Kraft Foods Inc in Packaged Food

Transcription

Kraft Foods Inc in Packaged Food
- World
April 2010
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Scope of the Report
Packaged Food: Kraft Foods Inc
© Euromonitor International
Scope
• This profile on Kraft Foods Inc covers the company’s packaged food operations, focusing on its growth prospects for
the 2009-2014 period.
Disclaimer
Much of the information in this briefing is of a statistical
nature and, while every attempt has been made to ensure
accuracy and reliability, Euromonitor International cannot be
held responsible for omissions or errors
Figures in tables and analyses are calculated from
unrounded data and may not sum. Analyses found in the
briefings may not totally reflect the companies’ opinions,
reader discretion is advised
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2
Strategic Evaluation
Competitive Positioning
Market Assessment
Confectionery Opportunitites
Bakery Products Opportunities
Dairy Products Opportunities
Brand Strategy
Operations
Recommendations
3
Key Company Facts
Kraft Foods becomes the top global packaged
food company
Headquarters
Illinois, USA
• Kraft Foods has been the second largest packaged
Regional Involvement
Global
food company in the world throughout the 2001-2008
Present in most
period. The takeover of Cadbury gives Kraft the top
Sector Involvement
categories of the
position in global packaged food, with a joint market
packaged food market
value share of 3.5%, based on 2008 market data.
Global packaged food value share 2.5% (3.5% with
(2008)
Cadbury)
• The company is active in a wide range of packaged
Packaged food value growth:
3.1% CAGR 2001-2008
food categories, but its main focus is biscuits,
(US$ - 2009 fixed exchange rate) (8.2% with Cadbury)
chocolate confectionery and cream cheese.
• Kraft Foods enjoys a global profile, but North
America still accounted for 55% of its packaged food
retail value sales in 2008. The Cadbury acquisition
has resulted in a more balanced geographic
presence between developed and developing
markets, but still 77% of the joint entity’s food retail
value are generated in North America and Western
Europe.
Kraft Foods benefits from new leadership
• Growth has been driven by a mixture of organic and
acquisition-led development, with Danone’s biscuits
business and Cadbury its most recent purchase.
• After the divestment of its North American frozen
pizza business to Nestlé in January 2010, and with
the completion of the Cadbury integration, Kraft
begins a new chapter of operations with a focused,
rationalised portfolio and restructured management.
Kraft Foods Inc
4
Kraft Foods’s Diverse Packaged Food Operations
Kraft’s Packaged Food Retail Value Sales Breakdown
by Category Before and After the Cadbury Acquisition**
Note: * Others include the following categories: Frozen processed food, Oils and fats, Spreads, Snack bars, Canned/preserved food,
Meal replacement products, Pasta, Dairy products and Ice cream
** % figures based on 2008 market data
5
Financial Assessment
Key Financial Indicators
FY 2009
Net revenue
(US$ mn)
Operating income
(US$ mn)
Net earnings
(US$ mn)
Operating margin
Net margin
FY 2008
% growth
40,386
41,932
-3.7
5,524
3,843
43.7
3,028
2,893
4.7
13.7%
7.5%
9.2%
6.9%
49.2
8.7
Net revenue impacted by volume decline
• The fall in 2009 net revenues was mainly driven by
volume declines across all reportable segments, except
US Beverages and US Convenient Meals, in part due to
the discontinuation of less profitable product lines.
• The unfavourable foreign currency exchange rate
fluctuations against the US dollar also negatively
impacted reported net revenues.
Operating income largely improves
• Strong contributors to the near 44% increase in
operating income were Kraft Food Developing Markets
and US Convenient Meals and the decrease in input
costs, which was the result of lower raw material costs,
although partially offset by higher manufacturing costs
during 2009. With the completion of the Restructuring
Programme in 2008, restructuring costs were also
significantly reduced.
Frozen Pizza Divestiture
• In January 2010, Kraft sold its North American Frozen
Pizza assets to Nestlé for US$3.7 billion, which includes
the DiGiorno, Tombstone and Jack’s brands in the US
and Delissio brand in Canada and the California Pizza
Kitchen trademark licence.
• The divestment of the North American frozen pizza
division was made on the basis of the narrow
geographic reach of the business and Kraft did not have
the infrastructural synergies to expand it to international
markets. However, during the recent recessionary
quarters, the division had benefited from the
strengthening consumer trends of trading down from
fresh/chilled to frozen items and from dining out to
eating in. However, Nestlé’s offer in cash for the division
was judged to be good value and was accepted as Kraft
needed to raise its bid to succeed in acquiring Cadbury.
Acquisition of Cadbury
• Kraft’s 5-month long takeover battle for Cadbury ended
with an improved price offer, valuing the company at
around £11.9 billion (US$19.4 billion), offering 840
pence a share, including 500 pence in cash and the rest
in stock.
Outlook 2010
• In the short term, Kraft expects to deliver organic net
revenue growth of 4% (which was 1.5% in 2009) and 79% long-term EPS growth.
6
SWOT – Kraft Foods
Strong brand portfolio
Comprehensive category
coverage
Low level of innovation
• Kraft Foods has an
• Kraft Foods has a diverse
• An under investment in
impressive brand portfolio.
Labels such as Oreo,
Milka and Philadelphia
and now Cadbury enjoy a
high-profile presence in
core markets and are
amongst the so-called
‘billion dollar’ brands. The
company also has strong
local brands.
Stronger emerging
markets presence
product portfolio, spread
across a range of
packaged food categories
and geographical markets,
which acts as a cushion
against the contraction of
one particular category or
region.
• Alongside all other
innovation has held back
Kraft Foods in recent
years, allowing it to fall
behind rivals and placing it
under harder competitive
pressures, in particular
from private label in
selected categories.
Strengths Weaknesses
Opportunities Threats
Further expansion in
impulse channels
• Asia Pacific, Latin America • Kraft Foods is well
and Eastern Europe all
hold growth opportunities
for Kraft Foods, especially
with the strengthened
growth platforms the
Cadbury acquisition
brings, in markets such as
India.
Core operations in lowhealth profile categories
positioned to benefit from
the growth of a snacking
culture as increasingly
busier consumer lifestyles
drive the expansion of the
impulse retail market. It
has the brand equity and
setup to exploit this trend.
Cool economic market
environment
packaged food
manufacturers, Kraft also
made strong health and
wellness pledges.
However, the company is
highly associated with its
operations in categories
such as confectionery and
biscuits and cream
cheese which does not
afford a particularly high
healthy image.
Rising input costs
• The post-recessionary
• Although Kraft's large
outlook for Kraft Foods‘s
core developed markets is
poor as maturity and
waning consumer
spending power are set to
limit growth. The pressure
on margins is set to
increase.
scale of operations has
beneficial effects on its
production costs it does
not make the company
immune from the impacts
of fluctuating raw material
and commodity prices.
7
Key Strategic Objectives and Challenges
Forming optimal operational synergies with
Cadbury
Focus on core categories
• With the purchase of Danone’s biscuits business and
• Kraft Foods is shifting its focus to newly defined core
Cadbury, Kraft’s ongoing acquisition strategy illustrates
its objective of establishing strong growth platforms in
categories where it can benefit from operational
synergies and large economies of scale. The company’s
objective is to unify the enlarged Kraft/Cadbury entity
under the umbrella of Kraft's existing operational
framework. Kraft has announced that from six months of
completing the acquisition, it would have formalised all
decisions regarding a new executive team and the
efforts to combine the manufacturing network.
categories of confectionery, snacks and impulse food. It
has made large-scale acquisitions, such as Danone’s
biscuits business and Cadbury, and has also divested
non-core operations including Post cereals and the
North American frozen pizza business. However, Kraft
Foods needs to further rationalise its portfolio, especially
by cutting low-margin, under-performing lines. Further
cuts in terms of strategically ill-fitting brands, for
example, segments resistant to global expansion, are
both necessary and likely to occur in the short term.
Expansion in emerging markets
Investing in product quality, marketing and
innovations
• With the recent acquisition of Cadbury, Kraft Foods has
•One of the strategic pillars of Kraft Foods is to further
greatly expanded its reach in emerging markets,
although it is still highly dependent on developed
markets, particularly North America. With the bleak
forecast for this region and Western Europe, it is
imperative that the company expands its international
infrastructure, especially in the development of its
cheese and biscuits operations, which are more reliant
on North America than the confectionery business. With
the Cadbury takeover it has both newly established and
strengthened growth platforms from which to further
expand in makets like India and Latin America.
improve quality, marketing and innovations across all food
categories. The company announced it was launching
around 20 food products in the first few months of 2010,
along with a number of portion-controlled options, which
include products such as Planters Flavour Grove Nuts,
while better-for-you Planters NUT-rition line will now
include an Antioxidant Mix and Omega-3 Mix.
•Intense innovation in tune with reigning food trends and
adequate communication of the added-value, health
benefits will be the key to success in Kraft’s portfolio
improvement.
8
Market Assessment
Brand Strategy
Operations
Recommendations
9
Kraft Foods Improving Performance Fuelled by Acquisitions
C
A
B
Note: * Kraft’s and Cadbury’s joint performance back-trended to 2008 data
A Kraft Foods fails to keep pace
B Kraft’s negative performance is
with the market as its mass-market
strongly impacted by the divestment
positioning is not best suited to a
of its sugar confectionery business,
strong trend for premiumisation. A
which included the popular Altoids
reluctance to innovate compounds
and Life Savers brands, to Wrigley.
its problems.
C With two global-scale acquisitions,
Danone’s biscuit and cereal division
and its most recent target, Cadbury,
Kraft’s performance is well above
the global packaged food market.
10
Packaged Food Competitive Landscape
Packaged Food - Top 10 Global Companies
Company
2004
2005
2006
2007 2008
Kraft/
Cadbury
Nestlé SA
2008
%
*3.5
1
1
1
1
1
3.2
2
2
2
2
2
2.5
3
3
3
3
3
2.0
PepsiCo Inc
4
4
4
4
4
1.8
Mars Inc
6
6
6
7
5
1.5
Danone,
Groupe
5
5
5
5
6
1.3
Cadbury Plc
-
-
-
-
7
1.0
Kellogg Co
8
8
8
8
8
0.8
9
9
9
9
9
0.6
23
22
10
10
10
0.6
Kraft Foods
Inc
Unilever
Group
General Mills
Inc
Lactalis,
Groupe
Note: a Provisional market value share; acquisition is expected to be completed
by mid-2010
Kraft takes top position in global packaged food
• There was no movement in the top four positions of
the global packaged food rankings over the 20042008 period. Nestlé maintained its position atop of the
fragmented market; however, Kraft’s takeover of
Cadbury will relegate Nestlé to second position.
• After a long-standing status quo at the top of the
global packaged food market, Kraft’s acquisition of
Cadbury will have an impact on the overall packaged
food competitive landscape. As well as taking the
leading position in the market, the gap between the
top two players and the rest of the market will widen,
which is likely to prompt the mid-weight companies
into action, such as collaboration on a global/regional
level or further large-scale acquisitions, depending
on financial capabilities.
Further potential market movements
• Currently mid-weight, financially capable players are
likely to have to make large-scale, strategic
acquisitions in order to avoid marginalisation in the
consolidating market.
• Although Unilever, Mars and Danone have made
large financial commitments in recent years, with the
purchase of Sara Lee’s personal care unit, Wrigley
and Royal Numico, respectively, further high-value
acquisitions will likely remain on the agenda. For
example, Danone has been linked to American dairy
giant, Dean Foods.
11
Intense Acquisition Policy Accelerates Global Growth
• Over the 2001-2008 period, Nestlé has maintained the leading position in global packaged food and increased its
market share by 30 basis points, to 3.2%. Company growth was driven by both organic development and large-scale
acquisitions, such as Gerber, Novartis’s baby food arm. While Kraft and Unilever have remained second and third
largest packaged food players, they saw their global market value shares decrease by 30 and 60 basis points,
respectively, over the same period. Although the Cadbury acquisition will give Kraft the top position in global
packaged food, it will need to accelerate growth further in order to maintain that status in the long term.
• Outstanding growth driven by acquisitions
• Amongst the top packaged food players, Lactalis, Mars and Cadbury posted the best growth rates over the 20012008 period, which was predominantly the result of aggressive acquisition policies.
• Cadbury has focused on expanding in high-margin categories, such as premium chocolate (acquisition of Green &
Black’s, 2005) and medicated confectionery (Halls, 2002). Meanwhile, Lactalis concentrated on geographic market
expansion and turned its attention towards Eastern Europe, where its core category, dairy products, is expected
grow at the second fastest rate in the world, at a CAGR of 3%, over the 2009-2014 period.
12
Still Highly Fragmented Global Packaged Food Market
Even global-scale acquisitions drive slow
consolidation in the vast packaged food market
• Despite the recent large-scale mergers and
acquisitions in many packaged food categories (e.g.
Danone–Royal Numico, Nestlé–Gerber in baby food,
Mars-Wrigley and Kraft-Cadbury in confectionery), the
overall market remains highly fragmented, with the top
10 companies’ total value share only fractionally
growing over the 2001-2008 period, by one percentage
point, to 15.8%, taking the Kraft/Cadbury merger into
account and back-trending it to 2008 as one entity.
• Given the large size of the global packaged food
market, worth an estimated US$1.9 trillion in 2009, a
gain of just one percentage point in value share would
require a staggering US$18.5 billion increase in global
sales.
Private label expected to remain strong in current
climate
• Private label, in developed markets especially, poses
significant levels of competition to most branded
products manufacturers, and this is set to intensify due
to the negative impact of the current recessionary
economic environment on consumers’ price-sensitivity.
As a result, steeper growth in private label’s value
share can be expected in the short to medium term.
13
Market Assessment
Brand Strategy
Operations
Recommendations
14
Market Assessment
Increased Exposure to Emerging Markets
• Kraft Foods‘s core market is North America, but the region is predicted to post low growth over the 2009-2014
period, making emerging market expansion imperative. A similarly downbeat outlook in Western Europe underlines
the importance of the company expanding its presence in more dynamically growing emerging regions. The
acquisition of Cadbury gives a strong boost to Kraft especially in Latin America and Middle East and Africa.
• The developing world is set to drive packaged food growth in the short term. Latin America is expected to lead the
fastest growth rankings and Kraft Foods combined with Cadbury is well placed, ranking third, to tap into this
potential. The company is similarly positioned to exploit above average growth in Eastern Europe.
• The outlook for Asia Pacific is bright and given the size of the market further expansion is worth pursuing. The joint
Kraft/Cadbury entity held a value share of just over 1% in 2008, to still rank outside the top five packaged food
companies in the region.
• Prospects also exist in Middle East and Africa, which is also expected to set the pace in terms of growth, although
the market is currently small. Kraft‘s presence was relatively minor before the Cadbury acquisition, but with the
integration of Cadbury it becomes the third largest packaged food player in the region.
15
Market Assessment
Building Strong Positions in Core Categories
• Kraft Foods has a diverse packaged food portfolio, covering a wide range of product categories. Its core interests are
bakery products, dairy products and – after the integration of Cadbury - confectionery, which together contributed a
combined 75% of packaged food revenue in 2008, worth US$46.2 billion in retail value terms.
• Kraft’s most recent acquisitions into bakery products (Danone biscuits division) and confectionery (Cadbury), shows
the company’s focus areas and where it concentrates resources and benefits most from economies of scale and
operational synergies. As a result of these global-scale acquisitions Kraft became the leading global player in both
categories, with retail value shares of 3% and 15%, respectively, in 2008.
• The company has the brand equity to further tap into the potential of dairy products. Opportunity lies in further
expansion of its cross-category brand expansion, coupled with wellbeing and functional-led product development.
This strategy could also be used to exploit growth in dried processed food, sweet and savoury snack and snack bars.
Opportunity Zone
16
Market Assessment
Brand Strategy
Operations
Recommendations
17
Confectionery Opportunities
Competitive Confectionery Landscape
Confectionery – Top 10 Global Companies
2004
2005
2006
2007
2008
2008%
share
Kraft/Cadbury
-
-
-
-
-
*15.0
Mars Inc
2
2
2
2
1
14.8
Cadbury Plc
-
-
-
-
2
10.4
Nestlé SA
3
3
3
3
3
7.7
Hershey Co, The
4
5
5
5
4
4.9
Kraft Foods Inc
5
7
7
6
5
4.6
Ferrero Group
7
6
6
7
6
4.4
Perfetti Van Melle Group
8
8
8
8
7
2.9
Chocoladefabriken Lindt & Sprüngli AG
9
9
9
9
8
2.0
Lotte Group
10
10
10
10
9
1.6
Storck KG, August
11
11
11
11
10
1.4
Company
Note: *Provisional market value share; acquisition is expected to be completed by mid-2010
18
Confectionery Opportunitie
Intensifying Competition in Confectionery
Kraft/Cadbury rise to the top
• After the significant Mars/Wrigley merger in 2008, the global confectionery market has seen further consolidation with
Kraft’s takeover of Cadbury. Based on 2008 market share data, the integrated Kraft/Cadbury confectionery entity
would take top position in the global confectionery market.
Mars’s short-lived top confectionery position
• Before the acquisition of Wrigley, Mars saw its share of global confectionery decline over the years as a result of a
heavy reliance on the sluggish US market, a mass-market orientated portfolio in a climate of premiumisation and the
lack of a significant presence in the growing gum category.
• As a result of the acquisition, Mars regained the leading position in global confectionery, immediately bolstered its
geographic scope and gained a very strong position in gum. However, as the result of further industry consolidation it
is likely to slip back to second position in the global market.
Nestlé’s becomes a more distant third player
• Nestlé became a more distant third player in global confectionery, which could prompt the company into a defensive
move of increasing the size and scale of its confectionery operations on a global level.
• In recent years, Nestlé has continued to focus on the premium confectionery segments. It has launched several dark
and super-premium chocolate ranges, designed by Pierre Marcolini, which are sold exclusively in Nespresso
boutiques to further emphasise the premium essence of the products.
19
Acquisition-Driven Growth Boosts Confectioners’ Performance
25
25,000
20,000
US$ mn rsp
% CAGR 2001-2008
20
15,000
15
10,000
10
5,000
5
0
0
% CAGR 2001-2008
Retail Value Sales 2008
(US$ mn rsp)
Top 10 Global Confectionery Players' Performance - 2001-2008
Note: * Shows combined 2008 Kraft/Cadbruy confectionery revenues and % CAGR.
Note: * **%* CAGR
2001-2008
of Cadbury
Plc is calculated
as the confectionery
performance
of Cadbury of
Schweppes
2001-2007for
and2001-2007
Cadbury Plc for
% CAGR
2001-2008
of Cadbury
Plc is calculated
as the confectionery
performance
Cadbury for
Schweppes
2008
and Cadbury Plc for 2008
• Companies posting a CAGR approaching or
• Growth of companies with less intense
exceeding 10% are all the results of intense
acquisition policies, with the exception of Lindt
& Sprüngli.
• Cadbury has integrated various operations it
has acquired since 2002, such as Novartis’s
medicated confectionery division, Green &
Black’s and Intergum. Meanwhile, Mars has
integrated the global operations of Wrigley.
• The other driving force in confectionery was the
premiumisation trend. Both Lindt & Sprüngli’s
and Ferrero’s premium-minded portfolios have
been benefiting from the trend in recent years.
acquisition activities and slow expansion in
emerging geographic markets fell behind over
the 2001-2008 period.
• Kraft Foods has refocused its attention on
confectionery with its takeover of Cadbury.
The acquisition elevates Kraft’s growth to the
highest rate amongst the top 10 confectioners.
• Hershey and Ferrero also expressed interest
in Cadbury, with the same objective of instant
international expansion and growth
acceleration; however, they ultimately did not
contest Kraft’s offer for Cadbury.
20
Cadbury Widens Kraft’s Geographic Reach
• The acquisition of Cadbury gave Kraft’s confectionery operations a better balanced geographic mix between
developed and developing markets, although the combined share of North American and Western European retail
value sales remained at 55%. However, its exposure has increased in North America and decreased in Western
Europe. Competition in both developed regions is fierce from well-established, domestic confectionery
conglomerates, such as Mars/Wrigley and Hershey in North America, and Nestlé and Ferrero in Western Europe.
• Kraft’s Asia Pacific confectionery revenues in 2008 were just over US$100 million, but with the integration of Cadbury
it is expected to exceed US$1.4 billion. However, over 50% of this retail value is generated in just two national
markets: Japan and India. China, the region’s most attractive confectionery market, accounts for around 8% of the
joint entity’s confectionery revenues. Although China is forecast to grow at a more modest rate than India, at a CAGR
of 4% over the 2009-2014 period, in absolute value terms it will account for over 50% of Asia Pacific confectionery
market growth over the same period. The next step in Kraft’s strategy should be to focus on strengthening its
position in the Chinese market, potentially with further acquisitions/partnerships to gain a larger slice of this dynamic
market.
Kraft's Confectionery Market Presence by
% CAGR 2009-2014
Region and Growth Opportunities 2009-2014
3.5
3
2.5
2
1.5
1
0.5
0
-0.5
Middle East
and Africa
Eastern
Europe
Opportunity Zone
Asia Pacific
Western Europe
Latin America
Australasia
0
North America
20,000
Market size 2008 (US$ mn rsp)
40,000
60,000
Solid bubbles show Kraft's regional confectionery market share before the acquisition of Cadbury , same colour empty bubble
indicates joint regional confectionery market share , range displayed: 0.4-32.4%
21
Balanced Confectionery Portfolio
• Kraft Foods‘s indigenous confectionery portfolio was composed almost entirely of chocolate confectionery, which
accounted for about 98% of its confectionery revenues. Tablets were its main revenue source (over 50% of sales in
2008), with countlines and boxed assortments its secondary streams. Its portfolio was led by Milka, Toblerone,
Terry’s and Côte d’Or, giving it an upscale, mass-market position.
• The acquisition of Cadbury has balanced out the portfolio to 57%, 16% and 27% across chocolate, sugar
confectionery and gum, respectively. Chocolate confectionery generates the highest proportion of confectionery
revenues, very much in line with the global market, where chocolate accounts for some 55% of overall confectionery
retail value sales.
• Kraft’s most relevant category enhancements were in gum and sugar confectionery. The newly acquired Cadbury
gum operations account for nearly 29% global market value share, and the portfolio contains the world’s largest gum
label, Trident. The category is also expected to post the most dynamic growth rates within confectionery as it is
benefiting from oral health trends. Although overall global sugar confectionery is expected to grow moderately,
Cadbury’s good position in the functionally enhanced, higher margin medicated confectionery segments gives Kraft
a strong competitive edge in the category.
Kraft's Confectionery Market Presence by Category and Growth Opportunities
2009-2014
% CAGR 2009-2014
2.5
2.0
Gum
Chocolate
confectionery
Opportunity Zone
1.5
1.0
0.5
Sugar confectionery
0.0
0
20,000
40,000
60,000
Market size 2008 (US$ mn rsp)
80,000
100,000
Solid bubbles show Kraft's confectionery market share by category before the acquisition of Cadbury , red outline indicates joint
regional confectionery market share , range displayed: 0.1-28.7%
22
Market Assessment
Brand Strategy
Operations
Recommendations
23
Emerging Markets Offer Best Opportunities in Biscuits
• Following the acquisition of Danone’s biscuits business, bakery products – with biscuits accounting for about 95% of
retail value sales in the category - became Kraft Foods‘s largest packaged food category (until the integration of
Cadbury is fully completed by mid-2010, which will then make confectionery Kraft’s largest food operation),
accounting for around 27% of revenue in 2008.
• Kraft Foods‘s domestic North American market offers rather limited potential in biscuits, with sales set to be affected
by a continued rise in consumer health awareness, and a resultant trend towards healthier snacks, and market
maturity, with fierce competition a major factor. The category is expected to perform little better in Western Europe,
although the overall size of the market still makes it attractive.
• Emerging markets are set to drive biscuits growth, with Asia Pacific and Latin America topping the fastest-growth
rankings. The size of the Asia Pacific market suggests the prospect of greater return on investment in comparison
with others, although the company has the standing across the board to exploit growth.
24
Plain & Savoury Biscuits Potential for Kraft Foods
• The sale of the Post cereals business in 2008 has placed even greater emphasis on biscuits at Kraft Foods. Sweet
biscuits represents almost two thirds of Kraft Foods‘s biscuit sales, with plain biscuits and sandwich biscuits the main
focus, both generating around 30% of sales. Taken together, cookies and chocolate coated biscuits further contribute
more than 25%.
• Plain biscuits holds the most potential for Kraft Foods, with a strong market presence in the category in all regions,
led by its Nabisco and LU labels. Cookies is also in the opportunity zone; although a smaller market, the company is
still well placed with its Chip Ahoy! brand and has the resources to exploit the potential. Filled biscuits also offers
opportunities, although less so than plain biscuits and cookies, with return on investment likely to be lower.
• Kraft leads the global savoury biscuits and crackers category, with a 24% value share in 2008, well positioned to
benefit from the positive growth forecast for the category. Five out of the top 10 global savoury biscuits and crackers
brands are owned by Kraft, with Ritz and Nabisco occupying the top two positions.
25
Kraft Foods Consolidates its Top Spot in Biscuits
Kraft Foods leads global biscuits
• Kraft Foods is a long-term fixture atop global biscuits, with its acquisition of Danone’s biscuits business in 2007 and of
a smaller number of assets from United Biscuits in 2006, consolidating an already strong global position.
• While benefiting from Danone’s exit in terms of ranking, Kellogg has lost share steadily in biscuits, as a result of a
stronger focus on snack bars and cereals and an overexposure to developed markets.
• Campbell Soup has benefited from an ability to tap into key premium and wellbeing trends as well as United Biscuits’s
decision to divest a number of brands in 2006.
• The acquisition of Kamps and Harry helped increase Barilla’s market share over the 2003-2006 period, although an
over-reliance on Western Europe has caused its market value share to stagnate at almost 2% since 2003.
Emerging market players enjoy rapid rise
• Argentina-based Arcor has made the most dramatic ascent within the global rankings, rising from outside the top 30 to
eighth position in 2007. Forward momentum has been fuelled by a mixture of organic and acquisition-led expansion,
largely within Latin America, including deals with Wal-Mart and Danone.
• M Dias Branco is another emerging world player which rose quickly up the rankings, with the company in its current
form spinning off from its parent in 2005. The Brazil-based manufacturer has benefited from rising consumer spending
power in the region.
Biscuits - Top 10 Global Companies, 2004-2008
Company
Kraft Foods Inc
Kellogg Co
Campbell Soup Co
United Biscuits (Holdings) Plc
Nestlé SA
Barilla Holding SpA
M Dias Branco SA Comércio e Indústria
Arcor SAIC
PepsiCo Inc
Ezaki Glico Co Ltd
2004
1
3
5
4
6
7
2005
1
3
5
4
6
7
36
10
11
10
11
13
2006
1
3
4
5
6
7
13
10
9
12
2007
1
2
3
4
5
6
13
7
8
10
2008
1
2
3
4
5
6
7
8
9
10
2008 % share
18.7
4.5
3.1
2.9
2.3
1.8
1.6
1.5
1.3
1.2
26
Strong Presence in the US but Outlook Poor
Long-standing leadership position in US biscuits
• The US is Kraft Foods‘s largest biscuits market, accounting for 39% of its category sales in 2008, worth about
US$4.4 billion. Sweet biscuits is the larger revenue source, at around 61% of total biscuits retail value sales in the
US.
• Kraft Foods leads biscuits in the US, a position it has held for some time, with a 41% value share in 2008. It is some
way ahead of major rival Kellogg (23%).
• The US biscuits market showed little growth of late, with sales hit by a strong trend for healthier snacking, market
maturity and waning consumer spending power.
Growth initiatives in the category
• Sweet biscuits has been affected particularly badly as a result of the widespread perception of these products as
unhealthy. Savoury biscuits and crackers showed a little more life, thanks largely to a stronger compatibility with
wellbeing-led product innovation.
• Kraft Foods has looked to tap into this trend, with the launch of Golden Harvest Toasted Chips, containing half a
portion of daily fruit. Nevertheless, its share fell in 2008 highlighting a relative dearth of activity in this area and the
cannibalistic impact of offering such a wide range of brands: Oreo, Nabisco and Chips Ahoy! head up a considerable
portfolio.
The outlook for the US biscuits market is poor, with sweet biscuits set to be almost static and savoury biscuits and
crackers faring not much better. A continuing trend for healthier eating and poor economic conditions are key factors
in the downbeat forecast. Kraft Foods would do well to rationalise its brand portfolio. In conjunction with this move, a
greater focus on wellbeing-led innovation would be valuable, concentrating resources on flagship brands. The
company would also be well served by expanding its upmarket offering, although it will have to tread carefully in
terms of its pricing policy as consumer spending power is likely to remain depressed.
27
Kraft’s US Biscuit Presence by Category
28
Kraft's Asia Pacific Biscuits Retail Value
Sales by Core Markets and Growth
Prospects - 2009-2014
800
8.0
600
6.0
400
4.0
200
2.0
0
0.0
US$ mn rsp
% CAGR 2009-2014
Strong leading position in Asia Pacific biscuits
• The acquisition of Danone’s biscuits business has
markedly strengthened Kraft Foods‘s position in
biscuits in Asia Pacific, which became its largest
emerging market (about 10% of biscuits sales in
2008).
• The buyout has reinforced Kraft Foods‘s number one
position, ahead of troubled Lotte and Ezaki Glico,
which have both been steadily losing share. Notably, it
has diluted its exposure to the downbeat Japanese
market, where the company has been struggling.
Further expansion in SEA markets
• China is Kraft Foods‘s largest market (47% of sales in
2008). Its acquisition activity has reinvigorated its
waning presence atop of the marketplace.
• Kraft Foods also moved to the top of the Indonesian
and Malaysian biscuits markets, overtaking a group of
local and regional producers in both countries.
• The purchase also changed Kraft Foods‘s dynamics in
its core sweet biscuits, with plain biscuits overtaking
sandwich biscuits to become the chief revenue stream.
Driving trends
• Emerging markets are driving growth in Asia Pacific
biscuits, with increased spending power, greater
urbanisation and a growing trend for Western products
all contributing to rising demand. Sweet and savoury
biscuits have both been performing well.
Kraft's retail value sales 2008
(US$ mn rsp)
A Stronger Force in Vibrant Asia Pacific Biscuits
% CARGR 2009-2014
The outlook for biscuits in Asia Pacific is bright, with the
growth of a snacking culture, underpinned by rising
consumer spending power, set to drive forward
momentum. Emerging markets are set to fuel growth and
Kraft Foods is well positioned to tap into this potential with
strong positions in China and Indonesia. Outside of these
core markets, the company would do well to target India
and Vietnam, which are also expected to perform robustly
in the short term. In terms of product offer, some
rationalisation is required to help the company avoid
cannibalisation, while flavour-led development, with a
particular nod to chocolate and milk flavours, is set to be
a key innovation trend and one the company should look
to exploit.
29
Market Assessment
Brand Strategy
Operations
Recommendations
30
Emerging Regions Offer Dynamic Growth, Off Smaller Base
• Kraft Foods‘s presence in dairy products is focused very strongly in cheese (nearly 90% of revenue, worth US$9.2
billion in 2008). The company is the global leader in cheese and its sizeable portfolio is led by the Kraft and
Philadelphia labels. It has a strong bias towards the developed world, with North America alone representing nearly
three quarters of its revenue, and Western Europe and Australasia bringing this figure up to 90% of revenue.
• Emerging markets offer dynamic growth in cheese, although off smaller bases, with Latin America set to lead the way
by some distance. The combination of this outlook and the relatively good size of the market makes this an
opportunity worth pursuing. The same can be said of Eastern Europe, while the smaller size of Asia Pacific and
Middle East and Africa make them less of a priority.
• The forecasts for North America and Western Europe are very modest, with market maturity, fierce competition and
declining consumer confidence key factors. However, the size of the markets, in particular the latter, make
development worth pursuing nevertheless.
31
Kraft Remains in Top Position but its Market Share Shrinks
2004
2005
2006
2007
2008
Cheese – Top 10 Global Companies, 2004-2008
2008 %
share
1
1
1
1
1
8.5
2
2
2
2
2
5.9
Bongrain SA
3
3
3
3
3
3.0
Bel, Groupe
4
4
4
4
4
2.5
Arla Foods
Amba
5
5
5
5
5
2.0
Saputo Inc
7
7
6
6
6
1.1
Hochland AG
8
8
7
7
7
1.1
Valio Oy
9
9
9
8
8
0.9
13
10
8
9
9
0.8
-
-
-
-
10
0.8
Company
Kraft Foods
Inc
Lactalis,
Groupe
Parmalat
Group
Royal
FrieslandCampina NV
Kraft’s cheese strategy misses key driving trends
• The top five players of the highly-fragmented global
cheese market were unchanged over the 2004-2008
period, with Kraft Foods leading the field throughout.
• The US company, however, lost share steadily
throughout the period as its largely mass-market
processed offer was ill-suited to a strong trend for
premium, unprocessed products.
Acquisition and product development drives growth
of French players
• Second-placed French manufacturer Lactalis closed the
gap on Kraft Foods significantly. It benefited from a
considerable amount of acquisition activity, although
overexposure to the very competitive Western European
market slightly reversed its progress in 2008.
• Bongrain, another French company, benefited from the
trend towards premium cheeses, developing its ranges,
including Coeur de Lion.
• Fourth-placed Bel Groupe, yet another French player,
performed more modestly, although the acquisition of
the Boursin label from Unilever in 2007 helped it gain
share.
• Arla enjoyed steady growth, with it benefiting from a
trend towards gourmet cheeses in Western Europe.
Meanwhile, Saputo benefited from the trend towards
premium cheese in North America, nearly doubling its
global dairy products sales between 2001 and 2008.
32
Kraft's US Chese Retail Value Sales by
Category and Growth Prospects 2009-2014
2.5
3,100
3,050
2
3,000
2,950
1.5
2,900
1
2,850
2,800
% CAGR 2009-2014
Core activities in processed cheese
• Kraft Foods‘s cheese presence is based primarily
in processed cheese, which accounts for nearly
two thirds of its cheese revenue.
• Processed cheese is split nearly evenly between
spreadable and unspreadable processed cheese.
• Kraft Foods is the global number one in
processed cheese and its portfolio is headed by
the Philadelphia, Kraft and Kraft Singles brands.
• The company is also ranked second in
unprocessed cheese in the world, including top
spot in hard cheese.
• By far Kraft Foods‘s largest cheese market is the
US, which grew sharply in recent years as
manufacturers have passed on increases in milk
prices to customers and as gourmet cheese
became more popular. As a result, unprocessed
cheese has been much the stronger segment.
• Processed cheese-focused Kraft Foods
dominates the market but has lost share in recent
years, partly due to its inability to tap
meaningfully into the demand for premium
cheese, and despite efforts to tap into wellbeing
trends. However, its huge marketing spend has
protected it to some extent from market forces
and the further encroachment of its most
immediate rivals.
Kraft's retail value sales 2008 (US$ mn rsp)
Kraft Foods the Wrong Side of Key Trend in US Cheese
0.5
2,750
2,700
0
Processed cheese
US$ mn rsp
Unprocessed cheese
% CAGR 2009-2014
Kraft Foods would do well to consider further shifting its cheese
portfolio to unprocessed cheese if it is going to reinvigorate its
market presence in the short term. Unprocessed cheese is set
to drive market growth as consumers continue to favour
gourmet and premium-minded products. Some rationalisation
would also benefit the company, which has a heavyweight
portfolio. Within processed cheese, further focus on wellbeingled innovation would be wise.
33
Market Assessment
Brand Strategy
Operations
Recommendations
34
Brand Strategy
Strategy Focused on Cross-Sector and Value Innovations
• Kraft Foods has a huge portfolio covering a wide range of categories. However, it has laid out a growth strategy that
focuses on biscuits, chocolate confectionery and cream cheese. Moreover, via global acquisitions in both biscuits
and confectionery, Kraft Foods has increased its scale of operations in two of its main focus categories. The
company is concentrating on two core brand strategies within its largely mass-market product portfolio.
• Kraft Foods has increased its focus on cross-sector expansion as it has exploited the equity of its core labels. It is
extending key categories such as cheese and processed meats into larger, faster-growing ready meals and snacking
alternatives in line with growing consumer trends. For example, it is marketing products such as its Kraft Natural
Chunks to more efficiently target the fast-growing snacks category.
• Kraft Foods is stepping up its investment in innovation, an area which it has been accused of neglecting in the past.
A major goal is to improve its time to market speed. Breaking down this strategy, it has increased its focus on
wellbeing. Kraft announced that it has more premium kinds of offering in its pipeline, but chose to just hold these in
abeyance while the economy shows sings of recovery. In the short term, the focus is on innovations of snacking,
health and wellness products and continued focus on value.
35
Brand Strategy
Philadelphia Global Number One Processed Cheese Label
Philadelphia retains its top processed cheese
position
• Philadelphia is the number one global processed
cheese brand and the number two overall
cheese label, behind stable-mate Kraft. This
status gives it a top 10 ranking in dairy products
(8th in 2008) and a 30th position in overall
packaged food.
Sluggish recent performance
• Philadelphia’s performance of late has been
underwhelming, losing share at the top of
processed cheese, although not position in this
category or overall cheese. It has, however,
slipped down the global dairy products and
packaged food rankings.
• Three key factors lie behind the malaise. Firstly,
the brand, like processed cheese on the whole,
has been ill-suited to the trend for gourmet
cheese. Secondly, it has suffered from a degree
of cannibalisation, with four Kraft Foods brands
in the global processed cheese top five. Lastly,
the brand is overexposed to weakening
developed markets, in particular North America.
• However, the brand’s performance has not been
disastrous, benefiting from heavyweight
marketing, and to a lesser extent, prices rises,
driven by an increase in milk costs.
36
Brand Strategy
Milka, Kraft’s Largest Confectionery Label
Milka maintains its third place in global
chocolate confectionery
• Milka is Kraft Foods‘s leading confectionery
brand, ranked third in global chocolate
confectionery with a value share of nearly
3%.
• Milka’s ranking is underpinned by leading
positions in Western Europe and Eastern
Europe, with Germany by far its leading
market, contributing around 40% of revenue.
• Milka’s performance in recent years has been
steady, just outpacing the global chocolate
confectionery market over the 2001-2008
period.
Better performance in emerging markets
• Emerging market gains have been the key
growth driver, with the brand performing well
in Eastern Europe and Latin America. It has
also benefited from heavyweight marketing.
• However, historically, Milka has been notably
outpaced by more upmarket rivals, with its
mass-market standing restricting its growth
opportunities, in particular in key markets.
Tellingly, it under-performed the Western
European market between 2001 and 2008
despite upmarket innovations, such as the
launch of a caramel-flavoured line.
37
Brand Strategy
Cadbury's Dairy Milk, New Asset to Kraft’s Portfolio
Cadbury Dairy Milk Brand Retail Value
Sales Performance - 2004-2008
12
1,600
1,400
1,200
1,000
800
600
400
200
0
10
8
6
4
% y-o-y growth
confectionery brand is Cadbury's Dairy Milk. The
brand’s sales are strongly focused on tablets, which
accounted for 95% of the brand’s total confectionery
value sales in 2008.
Strong growth
• Cadbury's Dairy Milk’s confectionery value sales
increased by over 4% in 2008 year-on-year.
• Ongoing expansion in emerging markets also
played an important part in growing sales,
particularly in Asia Pacific and the Middle East and
Africa.
• In the UK, Cadbury launched Dairy Milk as a
fairtrade certified product, and the deal with the
Fairtrade Foundation in mid-2009 represented the
first mass-market chocolate brand in the world to
use fairtrade cocoa. The move offers good growth
potentials in line with ever strengthening ethical
trading trends.
Further opportunities
• Impulse ice cream offers further room for development,
especially as the brand expands in emerging markets. The
category has a projected global CAGR of over 2% over the
2009-2014 period, with over 3% in Asia Pacific and near 4%
in Latin America.
• Flavoured milk drinks also presents a potential way forward
for the brand, as through its name and “glass and a half full”
strapline, Cadbury's Dairy Milk already has strong
associations with dairy products.
• Concentrating on focus brands and leveraging across
categories suggests a shift to a core brand would make
sense for future development.
Retail value sales 2008
(US$ mn rsp)
• Recently acquired Cadbury’s largest chocolate
2
0
US$ mn rsp
% y-o-y growth
38
Brand Strategy
Oreo the World’s Number One Biscuit Brand
Challenging market conditions in core North American markets
• Oreo is the world’s number one biscuits brand, a status based on its leadership in sweet biscuits and a position that
gives it a top five place in bakery products, overtaking Keebler from Kellogg in 2007 to take fifth place.
• Despite an underwhelming performance of late, directly related to the weakness of its core North American market,
mass-market Oreo has weathered the healthier eating and premium trends reasonably well to date, benefiting from
wellbeing-led innovation and heavyweight marketing.
• Oreo has also been helped by the degree to which it dominates sweet biscuits in North America, and in particular its
main sandwich filled segment. That said, sales growth in this market slowed in 2008, underlining increasingly
challenging conditions.
New product innovation
• Most recently, Kraft Foods has focused on expanding Oreo’s segment coverage, launching a soft snack version of
the brand, Oreo Cakester, in the US in 2008. While conditions in its core market are set to remain difficult, the brand
could benefit from recession as consumers downgrade their treats to products such as biscuits.
39
Market Assessment
Brand Strategy
Operations
Recommendations
40
Operations
Focus on Enhanced Production Capacity
Territory
Number of
facilities
USA
46
Canada
8
European Union
42
Central and Eastern Europe, Middle
East and Africa
30
Enhancing production capacity
• In 2008, Kraft completed its 5-year restructuring
programme, which included the objectives of leveraging
global scale, lowering costs and optimising production
capacity. Within the programme, the company
announced the closure of 35 facilities and the
eliminations of approximately 18,600 positions.
• This restructuring programme does not include changes
with the latest large-scale acquisition of Cadbury and
disposal of the North American frozen pizza business.
• Country specific investments in enhanced production
Latin America
15
Asia Pacific
18
Total:
159
capacity:
Investments in French biscuit and cereal unit
• Kraft has been investing EUR3.2 million to improve its
plant capacity in Picardy, Northern France, looking to
increase the production of the company's French biscuit
and cereal unit Lu France.
Bulgaria the Southeast European production centre
Worldwide production and distribution infrastructure • In 2009, Kraft invested about US$27 million in the Svoge
• In 2009, Kraft Foods had 159 factories in 46 countries
chocolate factory, north of Sofia, making Bulgaria a
around the world. Recently, the company announced the
regional production centre. As a result of the enhanced
closure of two facilities in Central and Eastern Europe,
production capacity, Kraft Foods Bulgaria expects to
Middle East and Africa, one facility in Latin America and
increase exports to Greece, Romania, Macedonia,
two plants in Asia Pacific. The company also owns 313
Serbia, Turkey, Ukraine and Hungary. With new
distribution centres and depots worldwide.
production lines, the factory will reach a capacity of
100,000 chocolate units a day.
.
41
Market Assessment
Brand Strategy
Operations
Recommendations
42
Recommendations
Wider Geographic Reach, More Streamlined Categories
Emerging market expansion
Strengthening focus on core categories
• Despite the recent acquisition of Cadbury, Kraft Foods is
While Kraft Foods has started to focus on its core
categories and brands, its portfolio remains overweight
and in need of further trimming. Cannibalisation has
hindered the company’s performance in recent years and
now Kraft Foods needs to further rationalise its portfolio,
with mass-market, low-margin brands the obvious starting
point for the process. The divestment of the Post cereals
and North American frozen pizza businesses and its
recent large-scale acquisitions in the core biscuits and
confectionery categories suggest the company is indeed
moving in this direction.
still strongly exposed to developed markets, in particular
North America. With the outlook for this region and
Western Europe downbeat, it is imperative that the
company invests in expanding its international
infrastructure, especially for the sake of its cheese and
biscuits operations. These are more acutely reliant on
developed markets than confectionery, which enjoys a
much better profile in the developing world. Kraft Foods
can approach such a move with optimism, possessing
the brand equity and operational synergies to succeed.
Better balance of mass and premium
• Kraft Foods‘s largely mass-market focus has restricted
its growth of late. While it has invested in major
acquisitions and premium-led innovation, further
spending is required in the short term. The global
recession resulted in a resurgence in popularity of mass
brands, but this is likely to be limited to key brands, in
particular those with an upper-mass leaning. In addition,
private label products are set to be major competitors to
mass brands. Over the long term the company needs to
achieve a stronger product mix, giving over more of its
portfolio to higher margin products.
Wellbeing-led innovations of its snack-food
operations
Kraft Foods lags behind major players in the wellness
arena, notably trailing rivals such as Danone and Nestlé.
While its most recent acquisition of Cadbury gives Kraft
opportunities to benefit from oral health trends, via its
newly acquired gum portfolio, it still needs to invest
considerably and bring wellbeing to the fore in terms of
the innovation strategy for its snack food operations. The
fact that the company chose to focus on categories that
do not easily lend themselves to healthier eating will not
make such development easy, but the realignment of its
portfolio with wellness trends over the long term is vital.
43
Contact Euromonitor
To find out more about Euromonitor International's complete range of business intelligence on industries, countries
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44

Kraft Foods Inc in Packaged Food

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