Candy Industry Blog

Solomon strikes

August 10, 2011
The news broke early in the morning. I was just taking another sip of coffee and flipping through the sports section of the Chicago Tribune (one has to have priorities in the morning) when I heard about Kraft Food’s decision to split its business into two separate entities, snack and grocery.

By Bernie Pacyniak

The news broke early in the morning. I was just taking another sip of coffee and flipping through the sports section of the Chicago Tribune (one has to have priorities in the morning) when I heard about Kraft Food’s decision to split its business into two separate entities, snack and grocery.

The announcement, made at 7 a.m. (East Coast time), took a lot of us by surprise, both in timing and content. Traditionally, many companies break such news after the stock market closes, thus getting on the evening news.

Given that Kraft Foods had a second quarter results news conference planned that day, upper management believed it would be a good idea to tie second quarter financials with news of the split together.

Can’t say that I blame them; you only have to deal with business analysts and the media once, always a good thing.

Oh, sorry. In case you were on vacation and hadn’t heard, Kraft Foods is separating its snack business, which includes key brands such as Milka, Cadbury, Oreo, Lu and Trident, and two beverage brands, Jacobs coffee and Tang powdered orange drink, from its grocery products operation, which consists of Kraft macaroni & cheese, Oscar Meyer, Maxwell House, Philadelphia cream cheese, Caprisun juice drinks, Jell-O desserts, and Miracle Whip spread.

The move came as a surprise because it wasn’t that long ago that Irene Rosenfeld was adamantly convincing shareholders that gobbling up Cadbury ― and thus creating a larger entity ― was the right thing to do for the company.

According to the Wall St. Journal, major shareholders, such as Bill Ackman, Nelson Peltz and Warren Buffet all gave their blessing to the breakup. You may recall that Buffet wasn’t keen on Kraft swallowing up Cadbury in the first place.

Seems even analysts and investors know it takes more time to change direction for a mega ship than it does for two smaller ships. Lessons learned from the Battle of Gravelines and the defeat of the Spanish Armada, I gather.

Moreover, Rosenfeld’s desire to capitalize on Cadbury’s positioning prior to the acquisition ― the company had already gone through a series of reorganizations to increase its ability to compete in the global confectionery marketplace ― proved prescient.

Second-quarter results, revealed at the news conference, accented the draw of snacks: chocolate was up nearly 9%; biscuits were up 7%. Only gum and candy faltered, delivering a disappointing 2% gain.

Noting that the Cadbury acquisition “changed the face and footprint of our company,” Rosenfeld indicated that the next significant step would be to reinvigorate Kraft’s “power brands” by building a global snacks powerhouse.

The move allows Kraft ― pardon the pun here ― to craft a more mobile, aggressive and responsive snacks operation. Rosenfeld understands the need to insert a more entrepreneurial edge into confections and snacks, one unfettered by slower moving, more traditional grocery brands.

I give Rosenfeld credit for not being afraid to respond to the marketplace by taking Solomon’s sword and creating dedicated entities encharged with tackling opportunities and challenges minus a corporate bureaucracy, probably Kraft’s Achilles heal.

This process will take time and it’s not expected to be finalized until the end of 2012. The key to making this work? It starts with selecting the appropriate management team. And I sense there’ll be more pressure on the snacks group than grocery.

According to a Chicago Business article, food analyst Christopher Grow speculates that Rosenfeld herself will lead the snacks group while Ton Vernon, president of Kraft’s North America unit, will head up the grocery component.

What does this mean for the rest of the industry? It’s a good thing; I prefer an entity that’s more responsive, not only to the marketplace but also to the industry it serves. Let’s see some of that innovation Rosenfeld’s been talking about. Better competition tends to make everyone better.

But does that mean we’ll see actual Kraft Snack Group executives at industry events? Don’t know. But Irene, if you’re reading this, that would be also be a good thing. Love to see you at Candy Industry’s Kettle Awards reception, the Sweets & Snacks Expo, NCA’s State of the Industry affair, the PMCA Production Conference, to name a few.

Perhaps we can do lunch first? After all, we’re just a stone’s throw away from Northfield.

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