the loss sales from the stores will still be captured within the organic numbers?

Yes, yes, yes. Definitely, yes.

The next question comes from Graham Hunt from Morgan Stanley.

Hopefully, you can hear me now. Just 2 questions for me. Firstly, on the cost savings that you'll be seeing in the U.S. over the next few years. Are you able to give a sense on where those investments are going to be pushed back into the business in order to support brand growth? Is it more marketing campaigns in the U.S.? Or is there an opportunity for cross funding into other regions such as Europe or rest of world? And then secondly, on Europe specifically, if you could talk a little bit about competitive environment, that would be helpful. We've seen some of the small premium brands coming through and Lindt has been delivering high-volume growth ahead of the market for some time now. How do you see the challenges of continuing to gain market share today versus, say, 10 years ago? And where do you think the biggest opportunities are going forward to maintain this trend?

Was your last question in general or on Europe?

Europe specifically.

Okay. Let's first talk about the cost savings in the U.S., where we will reinvest it. We have not totally decided yet. We are still in discussions, of course, where -- since this money will be reinvested, of course, the first choice is in the U.S. because they're restructuring it in the U.S., but it's also possible that we will reinvest some of these funds in other markets, but this is not totally defined yet because you have also, during the year, you have to be a bit flexible. Depending on how it goes in which region, you sometimes -- you address -- you put the funds in a market which is -- which needs the reinvestment so -- but the first choice for sure, the U.S. And secondly, it's also possible that we'll reinvest the funds in some of the other markets. With regards to Europe, I'm sure most of you have been pleased when you have seen the growth of 6.2% in Europe, with a very strong second half, 6.4% even with a very strong second half. And this growth is really coming from some of our markets, big chocolate markets where we are in terms of market share, not so big yet. If you -- you should start with the biggest, U.K. If you go to the next biggest, which is Russia and then Germany. I mean, in those 3 markets, especially Russia and U.K., our market share is still relatively small. So we believe even in the years to come, we can still grow a bit above group average. I mean, Russia, our market share is around 1%. In the U.K., it's somewhere between 6% and 7%. So we believe we can still grow there, especially with our core products like Lindor and Excellence. We can also see in the third biggest market in Europe, in Germany, that our performance is very good. And particularly in Germany, we still have opportunities with Lindor because our biggest brand in Germany is not as big as we believe it can be, and we can see that as well in the numbers that we are particularly successful is Lindor, but also with Excellence. So we still see opportunities in Germany. So -- and then you have, of course, you have the rest of Eastern Europe. In most of the Eastern European countries, our market share is also still relatively small, below 10%, still big opportunities to gain household penetration, et cetera. Oftentimes, when you look at Europe, we think about Switzerland and Italy and France, where our market share is already bigger, and we were, of course, there's less growth going to come from those 3 markets in the future, even though we also believe in France, Italy and Switzerland we can have a good growth. So it's -- yes, you have to really split down the European market by these different segments. And in the biggest markets and the biggest chocolate markets, our market share is still relatively small and especially Lindor, in those markets, it has good opportunities. I think that's the important message to get.

Mr. Hug, so far there are no more questions.

Okay. So I would like to thank everybody for your time. As I mentioned in the beginning, we normally don't do a conference call in January, but I thought with all the restructuring and streamlining for growth initiatives, there are questions, and there were quite a few questions. So I think it was good to have this conference call. I would like to take this opportunity also to wish all of you again a happy New Year and all the best, and we will be in touch over the next days probably. And then, of course, we will again meet in March. Thanks a lot for your time, and I wish you a good day.