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Could Kraft Split Be a Blueprint for Blue Chips?

Its Soon-to-Be-Separate Companies Offer up Case Study on Why Some Brands Go Global and Others Don't

By Published on . 3

Since taking the helm at Kraft Foods five years ago, CEO Irene Rosenfeld has overseen an aggressive marketing makeover, making ad agency changes at a breakneck pace, hiking spending across several of Kraft's iconic brands and driving a gutsy move last year to acquire candy giant Cadbury.

Irene Rosenfeld
Irene Rosenfeld

But Kraft's plan to split the company, announced last week, appears to be an acknowledgment that the transformation will never click on all cylinders unless a radical new operational structure is in place. The plan, which would create a $32 billion international snacks business, including Cadbury, Oreo and Trident brands, and a $16 billion North American grocery business, which will include Kraft Macaroni and Cheese, Oscar Mayer, Philadelphia, Maxwell House, Jell-O and other non-snack brands, seems to be a financial move, designed in part to please activist investors who have called for the company to separate its high-growth global snack brands from its slower-growing, more mature grocery brands. But it also holds lessons for multinational marketers, looking to drive value in fast-growing emerging countries.

Firstly, the split says something about how difficult it is for a modern-day, giant-sized marketer to act nimbly and respond to changing market conditions.

"Kraft sort of realized that their [grocery-] food-product businesses have just become such a combination of big and commoditized [brands] that they can't deliver what they've promised Wall Street , and when you can't deliver what you promised, well, change the game," said marketing consultant David Diamond.

Kraft, in particular, has had trouble merging the Cadbury culture into its established businesses, according to people familiar with the company. Kraft made its name marketing to moms with brands such as Oscar Mayer and Jell-O. But selling the gum and candy in Cadbury's portfolio requires acting quickly to respond to the changing tastes of teenagers. Cadbury was "put into this almost old-school, slow-growth machine that is a real disconnect from the way these categories behave," said one former Kraft employee.

Kraft says it is meeting its Cadbury targets, with the acquisition fueling its global snacks business to 6% growth year-to-date. The split seems aimed at fueling more growth for global snacks, where Kraft has found success bringing brands such as Oreo to developing markets. 

The planned split also spotlights which types of U.S.-born products and categories are poised for international growth and which ones are not. Compare Oscar Mayer -- destined for the grocery business -- to Tang, which is headed for the snacks company. Both are venerable brands, around for decades. But Oscar Mayer only has two major markets, the U.S. and Puerto Rico, compared with Tang, which is in 12 major markets.

Why? It might be as simple as the fact that consumers in developing markets don't have the refrigerator space to store lunch meats. In fast-growing India, Indonesia and China, "many consumers cannot afford in-home refrigeration units, or if they can they are very small and tend to be used primarily for seafood and fruits and vegetables first," said Burt Flickinger, principal of the consulting firm Strategic Resource Group. "Processed meat like Oscar Mayer or processed cheese like Philadelphia Cream Cheese would be low on the list."

But the non-perishable powdered drink mix Tang is flexible enough to be tailored to local market tastes. Using a decentralized approach, Kraft pushed flavors like mango in the Philippines, soursop in Brazil and horchata in Mexico -- moves that this year helped make it Kraft's 12th billion-dollar brand.

It remains to be seen whether Kraft can accelerate such a nimble approach with the global snacks unit as a standalone or if the split encourages other big companies to consider similar moves. Some marketers have found ways to act small while remaining massive, such as Coca-Cola, whose Venturing & Emerging Brands Business Unit scouts the globe for the cola giant's next $1 billion brand. Deryck van Rensburg, who heads the group, recently told Ad Age that the key is not to get "tied up in a lot of internal meetings and processes."

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