Wednesday, August 10th, 2011
Last Thursday, at 6:25 AM, all was well and I boarded a plane to New York.
By the time I landed, at 8:35 AM, Irene Rosenfeld was getting ready to formally announce the split of Kraft Foods.
I was shocked. I was confused. I was frantically trying to find a TV covering the announcement.
Just 18 months earlier, Kraft Foods pushed, shoved, saved and spent their way into the 19 billion acquisition of Cadbury. The Cadbury acquisition followed on the heels of the 2007 acquistion of Lu Biscuits – also costing Kraft a pretty penny.
Many people close to the Kraft snack foods business were less than thrilled with the Cadbury purchase – it was too much, too big and too sweet (literally). Kraft and Cadbury (both the businesses and the culture) were incredibly different. Kraft made its name marketing to moms with old school, tried & true campaigns for brands like Oscar Mayer and Jell-O. Cadbury strategy was as unpredictable and versatile as the teenagers they sold candy to – acting quick, changing direction, taking risks and going big.
Regardless, all signs were pointing towards a new Kraft – a global powerhouse. Their portfolio was evolving – intentionally – beyond the snacks market. Their business was growing – intentionally – well beyond North America.
At the time of the Cadbury acquisition, Rosenfeld was quoted as saying “scale is a source of great competitive advantage.”
Fast forward 18 months. Scale was longer Kraft’s friends.
Rosenfeld told Kraft investors the company needed to be split into two companies, saying the acquisition trail has left her with “ different portfolios.”
At this point, everyone who knows Kraft (or Cadbury) said “duh.”
For some reason they either didn’t plan (or didn’t publicly acknowledge) that the Cadbury acquisition would drastically change the Kraft portfolio.
For some reason, scale was now less important than portfolio focus. And the scale advantages that justified the acquisition premiums were now… unimportant?
Kraft holds the position that the split will help the company gain higher stakes in snacks market. In order to firm its feet in the business (which is reporting an annual sales of $32 billion), Kraft must divide its portfolio. The other split of the company would look after the slow growing grocery business which is currently operated through Oscar Mayer lunch meat and Kraft cheese. The grocery business, North American grocery, is further expected to attain estimated revenue of nearly $16 billion.
At the most basic level, Kraft will become “Snacks” and “Grocery”
Seems like two groups go together and should stay that way.
But here’s the thing: they can’t…and Kraft knows it.
Kraft has to separate its high-growth global snack brands from its slower-growing, more mature, North American grocery brands. There is no way a 32 billion dollar company, with 100s and 100s of brands spread across the globe, can act and respond to changing markets or changing consumers.
The WSJ lays it out best – “Compare Oscar Mayer — destined for the grocery business — to Tang, which is headed for the snacks company. Both are venerable brands, around for decades. But Oscar Mayer only has two major markets, the U.S. and Puerto Rico, compared with Tang, which is in 12 major markets.”
We can understand why Oscar Mayer and Tang must be treated differently.
The split seems like a smart move but the success of the divide lies in the implementation.
Dividing a huge company in two still leaves Kraft Foods with two huge companies. The problems of scale down stop when you split something two ways and call them something different.
You’ve still got two 15 billion (give or take a few) problems to deal with.
Tags: consumers, CPG, Insights, shopper marketing
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