Snacks & Candy

Power 10'

Kraft revamps brand, market strategy in light of Cadbury acquisition
NORTHFIELD, Ill. -- Kraft Foods Co. is revising the brands and countries it will focus on in developing markets as a result of its acquisition earlier this year of Cadbury Plc., according to Reuters. Cadbury Dairy Milk chocolates, Halls lozenges and Trident gum, three Cadbury brands, make the list of 10 "power" brands getting the bulk of the marketing money in developing markets, Sanjay Khosla, Kraft's president, developing markets and global categories, told the news agency.

They join Oreo cookies, Milka chocolate, Lacta chocolate, Jacobs coffee, Tang drink mix, Club Social/[image-nocss] TUC crackers, Biskuat/Tiger biscuits, Khosla added.

Falling out of the list are Philadelphia cream cheese, Carte Noire coffee and Toblerone chocolate, said the report.

Kraft already had a strategy in place in which it focused on 10 "power" brands that could be grown globally, 10 key developing markets and five categories. But the $18.4 billion acquisition of Cadbury meant the members of that template had to change.

"The whole thing changes, of course, because we have a much richer portfolio with the Cadbury folks coming over," Khosla told Reuters.

That is where Philadelphia, the cream cheese brand, loses out. While still a big brand in markets like Australia, the brand is no longer in the top 10 and cheese is no longer a top five category, having been replaced by candy and gum.

Those top 5 categories, which also include chocolate, coffee, biscuits and powdered drinks, will receive 95% of the company's advertising and promotional spending, Khosla said.

The new top 10 brands account for more than 40% of the $12 billion in revenue Kraft gets from developing markets like China and Mexico. Developing markets make up about 26% of Kraft's total business.

As Kraft changes its brand focus, its focus markets are changing as well. One of the key benefits of buying Cadbury was its distribution infrastructure in the vast India market, and Khosla said India is now one of the 10 focus markets. Other focus markets under his purview are Brazil, Australia, Russia, Mexico, China, Ukraine, Poland, South Africa and Indonesia.

Markets that are out of the top 10 include the Czech Republic, the Philippines and the Middle East.

That is not to say that the Philippines and Philadelphia cream cheese will be neglected. "The whole concept of focus is, you've got to make choices," Khosla said.

Making the right choices is aimed at continuing strong growth in the company's developing markets. That business saw average revenue increases of nearly 13%, before acquisitions and divestitures, from 2006 to 2009, with average operating income up 24%, he said.

Brands like Tang and Oreos also have higher gross margins than the Kraft's portfolio as a whole, which has helped the developing markets business increase its margins, Khosla said.

Khosla declined to say how much he expected revenue and profit to increase going forward.

Kraft acquired Cadbury earlier this year after a six-month-long hostile takeover battle.
Cadbury was one of two major acquisitions Kraft had sought when management first put together a plan for its international strategy, Khosla said. The other was Danone's biscuit business, which it bought in 2007.

In choosing management teams to run the focus countries, Kraft chose a mix of former Cadbury executives, longtime Kraft executives and people that Khosla had recently recruited. He said Kraft named the top leaders for all its countries in the first 90 days after acquiring Cadbury.

"One lesson I learned from the Danone acquisition is go there fast," Khosla said. "All will not be right, but even if it's 80%, 90% right, get there," he said.

Kraft has also put more money behind some projects that were already underway or under consideration at Cadbury, he said.

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