Recently, Kraft decided to split its company into two parts: the North American grocery brand—Kraft macaroni and cheese, Philadelphia cream cheese, and Maxwell House coffee—and the global candy and snacks brand—Oreo, Trident, and Tang. According to the Motley Fools (2011), the decision behind Kraft's split is to “unlock shareholder value.” The grocery brand has a bigger market share in North America with the trade off of slow growth. It is estimated that it will generate $16 billion in revenue (Wall Street Journal, 2011). Ms. Rosenfeld (2011), chief executive of Kraft, said, “The North American grocery business has a remarkable set of iconic brands, industry-leading margins and the clear ability to generate significant cash flow.” Thus, I think with such brand awareness and loyalty, that grocery brand will generate consistent cash flow for Kraft to support the global snack venture. Contrastingly, Kraft market strategy for the global snack brand is high growth in the risky emerging markets. According to New York Times (2011),“the new snacks company will combine units in Europe and the developing markets as well as the North American snacks and confectionery businesses. Annual revenue for the group...is expected to be $32 billion, with three-quarters coming from international operations and 42 percent from emerging markets.” Thus, shareholders hope to receive dividends would invest in the North American brand, while growth investors looking for higher profit, with higher risk, would invest in the global snacking brand.
It is interesting to note how will the Cadbury purchase will impact with the global snack brand, and how the global snack brand will penetrate emerging markets with its market strategy while the cost of production/raw goods is increasing. It is also worth pondering of the short term cost of separation and what this means to the shareholders.
http://www.fool.com/investing/dividends-income/2011/08/05/is-krafts-split-up-a-big-winner-for-shareholders.aspx
http://dealbook.nytimes.com/2011/08/04/kraft-to-split-two-separating-snacks-and-grocery-businesses/
http://online.wsj.com/article/SB10001424053111903454504576487720348267828.html
http://online.wsj.com/article/SB10001424052970204002304576629391669710546.html
http://blogs.wsj.com/health/2011/10/13/report-companies-with-better-for-you-foods-do-better-financially/
It is interesting to note how will the Cadbury purchase will impact with the global snack brand, and how the global snack brand will penetrate emerging markets with its market strategy while the cost of production/raw goods is increasing. It is also worth pondering of the short term cost of separation and what this means to the shareholders.
On other news, PepsiCo is preparing to enter the U.S. dairy market through a joint venture with German dairy company Theo Müller Group. Chief Executive Indra Nooyi (2011) wants to “expand in dairy as it aims to more than double [PepsiCo’s] revenue from nutritious drinks and snacks to $30 billion by 2020.” As of currently, most of PepsiCo’s sales remain skewed toward less healthy products (Wall Street Journal, 2011). So it is interesting to note how PepsicCo plays the dynamics of health and unhealthy products in this new market investment. Analyzing the last four years, the Hudson Institute (2011) found that food and beverage companies do better financially with “better-for-you (BFY)” products, such as yogurt, than peers with unhealthy snacks. From the report, “companies with a higher percentage of sales from the BFY products had a 50% growth in operating profit (compared to 20% at companies with a below-average percentage of sales of those items), outperformed the S&P 500 by an average of 60 points (vs. 40 points) and generated higher shareholder returns than the other companies. It finds that these foods...make up 40% of sales but generating more than 70% of the growth.” So profits generated from this new investment in BFY might provide PepsiCo’s solution in raising production costs.
http://www.fool.com/investing/dividends-income/2011/08/05/is-krafts-split-up-a-big-winner-for-shareholders.aspx
http://dealbook.nytimes.com/2011/08/04/kraft-to-split-two-separating-snacks-and-grocery-businesses/
http://online.wsj.com/article/SB10001424053111903454504576487720348267828.html
http://online.wsj.com/article/SB10001424052970204002304576629391669710546.html
http://blogs.wsj.com/health/2011/10/13/report-companies-with-better-for-you-foods-do-better-financially/
Even though most of us, in fact all of us, have touched on the fact that health and cost efficiency are both key factors in the industry right now, I have never spotted to think about how odd this seems. Innovations in health are costly in research financing, and companies who are seeing an increase in earning due to their marketing of higher quality health foods, such as whole foods, are smaller companies than the major snack companies and are selling their products for higher costs than the bulk snack companies. One would think that during a recession, inferior and cheaper goods sold by the larger companies would run out smaller companies selling superior goods. Is the small upper class just buying that much health food, or is this an insight into how significant the current health food trend is in the industry?
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