Wrigley to Buy Altoids and Life Savers From Kraft
December 1, 2004
Wrigley to Buy Altoids and Life Savers From Kraft
By Elizabeth Fuhrman
Chicago-based Wm. Wrigley Jr. Co. agreed to purchase a group of candy brands, including LifeSavers and Altoids, from Northfield, Ill.-based Kraft Foods for $1.48 billion. The agreement also includes ownership of the Crème Savers brand, as well as Trolli gummy candies, Sugus candies and other local and regional brands in the United States, Europe, Indonesia and Thailand. The sale unloads brands that generated roughly $500 million in sales for Kraft.
The sale comes as part of Kraft Chief Executive Roger Deromedi’s effort to trim down the company’s portfolio and focus on increasing the sales of its core brands. Kraft, with $31 billion in sales, decided to relinquish most of its confection brands in order to concentrate its sales force on markets in which it was dominant.
The deal will also help satisfy Wrigley’s appetite for a major acquisition. In 2002, Wrigley had an agreement with Hershey Foods Corp. to purchase the chocolate maker for $12.5 billion, but the deal fell apart at the last minute when Hershey’s controlling trust voted against it.
“There are only a handful of confectionery brands around the world that have the combination of heritage and vitality that can match up with Wrigley brands,” said Bill Wrigley Jr., the company’s chairman, president and CEO. “Altoids and Life Savers are two such brands.”
The purchase comes after a competition that pitted rivals Hershey, Mars Inc., Nestlé SA and Cadbury Schweppes PLC against Wrigley, which delivered a larger dollar figure than industry analysts expected.
Wrigley said the all-cash purchase price would be partially offset by about $300 million in cash tax benefits associated with the amortization of intangible assets. The net acquisition cost of $1.8 billion represents 2.4 times estimated 2004 sales. The transaction is expected to be completed by mid-2005.
Altoids reinvented the mint category about a decade ago with its quirky advertising and tins, which helped double the average amount of money that people spent on mints. According to ACNielsen figures, Altoids sales have grown 14 percent in the past four years.
LifeSavers, which have been around since 1912, saw sales decline about 16 percent in retail dollars over the past four years, according to ACNielsen.
Wrigley, along with Hershey, Masterfoods and Nestlé, dominates in the checkout aisles of grocery and convenience stores, a strength Kraft lacked with its confectionery brands. Wrigley, one-tenth of Kraft’s size, has about 7.8 percent of the U.S. confectionery market, according to Wall Street Journal analysts. Kraft had about 4.7 percent.
When Georgia Nut Co., Skokie, Ill., inked the deal to acquire Atlanta-based Sophie Mae Candies in September, the move provided a new lease on life for the 86-year-old peanut brittle maker.
Once a family-owned concern, Sophie Mae had most recently been owned by Gilliam Candy of Paducah, Ky. In addition to Sophie Mae peanut brittle, the company’s stable of brand names also includes Slo Poke, Kits, BB Bats and Black Cow, all of which Georgia Nut acquired in the transaction.
Michael Dougherty, vice president of sales and marketing for Georgia Nut Co., expects the acquisition to open some new doors for the company.
Currently Georgia Nut Co.’s business is split into three areas. The company operates an ingredient supply business; sells branded and bulk candy and nuts under the Georgia label; and serves as a contract manufacturer.
All three areas are important to Georgia Nut going forward, says Dougherty. “I think we have the opportunity to continue to grow the industrial ingredients and contract manufacturing business, but they are more volatile than the branded business. We have the ability to control our fate a little more if we can expand the amount of our business that is under the branded names.”
To that end, the strong Sophie Mae peanut brittle brand (retail customers include Walgreen’s), provides a good point of entry for Georgia Nut’s stable of brands—both those it currently sells as well as those the company hopes to add in the future.
“Being the vendor of record in an account opens up the door to have a discussion about the other brands under your umbrella,” Dougherty reflects. “It’s an opportunity to grow the depth of our distribution.”
Dougherty sees a particular opportunity to court nostalgia-loving consumers by expanding Georgia Nut’s stable of nostalgic confections. “Our strategy is two-fold,” he reflects. “First, we will promote the nostalgia candy brands by ourselves, as well as look toward other nostalgia candy brands and companies to form partnerships. Secondly, we will look for line extensions utilizing the existing brand names that we acquired.
“We view the Sophie Mae acquisition as a first step in growing the branded business,” he continues. “Ultimately, what we’d like to do is to move forward having five or six $5 million-plus brands in our portfolio.”
—Mary Ellen Kuhn
Hershey’s new senior sales executive Christopher J. Baldwin has been on the job for only a few weeks, but his priorities are crystal clear.
Baldwin is committed to ensuring that Hershey continues to focus its sales resources on the retailers that are doing the best job of meeting consumers’ needs. During the course of an interview in Hershey, Pa., earlier this month, Baldwin emphasized the importance of ensuring that Hershey’s sales organization is “focused on winning with the right customers.
“Fundamentally, what I do is make sure that we have the right resources focused against the right customers at the right time,” says Baldwin. “The ongoing allocation of resources is my primary responsibility.”
Who exactly are the “right customers?” According to Baldwin, they’re the retailers that are doing the best job of delivering value and convenience to the consumer.
It’s no coincidence then that the channels in which Hershey is scoring some of its biggest successes include warehouse club stores, mass merchandisers, convenience stores and dollar stores.
“The places where we’re winning are the channels where the underlying strategy includes a focus on value and/or convenience,” Baldwin reflects. “Consumers are increasingly moving their dollars to those channels.”
Baldwin counts Hershey’s limited edition offerings as key contributors to the company’s strong sales performance.
“We have great opportunities in our core confections business, and we also have opportunities in some of the adjacencies that we have entered into, including Mauna Loa, a recent acquisition that will continue to accelerate our snacking growth,” says Baldwin.
Hershey announced in November that it had entered into an agreement to acquire Mauna Loa Macadamia Nut Corp. from The Shansby Group, a private equity investment firm. Mauna Loa, based in Hilo, Hawaii, is the nation’s leading processor and marketer of macadamia nuts, with annual sales of approximately $80 million.
Before coming to Hershey, Baldwin was national vice president, field sales and logistics at Kraft Foods. His title at Hershey is senior vice president, global chief customer officer. His professional background includes leadership roles in sales and logistics within Kraft’s Nabisco operation.
Hershey announced Baldwin’s appointment this fall along with a series of other changes to the Hershey executive team. The changes include the retirement, effective Dec. 31, 2005, of Frank Cerminara, senior vice president, chief financial officer. Succeeding Cerminara will be David J. West, who is currently senior vice president, chief customer officer.
West begins his new role as CFO on Jan. 1, 2005.
—Mary Ellen Kuhn