the top 10 global leaders in food

C O N S UM E R

The Top 10 Global Leaders In FoodIncreasing market share, revenues and NPD success

By Mark O’Bornick

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Mark O’Bornick

Mark O’Bornick is a consultant, specialising in strategic research and consulting

projects across the food, drink and packaging industries. Mark spent over eight years at

Datamonitor in a variety of research, consulting and management roles before leaving in

2001. His experience at Datamonitor primarily focused on strategic analysis of the

European and global packaging, retail and FMCG industries. This included a strategic

focus on change and innovation, particularly within the context of Datamonitor’s

published range of reports and client-defined consultancy projects. Mark now works

successfully on a freelance basis for a number of manufacturers, retailers and specialist

research and consulting companies. He has a degree in economics from the London

School of Economics. He can be contacted by email at: [email protected]

Copyright © 2004 Business Insights Ltd This Management Report is published by Business Insights Ltd. All rights reserved. Reproduction or redistribution of this Management Report in any form for any purpose is expressly prohibited without the prior consent of Business Insights Ltd. The views expressed in this Management Report are those of the publisher, not of Business Insights. Business Insights Ltd accepts no liability for the accuracy or completeness of the information, advice or comment contained in this Management Report nor for any actions taken in reliance thereon. While information, advice or comment is believed to be correct at the time of publication, no responsibility can be accepted by Business Insights Ltd for its completeness or accuracy. Printed and bound in Great Britain by MBA Group Limited, MBA House, Garman Road, London N17 0HW. www.mba-group.com

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Table of Contents

The Top 10 Global Leaders in Food

Increasing market share, revenues and NPD success

Executive Summary 16

Introduction 16 Market Dynamics 16 Cadbury-Schweppes 16 Danone 17 General Mills 17 Heinz 18 Hershey 18 Kellogg 18 Kraft 19 Masterfoods 19 Nestlé 20 Unilever Bestfoods 20 Industry opinion survey 21 Conclusions 21

Chapter 1 Introduction 24

The aim of this report 24 Chapter structure 24 Selecting the ‘Global Food Leaders’ 25

Chapter 2 Market Dynamics and Emerging Market Analysis 30

Summary 30

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Introduction 30 Methodology behind the analysis of global food markets 31 Trends in global food markets 32 Consumer lifestyle drivers 32 Industry drivers blur category definitions 33 Company positioning: global food leaders 33 Disposing of non-core assets to provide greater focus 35 Growth through acquisition 36 A case by case approach 37 Market positioning: chilled food 38

Market share versus growth in global chilled food markets 40 Market positioning: confectionery 40

Market share versus growth in global confectionery markets 42 Market positioning: dairy products 42

Market share versus growth in global dairy markets 44 Market positioning: savoury snacks 44

Market share versus growth in global savoury snacks markets 46

Chapter 3 Cadbury Schweppes 48

Summary 48 About Cadbury Schweppes 49 History 49 Recent performance 50 Performance in 2003 50

Financial performance in 2003 52 Market positioning 55 Expanding the portfolio in 2003 55

The Americas 55 Asia-Pacific 55 Eastern Europe 57 The Middle East and Africa 57 Western Europe 58

Global confectionery brands 59 Product examples 59

Strategies for growth 60 Acquisitions and disposals play a key role 61 NPD and brand repositioning 62 SWOT analysis 63 A trusted brand that has diversified its portfolio 63 Action to remedy production and organisational inefficiency 63 Access to higher growth categories 65 Threat to indulgence from healthier alternatives 65

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Chapter 4 Danone 68

Summary 68 About Danone 69 History 69 Recent performance 70 Performance in 2003 71

Financial performance 2003 71 Market positioning 73 Dominant positions in every region 73

The Americas 74 Asia-Pacific 74 Eastern Europe 75 Middle East and Africa 76 Western Europe 77

Leading brands at Danone 79 Product examples 79

Strategies for growth 80 A focus on high growth segments that match consumer needs 80 Success in NPD 81 Online purchasing accounts for one-quarter of purchases 82 SWOT analysis 82 Leadership brings competitive advantages 82 Over reliance on regions, brands and categories 84 Expanding into emerging markets 84 Growth of private labels and legal action in Spain 85

Chapter 5 General Mills 87

Summary 87 About General Mills 88 History 88 Recent performance 89 A good performance in 2003 despite problems in bakery 89 Market positioning 91 A portfolio of international brands 91 Strategies for growth 94 Innovation and international expansion will drive sales 94 NPD targets consumer megatrends in 2003 94 SWOT analysis 96 Strong brands across several categories 96 Weaker markets and higher commodity costs 97 Joint ventures and international expansion 98

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Threats 98

Chapter 6 Heinz 101

Summary 101 About Heinz 102 History 102 Recent performance 103 Greater focus boosts performance in 2003 104

Financial performance 104 Foodservice 107

Market positioning 107 Global brand reach 107 Strategies for growth 109 A focused portfolio 109 NPD targets changing consumer requirements 110 SWOT analysis 111 Strong brands and a focused approach 111

Chapter 7 Hershey 115

Summary 115 About Hershey 116 History 116 Recent performance 117 Performance in 2003 117

Financial performance 117 Market positioning 119 Higher margins in confectionery 119

The Americas 120 Outside the Americas 120 Product examples 122

Strategies for growth 122 Hershey’s customers and competitors 123

Private label – no concern 123 NPD tracks consumer megatrends in 2003 123 SWOT analysis 124 Strengths 125 Weaknesses 126 Opportunities 127 Threats 127

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Chapter 8 Kellogg 131

Summary 131 About Kellogg 132 History 132 Recent performance 133 Performance in 2003 134

Financial performance 136 Market positioning 137 Meeting consumer needs in cereals, snacks and health foods 137

Natural appeal 138 Strategies for growth 139 Three fundamental targets 139 NPD focuses on helping modern, busy consumers 141 SWOT analysis 142 Strengths 142 Weaknesses 143 Opportunities 143 Threats 144

Chapter 9 Kraft 147

Summary 147 About Kraft 148 History 148 Recent performance 150 Performance in 2003 150

Financial performance 151 Acquisitions and sales 153

Market positioning 154 Coverage across five global product sectors 154

The Americas 154 Asia-Pacific 155 Eastern Europe 157 Middle East and Africa 157 Western Europe 158 Product examples 160 Foodservice 161

Strategies for growth 162 New structure for 2004 162 Brand strategies drive performance 163

Fast-growing sectors 163 Health 163 Distribution channels 163

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Advantages of global category leadership 164 Initiatives respond to health concerns 164 SWOT analysis 165 Scale and leadership brings advantages 166 Difficulty launching new brands 167 Opportunities 168 Threats 168

Chapter 10 Masterfoods 171

Summary 171 About Masterfoods 172 History 172 Recent performance 173 Performance in 2003 173 Market positioning 174 Household names in confectionery, pet food, snacks, rice and vending 174


Strategies for growth 180 NPD plays a vital role in growth 180 SWOT analysis 181 Brand names carry cross-category 181 High dependency on chocolate 182 Further potential for brand extensions 183 Mature markets and health-wise consumers 183

Chapter 11 Nestlé 186

Summary 186 About Nestlé 187 History 187 Recent performance 189 Performance in 2003 190

Financial performance 190 Market positioning 193 “Factories or operations in almost every country in the world” 193

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Strategies for growth 203 Driving growth and improving margins 203

The three major projects 204 SWOT analysis 204 A global perspective 205 Successful brand extensions 206 Health implications for indulgent products 206

Chapter 12 Unilever Bestfoods 209

Summary 209 About Unilever Bestfoods 210 History 210

Sales and acquisitions 211 Recent performance 212 Leading brand growth revised downwards in 2003 212

Financial performance 213 Total shareholder return positioning 215

Board changes announced in February 2004 215 Market positioning 216 From soups and dressings, to frozen food and ice cream 216

Product examples 217 Greater brand focus on brands with strong potential 218 Brands can be local and also spread across categories 219 NPD plays a key role 219

Oils, fats and spreads 219 Frozen foods 220 Knorr – the ‘number one brand’ 220 Hellmann’s 221 Foodservice 222

Strategies for growth 222 Leading brands account for over 90% of total business 222 Looking beyond the Path to Growth 224 SWOT analysis 224 Strength demonstrated by core brands 224 Underperforming businesses remain 225 Brand extensions and emerging markets 226 Low-carb diet threat to Slim Fast 226

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Chapter 13 Industry Opinion Survey 229

Summary 229 Introduction 230 Food leaders: 2003 performance 231 Product innovation drives growth in market share 231 Food leaders: competitive positioning 232 Convenience shapes strategy ahead of brand recognition and pleasure 232 Danone and Unilever react more quickly to customer trends 234 Unilever perceived as the leading innovator 235 Cadbury and Hershey could do better at spotting cross-category opportunities 235 Hershey is perceived to be relatively weak at moving into new markets 236 Nestlé leads the way in terms of marketing strength 237 Food leaders: geographical strategies 238 Asia-Pacific offers the greatest growth potential 239 Food leaders: the future 240 NPD and innovation is the best way to deliver growth 240 Danone is the company most likely to deliver growth 241

Chapter 14 Conclusions 245

Summary 245 Introduction 246 The global food industry 246 Convenience remains most important 246 Asia-Pacific and Eastern Europe are top targets for expansion 247 Strategies for success 248 Focus on core brands and strengths 248 Growth through acquisition 248 Expansion and cross-category 249 NPD will be the main driver of growth 250

Chapter 15 Appendix 253

Primary research methodology 253 Terms and abbreviations used in this report 253 Food segmentation table 256 Index 258

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List of Figures Figure 1.1: Selecting the global food leaders 26 Figure 1.2: Selecting the global food leaders 27 Figure 2.3: Global food leaders positioning 35 Figure 2.4: Market share versus growth in global chilled food markets 40 Figure 2.5: Market share versus growth in global confectionery markets 42 Figure 2.6: Market share versus growth in global dairy markets 44 Figure 2.7: Market share versus growth in global savoury snacks markets 46 Figure 3.8: Cadbury Schweppes financial performance 2000—2003; turnover and operating profit

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Figure 3.9: Cadbury Schweppes confectionery performance 2000—2003; Americas and Europe turnover and operating profit comparison 54

Figure 3.10: A selection of brands from Cadbury Schweppes 60 Figure 3.11: Cadbury Schweppes SWOT analysis 64 Figure 4.12: Danone financial performance 2000—2003; turnover and operating profit 72 Figure 4.13: A selection of brands from Danone 79 Figure 4.14: Danone SWOT analysis 83 Figure 5.15: General Mills financial performance 2001—2004; turnover and net earnings 90 Figure 5.16: A selection of brands from General Mills 93 Figure 5.17: General Mills SWOT analysis 97 Figure 6.18: Heinz financial performance 2001—2004; turnover and operating profit comparison

105 Figure 6.19: A selection of brands from Heinz 109 Figure 6.20: Heinz SWOT analysis 112 Figure 7.21: Hershey financial performance 2000—2003; turnover and net income 118 Figure 7.22: A selection of brands from Hershey 122 Figure 7.23: Hershey SWOT analysis 126 Figure 8.24: Kellogg’s financial performance 2000—2003; turnover and operating profit 136 Figure 8.25: A selection of products from Kellogg 139 Figure 8.26: Kellogg SWOT analysis 143 Figure 9.27: Kraft financial performance 2000—2003; turnover and operating income 151 Figure 9.28: A selection of brands from Kraft 161 Figure 9.29: Kraft SWOT analysis 167 Figure 10.30: A selection of brands from Masterfoods 179 Figure 10.31: Masterfoods SWOT analysis 182 Figure 11.32: Nestlé financial performance 2000—2003; turnover and operating income 191 Figure 11.33: A selection of brands from Nestlé 202 Figure 11.34: Self-service snacking facility from Nestlé FoodServices 203 Figure 11.35: Nestlé SWOT analysis 205 Figure 12.36: Unilever financial performance 2000—2003; turnover and operating profit 213 Figure 12.37: A selection of brands from Unilever 218 Figure 12.38: Unilever Bestfoods’ SWOT analysis 225 Figure 13.39: Global food leaders: performance in 2003 231 Figure 13.40: How important have the three food and drinks megatrends been in shaping the

marketing, product, NPD and branding strategies of the global food leaders? 233 Figure 13.41: Rating the global food leaders: reacting to customer trends 234 Figure 13.42: Rating the global food leaders: innovation 235 Figure 13.43: Rating the global food leaders: identifying cross-category expansion opportunities 236 Figure 13.44: Rating the global food leaders: country coverage/moving into new countries 237

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Figure 13.45: Rating the global food leaders: marketing and communications activity (website, advertising, promotions etc) 238

Figure 13.46: Which of the following geographic regions will offer the highest growth potential for your chose global food leaders over the next three years? 239

Figure 13.47: Which of the following companies are best placed to compete most effectively over the next three years? 240

Figure 13.48: Which strategies will help the global food leaders grow most aggressively over the next three years? 241

List of Tables Table 2.1: Country coverage of global food markets 31 Table 2.2: Ranking of global food leaders by food sales, 2003 34 Table 2.3: Top 10 ranking by size of global chilled food markets, 2003 38 Table 2.4: Top five ranking by growth of global chilled food markets, 2003 39 Table 2.5: Top 10 ranking by size of global confectionery markets, 2003 41 Table 2.6: Top five ranking by growth of global confectionery markets, 2003 41 Table 2.7: Top 10 ranking by size of global dairy markets, 2003 43 Table 2.8: Top five ranking by growth of global dairy markets, 2003 43 Table 2.9: Top 10 ranking by size of global savoury snacks markets, 2003 45 Table 2.10: Top five ranking by growth of global savoury snacks markets, 2003 45 Table 3.11: Cadbury Schweppes financial performance 2000—2003 52 Table 3.12: Cadbury Schweppes confectionery performance 2000—2003 54 Table 3.13: Cadbury Schweppes’ market shares in the Americas, 2002 55 Table 3.14: Cadbury Schweppes’ market shares in Asia-Pacific, 2002 56 Table 3.15: Cadbury Schweppes’ market shares in Eastern Europe, 2002 57 Table 3.16: Cadbury Schweppes’ market shares in the Middle East and Africa, 2002 57 Table 3.17: Cadbury Schweppes’ Market Shares in Western Europe, 2002 59 Table 4.18: Danone financial performance 2000—2003 71 Table 4.19: Danone food business performance 2000—2003 72 Table 4.20: Danone market shares in the Americas, 2002 74 Table 4.21: Danone market shares in Asia-Pacific, 2002 75 Table 4.22: Danone market shares in Eastern Europe, 2002 76 Table 4.23: Danone market shares in the Middle East and Africa, 2002 77 Table 4.24: Danone market shares in Western Europe, 2002 78 Table 4.25: Danone market shares in Western Europe, 2002 continued 79 Table 5.26: General Mills financial performance 2001—2004 90 Table 5.27: General Mills performance by division 2002—2004 91 Table 5.28: General Mills market shares, 2002 92 Table 6.29: Heinz financial performance 2001—2004 104 Table 6.30: Heinz divisional performance 2001—2004 106 Table 6.31: Heinz market shares, 2002 108 Table 7.32: Hershey financial performance 2000—2003 117 Table 7.33: Hershey market shares in the Americas, 2002 120 Table 7.34: Hershey market shares outside the Americas, 2002 121 Table 8.35: Kellogg’s financial performance 2000—2003 136 Table 8.36: Kellogg’s divisional performance 2000—2003 137 Table 8.37: Kellogg market shares, 2002 138

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Table 9.38: Kraft financial performance 2000—2003 151 Table 9.39: Kraft divisional performance 2000—2003 152 Table 9.40: Kraft divisional performance 2000—2003 continued 153 Table 9.41: Kraft market shares in the Americas, 2002 155 Table 9.42: Kraft market shares in Asia-Pacific, 2002 156 Table 9.43: Kraft market shares in Eastern Europe, 2002 157 Table 9.44: Kraft market shares in the Middle East and Africa, 2002 158 Table 9.45: Kraft market shares in Western Europe, 2002 159 Table 9.46: Kraft market shares in Western Europe, 2002 160 Table 10.47: Masterfoods market shares in the Americas, 2002 175 Table 10.48: Masterfoods market shares in Asia-Pacific, 2002 175 Table 10.49: Masterfoods market shares in Eastern Europe, 2002 177 Table 10.50: Masterfoods market shares in the Middle East and Africa, 2002 178 Table 10.51: Masterfoods market shares in Western Europe, 2002 178 Table 10.52: Masterfoods market shares in Western Europe, 2002 continued 179 Table 11.53: Nestlé financial performance 2000—2003 190 Table 11.54: Nestlé Divisional Performance 2000—2003 192 Table 11.55: Nestlé market shares in the Americas, 2002 194 Table 11.56: Nestlé market shares in the Americas, 2002 continued 195 Table 11.57: Nestlé market shares in Asia-Pacific, 2002 195 Table 11.58: Nestlé market shares in Asia-Pacific, 2002 continued 196 Table 11.59: Nestlé market shares in Eastern Europe, 2002 197 Table 11.60: Nestlé market shares in the Middle East and Africa, 2002 198 Table 11.61: Nestlé market shares in Western Europe, 2002 199 Table 11.62: Nestlé market shares in Western Europe, 2002 201 Table 12.63: Unilever financial performance 2000—2003 213 Table 12.64: Unilever food divisional performance 2000—2003 214 Table 12.65: Unilever market shares, 2002 217 Table 15.66: Terms and abbreviations used in this report 254 Table 15.67: Definitions of food segments used in this report 256 Table 15.68: Definitions of food segments used in this report continued 257

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Executive Summary

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Executive Summary

Introduction

This chapter presents a summary of some of the core findings of this report. Each

section refers to a chapter of the report, in which greater explanation and analysis of the

issues is available.

Market Dynamics

Increasingly, leading food manufacturers are aligning their product portfolios to

those that fit closely with the needs of the modern consumer.

Categorising the market by consumer trend enables manufacturers to create new

strategies for increasing its market share.

Whilst a number of the large food manufacturers have been disposing of assets in

their portfolios to concentrate on core operations, others have made significant

acquisitions.

Cadbury-Schweppes

In the last 20 years, the company has strengthened its portfolio through almost 50

acquisitions. In March 2003, the company completed the acquisition of Adams from

Pfizer for $4.2 billion.

In confectionery, the company has reduced its reliance on chocolate to build a

portfolio of confectionery products encompassing chocolate, sugar, medicated

confectionery and chewing gum.

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In October 2003, the company set out its four-year strategic and operational agenda

at the heart of which lie the ‘Fuel for Growth’ cost reduction and ‘Smart Variety’

growth initiatives.

Danone

Danone operates a portfolio of major international brands yet around 70% of its

sales come from brands that are local market leaders and four brands represent

almost 60% of the company’s sales.

In addition to a greater focus on its three core business segments, the Group’s

strategy extends to geographical targets. Although around 31% of sales are in

emerging markets, the Group aims to increase this share to 40%.

Growth strategies in emerging markets link high-profile brands with wide-ranging

distribution for sales close to consumers.

General Mills

In the year to May 2003, General Mills’ net sales grew 32% to $10.5 billion. Over

30 of the company’s U.S. consumer brands generate annual retail sales in excess of

$100 million.

General Mills is looking to capture a growing share of away-from home food sales,

whilst international expansion is also an important target for the company.

The acquisition of Pillsbury has enhanced the company’s strategies. Its mix of retail

categories offers further opportunities for product and marketing innovation,

especially with the expansion of distribution networks.

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Heinz

According to Heinz, its brands hold number one and number two market positions in

more than 50 countries. The Heinz brand is worth $2.5 billion and Heinz’s top-15

brands account for two-thirds of the company’s annual sales.

Heinz’s Brand Growth Strategy is based on four imperatives designed to drive

profitable growth: remove the clutter, squeeze out costs, measure and recognise

performance.

Heinz admits that its biggest growth opportunity is its biggest brand - Heinz

Ketchup. The company believes that it has a 30% share of the world’s ketchup

market, and has set a target of a global market share of 50%.

Hershey

Hershey has announced a number of initiatives in its value enhancing strategy,

including the introduction of new products and various initiatives to streamline its

supply chain.

Wal-Mart Stores, Inc. and subsidiaries is the corporation’s largest customer and

represented about 17% of sales in 2002.

Hershey is looking to leverage its core competencies in the broader snack market. It

believes that targeted adjacent segments offer growth opportunities, as consumers

are likely to select well-known brands in a broader array of snacks.

Kellogg

The acquisition of Keebler in 2001 has helped Kellogg to achieve greater scale in the

United States, including a stronger presence in traditional supermarkets and in non-

traditional channels.

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Kellogg has announced plans to expand its reach beyond the cereal and snack food

aisles with extensive licensing initiatives in the toy, clothing, entertainment,

publishing, and food categories.

A key operating principle for Kellogg is to achieve greater value for the consumer,

rather than promoting greater volume sales through discounting.

Kraft

Kraft is the largest branded food and beverage company in North America and the

second largest in the world.

Kraft’s brand strategy focuses on fast-growing sectors such as snacks, beverages

and convenient meals. These offer the best growth potential and account for the

majority of the company’s revenues (around 66% in 2002).

Kraft is seeking to exploit faster growing distribution channels such as convenience

stores, mass merchandisers, drug stores, and vending machines, all of which it

believes are growing faster than the traditional grocery channel.

Masterfoods

Mars operates in over 100 countries. The company operates its three core businesses

- snackfood, petcare and main meal food - under the Masterfoods name in most

parts of the world.

As a privately owned corporation, Masterfood believes it enjoys greater flexibility

and autonomy.

Serving convenience and impulse markets, the company’s first bite-sized line was

introduced in 2003. In the UK, the company also announced that Mars and Snickers

bars have had their recipe changed amid health fears over a fatty ingredient.

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Nestlé

Nestlé believes it is the undisputed leader in the food industry, with more than 470

factories around the world and sales of more than CHF 81 billion/€51 billion.

Nestlé’s four-pillar strategy is based on operational performance, product innovation

and renovation, product availability and consumer communication.

One of Nestlé’s key strategies is to grow its existing products through innovation

and renovation while maintaining a balance in geographic activities and product

lines.

Unilever Bestfoods

In 2002, the company generated foods sales of €27 billion and owned eight food

brands with sales in excess of €1 billion. The foods business spans several categories

including savoury and dressings, spreads and cooking products, health and wellness,

ice cream and frozen foods.

The company is seeking to extend brands across product categories, particularly

those that feature high levels of consumer trust. An example of this is the Bertolli’s

food brand that has grown beyond olive oil into pasta sauces.

The company’s Path to Growth strategy was designed to accelerate growth with a

series of initiatives to focus on fewer, stronger brands. Since February 2000, the

company has sold a total of 87 companies with sale proceeds of €6.3 billion. The

company has reduced the number of brands it manages from 1,600 to some 400

leading brands and just under 250 tail brands.

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Industry opinion survey

Convenience issues had a strong influence on the strategies of the global food

leaders in 2003. This was seen as the most important issue shaping the strategies of

the leading companies.

Danone and Unilever stand out as being the two companies most responsive to new

customer trends.

NPD - innovating and launching new products into developed markets is the

strategy most likely to deliver growth in the short-term future.

Conclusions

Although it has been a well-documented trend for several years now, there is little

evidence that convenience will become less important for consumers in the near

future.

It seems unlikely that the level and size of acquisitions seen in the last five years will

continue although many companies remain open to selective, ‘bolt-on’ acquisitions.

Organic growth can exploit faster growing distribution channels such as convenience

stores, mass merchandisers, drug stores, and vending machines, all of which maybe

growing faster than the traditional grocery channel.

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Chapter 1

Introduction

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Chapter 1 Introduction

The aim of this report

This report identifies the key issues, trends and developments that influence the world’s

leading food manufacturers. As many players are disposing of assets to provide a greater

focus on their core operations, the report will assess market dynamics, highlight

changing consumer trends and analyse recent important developments together with the

performance of the market leaders.

From new product development to merger and acquisition policies, the aim of the report

is to get behind the company’s strategies, their strengths and weaknesses and to put

these into context of the global food markets in which they operate.

Chapter structure Market Dynamics - Chapter 2 analyses the latest trends in global food markets, from

an analysis of corporate performance to the growth and development of both mature

and emerging food markets;

Company Analysis - Chapter 3 to Chapter 12. Each chapter analyses the strategies,

performance and market positioning of each of the 10 global food leaders. In

addition to a brief introduction to the company, the chapter goes on to analyse the

company’s recent financial performance, providing a breakdown of results by food

division where these are available. Key market share information on a country-by-

country basis is provided, supported by recent news about key merger and

acquisition activity. The chapter concludes with analysis of the company’s key

growth strategies and a SWOT analysis provides a concise summary.

The chapter addresses key issues within five main areas:

About the company;

recent performance;

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market positioning;

strategies for growth;

SWOT analysis.

Industry Opinion Survey - Chapter 13 provides detailed analysis of over 50 industry

survey responses;

Conclusions - Chapter 14 provides a concise summary of the key conclusions of the

report and identifies the major developments that will shape the future performance

of the global food leaders;

Appendix - Chapter 15 provides a glossary of terms used throughout this report and

an index of key terms.

The company market share information has, where possible, been segmented by

geography and split into five main markets: the Americas, Asia-Pacific, Eastern Europe,

the Middle East and Africa and Western Europe. The information is not intended to be

used as a definitive list of all of the countries that the company operates in. Rather, it

highlights that market share information research and collected for this report.

Selecting the ‘Global Food Leaders’

Ultimately, selecting a series of companies deemed to be the leaders of the global food

industry is a matter of opinion, though a number of selection criteria can be used to filter

down a list of potential candidates. These include financial size, recent financial

performance, market and category coverage, country and regional coverage and

perceived strength of brands.

The following ratings of each company that was ultimately selected for inclusion in the

report are based on a mixture of author research and the opinions and choices of those

industry executives that were gathered in the Global Food Industry Survey undertaken

by Business Insights in December 2003.

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Figure 1.1: Selecting the global food leaders

Key to Selection Ratings

Very Weak Very StrongAverage

Cadbury-Schweppes

Financial Size Category Coverage2003 Performance Country Coverage Brand Portfolio

Danone


General Mills


Heinz


Source: Author research/Global Food Industry Survey Business Insights

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Figure 1.2: Selecting the global food leaders

Hershey


Kellogg


Kraft


Masterfoods


Nestlé


Unilever Bestfoods


Source: Author research/Global Food Industry Survey Business Insights

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From the previous figures, Cadbury-Schweppes scores relatively low in terms of

financial size (food sales only) but higher in terms of its brand portfolio, together with its

country coverage. Strong category coverage is limited to confectionery, giving the

company an ‘average’ rating under this criteria. Danone was perceived to have rated

consistently high across all of the criteria, as was General Mills. Heinz’s strong brand

portfolio (it maintains to be number one or two in over 50 countries) rated highly,

though its sales put it behind Danone and General Mills. Hershey is perceived as a

relatively ‘smaller’ global food leader. Though it exports to over 80 countries,

international sales account for less than 5% of total sales.

Kellogg has strong country coverage, but in much the same way as Cadbury-

Schweppes, its expertise is limited to a relatively few number of categories. Kraft rated

highly across several of the categories, though its 2003 performance (in terms of sales

growth) rated as ‘average’ for the companies selected. Masterfoods has a selection of

strong brands; limited to relatively few categories, whilst Nestlé rated highly in all areas,

apart from its 2003 performance. Finally, Unilever also scored highly, but was held back

by disappointing sales growth in 2003.

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Chapter 2

Market Dynamics and Emerging Market Analysis

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Chapter 2 Market Dynamics and Emerging Market Analysis

Summary

Increasingly, leading food manufacturers are aligning their product portfolios to those that fit closely with the needs of the modern consumer.

In particular, the prevalence of medical conditions such as obesity in many Western markets will boost consumer demand for healthier food products.

Categorising the market by consumer trend enables manufacturers to create new strategies for increasing its market share.

Whilst a number of the large food manufacturers have been disposing of assets in their portfolios to concentrate on core operations, others have made significant acquisitions.

Though it is the largest market for chilled food, in terms of market growth, Japan has been of the slowest growing markets over the last six years.

Within the larger confectionery markets, the greatest market opportunities for growth appear to be in China and Mexico.

Asia-Pacific, Eastern Europe and Latin America dominate rankings of the fastest growing dairy markets, accounting for nine of the top 10 fastest growth markets.

Though starting from a particularly small base, analysis indicates that Eastern Europe will provide the best growth opportunities for savoury snack markets, with Russia, the Ukraine and Romania being the three fastest growing markets.

Introduction

This chapter places the global leaders in the manufacture of food products in context. It

begins by looking at the methodologies used in the research, before going on to

highlight the latest consumer trends in a selection of global food markets that are

together valued at almost $500 billion.

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The chapter then goes on to quantify the positioning of both the leading food

manufacturers analysed in this report and also several food markets in which they

operate. Food markets are not placed in the context of their size, but the speed with

which they are demonstrating growth.

Methodology behind the analysis of global food markets

To assist in establishing the companies considered to be global food leaders, four key

markets were analysed. These were chilled food, confectionery, dairy and savoury

snacks. In each of these markets, the top 10 global countries in terms of markets size

were identified, along with the 10 fastest growing markets. The following table

illustrates the breadth of 52 countries covered within this report.

Table 2.1: Country coverage of global food markets

Argentina Finland Mexico South Africa Australia France Morocco South Korea Austria Germany Netherlands Spain Belgium Greece New Zealand Sweden Brazil Hong Kong Norway Switzerland Bulgaria Hungary Philippines Taiwan Canada India Poland Thailand Chile Indonesia Portugal Turkey China Ireland Romania UK Colombia Israel Russia Ukraine Czech Republic Italy Saudi Arabia USA Denmark Japan Singapore Venezuela Egypt Malaysia Slovakia Vietnam

Source: Datamonitor Business Insights

Unfortunately, due to a lack of available data, the chilled food markets in India, Mexico

and Morocco are not covered in this report, together with the market for cheese in

China (one segment from the Chinese dairy market).

Despite this, the total value of the combined markets covered within this analysis was

$405,787.54 million in 1998, which rose to $487,544.96 million in 2003, representing

growth of 20.1%.

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Trends in global food markets

Consumer lifestyles have changed significantly over the last 20 years, resulting in both

changes in the type of food and drinks products that consumers now purchase and

changes in the way that food manufacturers meet these needs.

Consumer lifestyle drivers

Increasingly, leading food manufacturers are aligning their product portfolios to those

that fit closely with the needs of the modern consumer and which continue to meet the

demands set by three major consumer trends - convenience, health and pleasure. With

premium and convenient products grabbing the attention of manufacturers in recent

years, the latest developments see a concerted effort on behalf of the manufacturers

(perhaps with the threat of litigation at the back of their minds) to promote the health

and nutritional benefits of their portfolios.

Detailed analysis of the three consumer megatrends enables food manufacturers to

develop product variations that will better suit the needs of consumers. In turn, these

developments will engender consumer loyalty, differentiate consumers towards high

margin opportunities, and help them gain greater market share in their core markets.

Recent decades have seen the development of a convenience-oriented society, driven by

changes in family structure, more working mothers, longer working hours, and increased

labour mobility. Though it has been a well-documented trend for several years now,

there is little evidence that convenience will become less important for consumers in the

near future.

Increasing prevalence of medical conditions such as obesity and an ageing population in

many markets will fuel consumer demand for healthier food products. As consumers

have become gradually more aware of the ingredients and content of the foods they eat,

so manufacturers have become aware of a possible threat of litigation as consumers seek

to hold food manufacturers responsible for a failure to disclose product ingredients

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(which may result in future health problems), in much the same way that tobacco

companies have been subject to legal action. In attempt to portray themselves as

‘nutritionally friendly’ the leading manufacturers are launching a number of initiatives to

raise the profile of healthy eating. Additionally, a number of high profile food scares

have resulted in a greater popularity of ‘natural’ and organic products in many Western

markets.

Despite the prevalence of high pressure lifestyles and the increasing popularity of healthy

foods, the demand for exciting and enjoyable food has not decreased, with continuing

and more widespread appeal of novel and fun, indulgent and premium, and ethnic and

exotic meal solutions.

Industry drivers blur category definitions

The consumer megatrends that have been highlighted above represent an important

opportunity for the food industry to create closely targeted, higher margin products that

fulfil the needs of modern consumers.

However, from a manufacturer’s perspective, the development of products, which, in

particular, offer genuine longer-term health benefits, provides a key opportunity for

engendering consumer loyalty.

Categorising the food market by product type or category may not reveal many new

sales opportunities for manufacturers. However, categorising the market by consumer

trend enables the manufacturer to create new strategies for increasing its market share

without cannibalising the market for existing products.

Company positioning: global food leaders

In recent years a number of the large food manufacturers highlighted in the following

table have been disposing of non-core assets in their portfolios, whilst others have made

34

significant acquisitions. The companies with the largest growth rates in sales have seen

their results enhanced by acquisitions.

Table 2.2: Ranking of global food leaders by food sales, 2003 Sales $m 2001 2002 Interim ‘03 Growth ‘01-’02 2003 Nestlé (6) 35,615 36,053 16,603 1.2% n/a Unilever Bestfoods (7) 29,515 28,238 n/a -4.3% 33,056 Kraft (8) 29,234 29,723 15,200 0.1% 31,010 Masterfoods (5) n/a 14,000 n/a n/a n/a General Mills (3) 7,949 10,506 5,578 32.2% n/a Danone (2) 11,207 10,360 4,987 -7.6% 11,956 Kellogg 7,548 8,304 4,395 10.0% 8,812 Heinz (3) 7,614 8,236 3,986 8.2% n/a Cadbury-Schweppes (1) 3,117 3,190 n/a 2.3% 5,301 Hershey (4) 4,137 4,120 1,803 -0.4% 4,173 Notes: Latest two year financial analysis. Where relevant all currencies converted to $ with ex. rate at 30/12/02; (1) American and European confectionery sales only in 2001 and 2002. Separate data not available for other regions. 2003 data defined as Americas confectionery and total EMEA region. In 2002, EMEA sales were over £200 million greater than just European confectionery sales; (2) Fresh Dairy Products, Biscuits and Cereal and Other food sales only; (3) Classified as 2002 and 2003 and interim 2004 data in company accounts; (4) Net sales; (5) Estimate; (6) Milk products, nutrition & ice cream - Prepared dishes & cooking aids and Chocolate, confectionery & biscuits sales only; (7) Includes some beverages sales in the following divisions: Savoury & Dressings, Spreads and Cooking, Health, Wellness & Beverages and Ice Cream & Frozen Foods; (8) Includes some beverage sales in the Beverages, Desserts and Cereals division.

Source: Author analysis Business Insights

General Mills’ results were boosted by the acquisition of Pillsbury in 2001, whilst

Kellogg’s net sales increased with the acquisition of Keebler Foods. On a comparable

basis, adjusting for the Keebler acquisition and a small disposal, net sales growth was

4%.

Unilever Bestfood’s decrease in sales was attributable to a series of disposals. In January

2001, the company sold its dry soup and sauces businesses in Europe (with sales of

€435 million). In February 2001, the company sold the Bestfoods Baking Company and

later in the year it also disposed of a number of North American brands and related

assets, including its seafood businesses.

35

Figure 2.3: Global food leaders positioning

Nestlé

Kraft

Cadbury-Schweppes

Hershey

Danone

Unilever Bestfoods

Kellogg

Heinz

General Mills

-1,800

-800

200

1,200

2,200

-10.00% 0.00% 10.00% 20.00% 30.00% 40.00%

Growth in Food Sales '01-'02 (%)

$ C

hang

e in

Foo

d Sa

les

'01-

'02

Greater growth

Food Sales

$ Sales Change

Source: Author analysis of company accounts Business Insights

In 2002, changes to the structure of Danone combined with negative exchange rate

effects, resulted in a decline in sales of 6%. However, if considered on a like-for-like

basis, organic sales growth of 6% was achieved.

Disposing of non-core assets to provide greater focus

Perhaps the best example of a company disposing of assets to focus on its core

operations is Unilever, particularly following the 2000 acquisition of Bestfoods. Since

the announcement of the ‘Path to Growth’ strategy in February 2000, the company has

sold a total of 87 companies with sale proceeds of €6.3 billion (some of which were also

being divested as a result of undertakings given to the European Commission in

connection with the acquisition of Bestfoods for around €26 billion, which was

completed in October 2000). This has reduced the number of brands that the company

manages from 1,600 to around 400 leading brands and just under 250 tail brands.

36

Heinz is a prime example of a large multi-national food manufacturer that has disposed

of certain businesses in recent years in order to concentrate more fully on realising the

full potential of its core brands. In June 2002, Heinz disposed of a number of North

American businesses and merged them with Del Monte Foods Company in a move

designed to make Heinz a faster-growing company. The businesses, which together

generated approximately $1.8 billion in annual sales (or 20% of annual revenues),

included North American pet food and pet snacks, U.S. tuna, U.S. private label soups

and U.S. baby foods.

Growth through acquisition

A good example of a company that has grown rapidly through acquisitions is Cadbury-

Schweppes. More recently, Cadbury’s has been going through something of a transition

phase, with the integration of the Adams business well underway.

Following the acquisition of Pillsbury in 2001, General Mills is seeking greater organic

growth. Rather than boosting growth rates with further acquisitions, the company is

seeking to utilise product innovation, channel expansion and international expansion to

build the company’s brands and increase revenues.

A further example of a company willing to grow significantly through acquisition is

Kellogg. The March 2001 acquisition of Keebler Foods Company was by far the largest

acquisition in Kellogg’s history. The new, more diversified product portfolio will

undoubtedly boost the company’s growth. The company believes that it now

manufactures products that rank first or second in U.S. sales across seven major food

categories.

Nestlé is another food manufacturer that has consolidated growth through acquisition.

Since 1996, this has been demonstrated by the purchase of the Italian mineral water

concern San Pellegrino (1997), the acquisition of Spillers Petfoods of the UK (1998),

and Ralston Purina (2002). In the same year, the company made two major acquisitions

in North America. Nestlé announced that its U.S. ice cream business was to be merged

37

into Dreyer’s, and it also acquired Chef America, a U.S.-based hand-held frozen food

product business. However, the company has also shown that it will dispose of non-core

assets, with the decision to divest the Findus brand in 1999, in order to concentrate on

higher added-value frozen food products and the sale of its dairy business in Turkey to

Danone.

A case by case approach

Falling somewhere between the two strategies are companies such as Danone. The sale

of Galbani’s cheese business at the beginning of 2002 continued the Group’s strategy

towards a more focused business, and meant that nearly all Group sales were in the

three core businesses - fresh dairy, beverages, and biscuits and cereal. However, whilst

continuing to divest itself of non-core activities (in June 2003, Danone agreed to sell its

remaining 44% stake in BSN Glasspack, a glass packaging company) it is also seeking

to make strategic acquisitions. For example, in December 2003, Danone announced that

had acquired Nestlé’s dairy business in Turkey in a move that will double its sales in

Turkey.

Perhaps the best example of growth through acquisition is that of Kraft (though the

company itself was acquired by Philip Morris – now named Altria – in 1988). By far the

biggest of these was the 2000 acquisition of Nabisco Holdings, a leader in cookies,

crackers and snacks, for almost $15 billion. 2003, however, was a busy year for the

company as it both acquired and disposed of a number of assets.

In March 2003, Kraft acquired a leading producer of biscuits and snack cakes in Egypt

and in September 2003; Kraft announced the acquisition of the Back to Nature brand

cereal and granola business from Organic Milling. In April, Kraft sold its retail rice

business in Germany, Austria and Denmark to Ebro Puleva and in September, Kraft

announced plans to sell its Invernizzi branded cheese business in Italy to Groupe

Lactalis.

38

Market positioning: chilled food

The following table provides a ranking of the 10 largest countries in the global chilled

foods market, taken from the selection of 52 countries whose data is covered in this

report, as described in the earlier research methodology section.

In terms of markets size, Japan leads the market followed by the United States and

Russia. It is interesting to note, however, that whilst being the largest market for chilled

food, in terms of market growth, Japan has been of the slowest growing markets over

the last six years. Within the larger chilled food markets, the greatest market

opportunities for growth appear to be in the Ukraine and France.

Table 2.3: Top 10 ranking by size of global chilled food markets, 2003

Rank Rank Country Growth ‘98-’03 Value Size ‘03 Japan 47 1 US 17 2 Russia 15 3 UK 14 4 Italy 37 5 France 10 6 Ukraine 9 7 Netherlands 26 8 Germany 42 9 Denmark 40 10

Source: Author analysis of Datamonitor research Business Insights

Whilst six-year growth rates in markets such as France and the Ukraine have

approached 50% (in value terms), the chilled food market in Japan actually decreased in

value by 4.8% over the 1998—2003 period.

Spain is the world’s third fastest growing chilled food market and also the 14th largest

market in terms of size by value.

39

Table 2.4: Top five ranking by growth of global chilled food markets, 2003

Rank Rank Country Growth ‘98-’03 Value Size ‘03 Romania 1 29 Vietnam 2 49 Spain 3 14 Hungary 4 18 Brazil 5 27


Romanian and Vietnam markets have both grown from small bases in recent years,

whilst the Spanish market increased in value by 87.3% over the 1998—2003, to reach a

value of $1,792.64 million.

The following figure plots market share of selected countries in the global chilled food

market against market growth (in value terms), with the size of each bubble referring to

the size of the market. Though it dominates chilled food markets the market in Japan is

declining in size.

40

Market share versus growth in global chilled food markets

Figure 2.4: Market share versus growth in global chilled food markets

5.9

US

France

Ukraine

UK

Russia

Germany

Denmark Italy

JapanNetherlands

SpainHungaryBrazil

Romania

-50.0%

0.0%

50.0%

100.0%

150.0%

200.0%

250.0%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%

Market Share 2003

Mar

ket G

row

th 1

998-

2003

Vietnam

Greater market size

Market share

Faster growing markets


Market positioning: confectionery

In terms of markets size, the United States leads the market from the Germany and the

UK. It is interesting to note, however, that whilst being amongst the five largest markets

for confectionery, in terms of market growth, the UK, Japan and Russia have been

amongst the 10 slowest growing markets over the last six years. Within the larger

confectionery markets, the greatest market opportunities for growth appear to be in

China and Mexico.

41

Table 2.5: Top 10 ranking by size of global confectionery markets, 2003

Rank Rank Country Growth ‘98-’03 Value Size ‘03 US 38 1 Germany 34 2 UK 50 3 Japan 43 4 Russia 41 5 China 9 6 France 33 7 Italy 44 8 Brazil 21 9 Mexico 7 10


Over the 1998—2003 period, the Mexican and Chinese confectionery markets grew at

rates of 59.0% and 50.0% respectively. The largest market, the United States, grew by

12.8% over the same period.

The Ukraine and Indonesia are the world’s fastest growing confectionery markets. In

size terms, they are ranked as the 23rd and 26th largest markets respectively.

Table 2.6: Top five ranking by growth of global confectionery markets, 2003

Rank Rank Country Growth ‘98-’03 Value Size ‘03 Ukraine 1 23 Indonesia 2 26 Romania 3 50 Vietnam 4 37 Venezuela 5 46


Growth rates in excess of 100% over the 1998—2003 period were recorded by both the

Ukraine and Indonesia. From significantly larger bases, both China and Mexico recorded

growth in excess of 50%.

42

The United States dominates global confectionery markets, with Germany, Japan and

the UK forming a cluster of markets of a similar size behind it. Together, these four

markets account for 49.6% of the market.

Market share versus growth in global confectionery markets

Figure 2.5: Market share versus growth in global confectionery markets

0.9%

Japan

Russia

Italy

US

UK

GermanyFranceBrazil

ChinaMexico

Indonesia

VietnamVenezuela

Romania

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

160.0%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%Market Share 2003

Mar

ket G

row

th 1

998-

2003

Greater market size

Market share



Market positioning: dairy products

Global dairy markets are dominated by the United States, Japan and leading Western

European countries. Among the world’s larger dairy markets that are also fast growing,

China, Mexico and Brazil feature prominently. Whilst China is the world’s 10th largest

dairy market, it is also the fourth fastest growing.

43

Table 2.7: Top 10 ranking by size of global dairy markets, 2003

Rank Rank Country Growth ‘98-’03 Value Size ‘03 US 28 1 Japan 50 2 Italy 41 3 France 33 4 Germany 38 5 UK 44 6 Mexico 9 7 Brazil 10 8 Spain 23 9 China 4 10


Although it is the world’s second largest dairy market, growth in Japan reached just

3.1% over the 1998—2003 period as the market reached a value of $17,427.70 million.

Whilst Romania and Indonesia are the fastest growing dairy markets, growth has been

achieved from a relatively small base. Colombia, the third fastest growing market, is the

14th largest market overall.

Table 2.8: Top five ranking by growth of global dairy markets, 2003

Rank Rank Country Growth ‘98-’03 Value Size ‘03 Romania 1 47 Indonesia 2 36 Colombia 3 14 China 4 10 Philippines 5 43


Asia-Pacific, Eastern Europe and Latin America dominate rankings of the fastest

growing dairy markets, accounting for nine of the top 10 fastest growth markets. The

exception in the top 10 is the Egyptian market, which grew by 61.4% over the 1998—

2003 period.

44

The United States dominates the global dairy industry, accounting for a 23.7% share of

the market. Together, the United States, Japan, Italy, France, Germany and the UK

accounted for 54.2% of the market in 2003.

Market share versus growth in global dairy markets

Figure 2.6: Market share versus growth in global dairy markets

Romania

Philippines

IndonesiaColombia

ChinaBrazil

Mexico

Spain

US

France

Germany

Italy

UK Japan

-50.0%

0.0%

50.0%

100.0%

150.0%

200.0%

250.0%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

Market Share 2003

Mar

ket G

row

th 1

998-

2003

Greater market size

Market share



Market positioning: savoury snacks

Amongst the 10 largest savoury snack markets, Russia, in eighth place, is also the

world’s fastest growing market whilst Mexico, the fourth largest market is also the fifth

fastest growing market.

45

Table 2.9: Top 10 ranking by size of global savoury snacks markets, 2003

Rank Rank Country Growth ‘98-’03 Value Size ‘03 US 14 1 Japan 48 2 UK 44 3 Mexico 5 4 Germany 41 5 China 19 6 Canada 21 7 Russia 1 8 Australia 24 9 France 37 10


The market for savoury snacks in the United States reached $23,425.52 million in 2003,

up by 31.5% from 1998. Both the Japanese and the UK markets decreased in value over

the 1998—2003 period, though the UK market saw some growth return in 2002.

While starting from a particularly small base, analysis indicates that Eastern Europe will

provide the best growth opportunities for savoury snack markets, with Russia, the

Ukraine and Romania being the three fastest growing markets over the 1998—2003

period.

Table 2.10: Top five ranking by growth of global savoury snacks markets, 2003

Rank Rank Country Growth ‘98-’03 Value Size ‘03 Russia 1 8 Ukraine 2 28 Romania 3 51 Vietnam 4 45 Mexico 5 4


46

The savoury snacks market in Mexico grew by 80.3% over the 1998—2003 period, to

reach $3,597.86 million.

The United States dominates the savoury snacks industry, accounting for a 42.7% share

of the market. Together, the United States, Japan, UK and Mexico accounted for 70.7%

of the market in 2003.

Market share versus growth in global savoury snacks markets

Figure 2.7: Market share versus growth in global savoury snacks markets

JapanUK

Germany

Canada

China

USMexico

Romania

Vietnam

Ukraine

-100.0%

-50.0%

0.0%

50.0%

100.0%

150.0%

200.0%

250.0%

300.0%

350.0%

400.0%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0%

Market Share 2003

Mar

ket

Gro

wth

199

8-20

03

Greater market

Market share


France

Australia


47

Chapter 3

Cadbury Schweppes

48

Chapter 3 Cadbury Schweppes

Summary

With a history stretching back over 200 years, Cadbury Schweppes employs over 55,000 people and sells products in over 200 countries.

In the last 20 years, the company has strengthened its portfolio through almost 50 acquisitions.

In March 2003, the company completed the acquisition of Adams from Pfizer for $4.2 billion. As a result of the acquisition, the company believes it has leadership positions in sugar and functional confectionery and the number two position in gum while gaining access to major new markets.

As a result of the acquisition, the company believes it is the only company to span the three major confectionery categories - chocolate, sweets and gum.

In confectionery, the company has reduced its reliance on chocolate to build a portfolio of confectionery products encompassing chocolate, sugar, medicated confectionery and chewing gum.

The company’s confectionery brands are sold across the world. Its key brands include: Cadbury Dairy Milk, Trebor Bassett, Maynards, Hollywood, STIMOROL, Halls, Dentyne and Trident.

2003 was a year of transition for Cadbury Schweppes as the company sought to consolidate Adams, manage changes to distribution arrangements and put in place organisational changes.

A reduction in operating profit in Asia-Pacific in the first half of 2003 was due to shortfalls in the businesses in Australia and China. The performance of the confectionery business in Russia improved in 2003 under the guidance of a new management team.

In October 2003, the company set out its four-year strategic and operational agenda at the heart of which lie the ‘Fuel for Growth’ cost reduction and ‘Smart Variety’ growth initiatives.

49

About Cadbury Schweppes

Cadbury Schweppes is one of the biggest international beverage and confectionery

companies in the world. With a history stretching back over 200 years, Cadbury

Schweppes employs over 55,000 people and sells products in over 200 countries.

Since the start of the 1980s, the company has strengthened its beverage and

confectionery portfolio through almost 50 acquisitions. The company believes that the

recent purchase of Adams makes it the leader in the global confectionery market and the

only company to span all three categories - chocolate, sweets and gum.

History

The company’s heritage starts back in 1783 when Jacob Schweppe perfected his process

for manufacturing carbonated mineral water in Geneva, Switzerland. And in 1823 John

Cadbury opened in Birmingham selling cocoa and chocolate. The two household names

merged in 1969 to form Cadbury Schweppes plc. Since then, the company has grown

throughout the world by a programme of organic and acquisition led growth.

In 1824, John Cadbury, the son of Richard Cadbury, opened a shop at 93 Bull Street,

then a fashionable part of Birmingham. Apart from selling tea and coffee, John Cadbury

sold hops, mustard and a new sideline - cocoa and drinking chocolate, which he

prepared himself using a mortar and pestle. By 1842, John Cadbury was selling 16 sorts

of drinking chocolate and eleven cocoas and in 1847, John Cadbury encouraged his

brother Benjamin into partnership and the family business becomes Cadbury Brothers of

Birmingham.

In 1854, the Cadbury Brothers received their first Royal Warrant as ‘manufacturers of

cocoa and chocolate to Queen Victoria’. In 1879, the Cadbury Brothers moved their

manufacturing operations to establish the ground-breaking Bournville factory and

village, about four miles south of Birmingham. In 1897, Cadbury manufactured its first

50

milk chocolate and in 1899 Cadbury Brothers was incorporated as a limited company.

At that stage, the Bournville factory had 2,600 employees.

In the mid-1980s the company took the strategic decision to concentrate on its core

international brands of beverages and confectionery and exit the general foods and

hygiene sector with the sale of non-core brands such as Typhoo Tea, Kenco Coffee and

Jeyes. Since that time, the company has strengthened its portfolio of key brands through

the purchase of Mott’s (1982), Canada Dry (1986), Trebor (1989), Bassett’ (1989), Dr

Pepper and Seven Up (1995) and Hawaiian Punch (1999). In 1988, the manufacture of

Cadbury confectionery brands was licensed in the US to Hershey.

In 2002 Cadbury Schweppes acquired Dandy, the Danish chewing gum company and, at

the end of the year, announced the proposed $4.2 billion acquisition of Adams, which

was completed in March 2003.

Recent performance

2003 was designed to be a year of transition for Cadbury Schweppes as the company

sought to consolidate Adams, manage changes to 7 UP’s distribution arrangements (in a

depressed US beverage market) and put in place the organisational changes announced

in February.

Performance in 2003

At the release of preliminary full-year 2003 results, in February 2004, the company

announced a “resilient” performance set “against the backdrop of difficult trading

conditions in a number of key markets.” The company’s performance improved as the

year progressed. Despite the hot summer, Cadbury Trebor Bassett delivered record

sales, profit and market share following a good Christmas and confectionery and

beverage operations in Australia recovered strongly in the second half of the year.

51

The company reported 2003 sales at £6.4 billion, up by 22% from 2002. Acquisitions,

net of disposals, contributed 20% to revenue growth. The most significant contributors

to growth from acquisitions were Adams (mainly in the Americas), Dandy and Kent in

the EMEA region and Apollinaris & Schweppes in Europe Beverages. Like-for-like base

business sales grew 2%. Underlying operating profit excluding associates (operating

profit before goodwill/intangibles amortisation and exceptional items) increased by 7%,

with the base business declining by 1% and the full-year impact of acquisitions

contributing 11%. Overall profits before tax fell by 32% to reach £564 million.

The transition of Adams into Cadbury Schweppes and delivery of the integration

benefits were in line with the acquisition plan. In the second half of 2003, the company

saw gum share trends improve in a number of key markets, notably the United States

and Canada. However, an underlying operating profit decline in Americas Confectionery

(before acquisitions) reflected a difficult first half of 2003 for Canadian operations.

Second half profits improved significantly as the business focused on the more profitable

elements of its portfolio. The Americas Confectionery businesses overall performed in

line with expectations, driven by new product development and brand relaunches,

notably Dentyne Fire in the United States and Trident White in Canada. Adams Mexico

maintained strong sales and profit momentum throughout the year and Halls delivered

strong results in nearly all markets.

In Europe, margins, particularly during the second half of the year, were negatively

impacted by higher costs relating to the major relaunch of Cadbury Dairy Milk in the

UK and raw material inflation. Cadbury Trebor Bassett maintained strong momentum

and generated record sales, underlying operating profits and market share. The

successful re-launch of the Cadbury Dairy Milk chocolate range in the UK increased its

sales by 13%, whilst Maynards and Trebor performed strongly and the Adams' business

produced better than expected results driven by the Halls brand. In France, Cadbury has

stated that it regained leadership in chewing gum, reflecting the focus on the Hollywood

brand and a range of successful sugar-free launches.

52

The Adams businesses in the region were integrated rapidly with full business

consolidation taking place in the UK, Ireland, Poland, Greece, Portugal, Lebanon and

South Africa. The Spanish business integration is expected to be fully complete by the

end of the first quarter. Adams products are being sold into new outlets and markets via

convenience store distribution networks in the UK, Ireland, Russia, Denmark and

Nigeria.

Elsewhere, businesses in Africa delivered strong profit performances led by South Africa

and Egypt, whilst the Russian business was restructured in the first half with the

integration of Dandy.

A fall in underlying operating profits in Asia reflected a number of adverse factors.

These included trade de-stocking, the impact of raw material price increases on the

Australian confectionery business and disruption following a difficult IT implementation

at the end of 2002. The business in China had another difficult year recording losses of

£6 million, a modest reduction on the losses incurred in 2002. In India, the business had

a strong year until the fourth quarter when it was hit by the escalation of a minor in-

store infestation problem. In the second half of 2003, business in Asia recovered

somewhat. In Australian confectionery, the company extended its market leadership

position with record second half sales, reflecting strong performances from core

chocolate brands and new product development.

Financial performance in 2003

Table 3.11: Cadbury Schweppes financial performance 2000—2003

£ m 2000 2001 2002 2003 Turnover 4,118 4,960 5,298 6,441 Operating Profit (1) 612 758 979 1,052 (2) Note: (1) From continuing operations; (2) Underlying Group Operating Profit presented in preliminary results release on 18th February 2004.

Source: Company accounts Business Insights

53

Figure 3.8: Cadbury Schweppes financial performance 2000—2003; turnover and operating profit

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2000 2001 2002 2003

TurnoverOperating Profit

£ m

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2000 2001 2002 2003


£ m


In September 2003, Cadbury Schweppes announced that it had completed its first bond

issue in the U.S. market, raising $2.0 billion. The proceeds are to be used to replace

some of the financing arrangements put in place in December 2002 to fund the $4.2

billion acquisition of Adams confectionery business. The company expects restructuring

charges of around £200 million and capital spend of around £300 million for 2003.

These include the impact of the ‘Fuel for Growth’ initiative, which is designed to reduce

supply chain, commercial and administrative costs.

In February 2004, the company announced that it expects to deliver a 2004 financial

performance within its target range of 3-5% net base sales value growth. The following

table illustrates the performance of the Americas and European confectionery divisions

of Cadbury Schweppes over a three-year period.

54

Table 3.12: Cadbury Schweppes confectionery performance 2000—2003

£ m 2000 2001 2002 Interim 2003 Americas Confectionery Turnover 305 312 252 275 Operating Profit (1) 44 44 20 16 European Confectionery Turnover 1,362 1,445 1,546 n/a Operating Profit (1) 200 212 247 n/a Note: (1) From continuing operations


Figure 3.9: Cadbury Schweppes confectionery performance 2000—2003; Americas and Europe turnover and operating profit comparison

0

200

400

600

800

1000

1200

1400

1600

1800

2000 2001 2002

Turnover AmericasOperating Profit AmericasTurnover EuropeOperating Profit Europe

£m


55

Market positioning

Expanding the portfolio in 2003

The Americas

After several difficult years, the Canadian confectionery business is being reorganised

both to focus on a smaller range of more profitable branded products and to reduce

direct and indirect costs, which are uncompetitive. A combination of lower branded

volumes and stock reduction led to a reduction in profits at these operations.

In October 2003, the company announced that its Brazilian subsidiary, Cadbury Adams,

was to consolidate its chewing gum production and packaging in Brazil, from

manufacturing plants in Avenida do Estado, São Paulo and Cumbica, Guarulhos to its

manufacturing plant in Bauru. The transition will be completed by July 2004 and should

result in a higher level of efficiency in production, logistics and distribution for the

business and will also support plans to focus on innovation and aggressive growth.

Table 3.13: Cadbury Schweppes’ market shares in the Americas, 2002

Country Market Category Company Value% Argentina Confectionery Chocolate Cadbury Stani SAIC 1.15 Argentina Confectionery Gum Cadbury Stani SAIC 45.68 Argentina Confectionery Gum Adams SA 12.49 Argentina Confectionery Sugar Cadbury Stani SAIC 11.97 Argentina Confectionery Sugar Adams SA 14.84 Canada Confectionery Chocolate Cadbury Trebor Allan Inc 15.49 Canada Confectionery Gum Adams Brands Ltd 51.13 Canada Confectionery Sugar Cadbury Trebor Allan Inc 6.10 Canada Confectionery Sugar Adams Brands Ltd 12.59 Chile Confectionery Chocolate Cadbury Stani SAIC 0.32 Venezuela Confectionery Chocolate Cadbury Stani SAIC 0.87


Asia-Pacific

A reduction in underlying operating profit in Asia-Pacific in the first half of 2003 was

due to shortfalls in the Food & Beverage and Confectionery businesses in Australia and

56

to a lesser extent the confectionery business in China. The confectionery business was

affected by the combination of reduced consumer demand following significant price

increases early in the year and de-stocking by the trade. Confectionery sales in China

and neighbouring markets were also affected by the impact of SARS on consumer

demand.

Table 3.14: Cadbury Schweppes’ market shares in Asia-Pacific, 2002

Country Market Category Company Value% Australia Confectionery Chocolate Cadbury Schweppes Australia Ltd 51.63 Australia Confectionery Sugar Cadbury Schweppes Australia Ltd 16.07 Australia Dairy Milk Cadbury Schweppes Australia Ltd 0.10 Australia Dairy Overall Cadbury Schweppes Australia Ltd 0.10 China Confectionery Chocolate Cadbury Food Co Beijing 13.94 China Confectionery Sugar Cadbury Food Co Beijing 1.45 Hong Kong Confectionery Chocolate Cadbury Four Seas HK Ltd 24.79 Hong Kong Dairy Milk Cadbury Four Seas HK Ltd 1.10 Hong Kong Dairy Overall Cadbury Four Seas HK Ltd 1.00 India Confectionery Chocolate Cadbury India Ltd 65.12 India Confectionery Sugar Cadbury India Ltd 9.80 India Dairy Milk Cadbury India Ltd 2.80 India Dairy Overall Cadbury India Ltd 2.70 Indonesia Confectionery Chocolate Cadbury Indonesia PT 20.27 Indonesia Confectionery Sugar Cadbury Indonesia PT 4.05 Malaysia Confectionery Chocolate Cadbury Confectionery (M) Sdn Bhd 26.44 Malaysia Confectionery Gum Cadbury Confectionery (M) Sdn Bhd 2.10 Malaysia Confectionery Sugar Cadbury Confectionery (M) Sdn Bhd 5.10 New Zealand Confectionery Chocolate Cadbury Confectionery Ltd 64.32 New Zealand Confectionery Gum Cadbury Confectionery Ltd 1.60 New Zealand Confectionery Sugar Cadbury Confectionery Ltd 35.08 New Zealand Dairy Milk Cadbury Confectionery Ltd 0.70 New Zealand Dairy Overall Cadbury Confectionery Ltd 0.50 Philippines Confectionery Chocolate Cadbury Schweppes Plc 14.89 Singapore Confectionery Chocolate Cadbury Singapore Pte Ltd 16.49 Singapore Dairy Milk Cadbury Singapore Pte Ltd 0.30 Singapore Dairy Overall Cadbury Singapore Pte Ltd 0.20 Taiwan Confectionery Chocolate Cadbury Confectionery Tasmania 0.32 Thailand Confectionery Chocolate Cadbury Schweppes Plc 7.55 Thailand Confectionery Gum Adams (Thailand) Ltd 44.95 Thailand Confectionery Sugar Adams (Thailand) Ltd 22.46 Thailand Confectionery Sugar Cadbury Schweppes Plc 1.77 Vietnam Confectionery Chocolate Cadbury Schweppes Plc 8.62 Vietnam Confectionery Sugar Cadbury Schweppes Plc 3.02


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Eastern Europe

The performance of the company’s confectionery business in Russia improved in 2003

under the guidance of a new management team.

Table 3.15: Cadbury Schweppes’ market shares in Eastern Europe, 2002

Country Market Category Company Value% Bulgaria Confectionery Chocolate Cadbury Schweppes Plc 0.15 Czech Republic Confectionery Chocolate Cadbury Schweppes Plc 0.50 Czech Republic Confectionery Gum Cadbury Schweppes Plc 1.10 Hungary Confectionery Chocolate Cadbury Hungary 1.07 Hungary Confectionery Sugar Cadbury Hungary 0.65 Poland Confectionery Chocolate Cadbury Wedel Sp zoo 22.91 Poland Confectionery Gum Cadbury Wedel Sp zoo 0.70 Poland Confectionery Sugar Cadbury Wedel Sp zoo 3.45 Russia Confectionery Chocolate Cadbury OOO 4.10 Slovakia Confectionery Gum Cadbury Schweppes Plc 2.12 Ukraine Confectionery Chocolate Cadbury Schweppes Plc 0.62 Ukraine Confectionery Chocolate Cadbury OOO 0.30


The Middle East and Africa

The company holds a dominant share of the Egyptian confectionery market and also

accounts for over one-third of both the South African chocolate confectionery and gum

markets.

Table 3.16: Cadbury Schweppes’ market shares in the Middle East and Africa, 2002

Country Market Category Company Value% Egypt Confectionery Chocolate Cadbury Schweppes Plc 36.38 Egypt Confectionery Gum Cadbury Schweppes Plc 31.01 Egypt Confectionery Sugar Cadbury Schweppes Plc 22.26 Egypt Dairy Milk Cadbury Egypt 1.00 Egypt Dairy Overall Cadbury Egypt 0.20 Morocco Confectionery Sugar Cadbury Schweppes Plc 2.07 Saudi Arabia Confectionery Chocolate Cadbury Schweppes Plc 9.22 Saudi Arabia Confectionery Sugar Cadbury Schweppes Plc 4.40 Saudi Arabia Dairy Milk Cadbury’s Ltd 0.10 South Africa Confectionery Chocolate Cadbury Schweppes S. Africa (Pty) Ltd 39.66 South Africa Confectionery Gum Cadbury Schweppes S. Africa (Pty) Ltd 36.41 South Africa Confectionery Sugar Cadbury Schweppes S. Africa (Pty) Ltd 3.45

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Western Europe

In France, where the confectionery market has been weak, the company’s gum market

share benefited from new product launches toward the end of 2002 and early 2003. In

addition to the shares listed below, Cadbury also takes 14th place in the UK Savoury

snacks market.

Cadbury Schweppes’ main UK operating business, Cadbury Trebor Bassett announced

proposals in October 2003, to close two factories - the former Adams plant in Radcliffe,

Greater Manchester and the Trebor plant at Brimmington Road, Chesterfield.

Production will cease by the end of 2004, with both sites closing in March 2005.

Production will transfer from the Radcliffe plant, which makes Halls Mentholyptus and

Soothers, to the Americas as more than 80% of the current plant’s output is exported,

mainly to that region. Production from the Chesterfield plant will be switched to other

factories, including Sheffield, in the UK.

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Table 3.17: Cadbury Schweppes’ Market Shares in Western Europe, 2002

Country Market Category Company Value% Belgium Confectionery Gum Cadbury Schweppes Plc 2.52 Denmark Confectionery Sugar Cadbury Nederland BV 3.55 Finland Confectionery Sugar Cadbury Schweppes Plc 0.30 France Confectionery Chocolate Cadbury France SA 5.05 France Confectionery Gum Cadbury France SA 48.35 France Confectionery Sugar Cadbury France SA 18.97 France Dairy Milk Cadbury France SA 1.60 France Dairy Overall Cadbury France SA 0.30 Greece Confectionery Chocolate Cadbury Schweppes Plc 1.27 Greece Confectionery Gum Cadbury Schweppes Plc 6.97 Greece Dairy Milk Cadbury Schweppes Plc 0.30 Ireland Confectionery Chocolate Cadbury Schweppes Ireland Ltd 42.53 Ireland Confectionery Gum Adams Confectionery 0.60 Ireland Confectionery Sugar Adams Confectionery 0.17 Ireland Dairy Milk Cadbury Schweppes Ireland Ltd 0.20 Ireland Dairy Overall Cadbury Schweppes Ireland Ltd 0.80 Netherlands Confectionery Chocolate Cadbury Nederland BV 0.27 Netherlands Confectionery Sugar Cadbury Nederland BV 2.42 Portugal Confectionery Chocolate Cadbury Schweppes – Prd. de Conf 15.52 Portugal Confectionery Gum Cadbury Schweppes - Prd. de Conf 1.10 Portugal Confectionery Gum Adams SA 56.12 Portugal Confectionery Sugar Cadbury Schweppes - Prd. de Conf 0.17 Portugal Dairy Milk Cadbury Schweppes - Prd. de Conf 0.50 Portugal Dairy Overall Cadbury Schweppes - Prd. de Conf 0.20 Spain Confectionery Chocolate Cadbury Dulciora SA 5.37 Spain Confectionery Gum Adams Spain SA 34.21 Spain Confectionery Sugar Adams Spain SA 4.70 Spain Confectionery Sugar Cadbury Dulciora SA 5.20 Sweden Confectionery Sugar Cadbury Schweppes Plc 0.62 Switzerland Confectionery Gum Cadbury Schweppes Plc 2.65 Turkey Confectionery Chocolate Cadbury Schweppes Plc 0.22 UK Confectionery Chocolate Cadbury Trebor Bassett Ltd 28.06 UK Confectionery Gum Adams Confectionery 3.00 UK Confectionery Sugar Cadbury Trebor Bassett Ltd 24.34 UK Confectionery Sugar Adams Confectionery 4.97 UK Savoury Snacks Overall Cadbury Trebor Bassett Ltd 0.70


Global confectionery brands

Product examples

The company’s confectionery brands are sold across the world. Its key chocolate

confectionery brands include: Cadbury Dairy Milk, TimeOut, Flake, Dream, Crunchie,

Twirl, Caramel, Creme Egg, Roses, Miniature Heroes, Wedel and Poulain.

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Sugar confectionery brands include Choclairs, Trebor, Bassett’s, Maynards, Pascall, La

Pie Qui Chante, Mantecol, Swedish Fish, Sour Patch Kids and Allan; and Miss, Elegan,

Jelibon under the Kent umbrella.

Gum brands include Hollywood, STIMOROL, V6, Dirol, Beldent, Bazooka, Sportlife,

and Kent’s Relax. The Adams acquisition brought four key confectionery brands to the

company: Halls, the world’s leading sugar confectionery brand, Dentyne and Trident

chewing gum, and the “Bubbas” range of bubblegum.

Figure 3.10: A selection of brands from Cadbury Schweppes

Source: http://www.cadburyschweppes.com/EN/Brands/About/Confectionery Business Insights

Strategies for growth

In February 2003, the company introduced a new organisational structure to clarify

accountability and enable swifter decision-making. As a result, the company has five

geographical regions supported by five business functions (Americas Beverages;

Americas Confectionery; European Beverages; Europe, Middle East and Africa

Confectionery and Asia-Pacific). A new international leadership team of 10 key

executives now report directly to the CEO, Todd Stitzer.

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Over the last seven years, Cadbury Schweppes’ strategy has been to build a series of

regionally robust and sustainable businesses in its core categories of confectionery and

beverages. In confectionery, the company has reduced its reliance on chocolate to build

a portfolio of confectionery products encompassing chocolate, sugar, medicated

confectionery and chewing gum. The acquisition of Adams has taken the company into

higher growth categories with greater potential to cross-sell different products in a

variety of markets.

In October 2003, the company set out its four-year strategic and operational agenda at

the heart of which lie the ‘Fuel for Growth’ cost reduction and ‘Smart Variety’ growth

initiatives. Although these will bring cost increases, most notably in raw materials,

insurance, employee benefits and depreciation, these are expected to be more than offset

by sales growth and margin increases. In February 2004, the company announced that

commercial and back office savings arising from the integration of Adams and

confectionery supply chain optimisation in Europe had kick-started ‘Fuel for Growth’

activities. The company stated that it expects gross cost benefits of £75 million from the

Fuel for Growth cost reduction initiative in 2004, including Adams cost synergies.

Acquisitions and disposals play a key role

Since 1997, the company has spent a total of £3.3 billion on acquisitions (not all in

confectionery markets) and realised £1.4 billion from disposals, the difference largely

funded from cash flow.

In 2000, Kraft Foods’ chewing gum and confectionery business was purchased in France

including the brands Hollywood, Kiss Cool, Krema and Malabar. The company also

acquired Wuxi-Leaf Confectionery, a manufacturer of sugar free and low sugar gum in

China. In 2001, the company added to its Argentinean confectionery business with the

acquisition of the Mantecol brand. In 2002, the company acquired 43% of Cadbury

India, taking its holding to 94%. The year also saw the acquisition of a 51% interest

(which has since increased to 65%) in Kent, Turkey’s leading sugar confectionery

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manufacturer. Also in 2002, Dandy’s branded chewing gum business in Denmark, with

the STIMOROL, V6 and Dirol brands, was acquired.

In March 2003, the company completed the acquisition of Adams from Pfizer for $4.2

billion (£2.7 billion). As a result of the acquisition, the company believes it has

leadership positions in sugar and functional confectionery and the number two position

in gum while gaining access to major new markets, particularly Latin America. Four

power brands represent over 70% of Adams sales:

Halls medicated confectionery;

Trident sugarfree gum;

Dentyne Ice chewing gum;

Bubbas bubblegum range.

Following the acquisition, Cadbury Schweppes and Adams’ confectionery businesses in

the Americas were integrated into a new unit, Americas Confectionery. Elsewhere,

Adams operations report into Cadbury Schweppes’ Europe, Middle East & Africa and

Asia Pacific regions.

NPD and brand repositioning

Over the last two years a number of new products, aiming to keep the company at the

forefront of confectionery developments, have been launched. In 2002, Sour Patch Kids

was repositioned in the United States, with the brand getting a new look, new packaging

and new flavour names. Also in 2002, Halls Fruit Breezers was launched as the first

non-mentholated product. In 2003, Shotgum, Halls’ first gum product was launched in

the UK and Ireland. Also in 2003, Trident White launched 3Sku (spearmint).

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SWOT analysis

The following section provides a brief appraisal of the performance and strategy of

Cadbury Schweppes’ food businesses in the form of a SWOT analysis, highlighting the

relative strengths, weaknesses, opportunities and threats faced by the company.

A trusted brand that has diversified its portfolio

Cadbury Schweppes is one of the biggest international beverage and confectionery

companies in the world that together with a history stretching back over 200 years,

earns the company and its brands a significant amount of trust and loyalty from

consumers.

A series of acquisitions over the last 20 years has repositioned the company’s

confectionery portfolio so that it is no longer reliant on chocolate products. A

diversified and well-balanced portfolio now includes leading brands across the

chocolate, sugar, medicated confectionery and chewing gum segments. The acquisition

of Adams, in particular, gives the company a more global presence and better prospects

for growth.

Action to remedy production and organisational inefficiency

Perhaps as a consequence of the large number of acquisitions that the company made in

recent years, a number of production and organisational inefficiencies manifested

themselves.

In fairness to the company, these are now being addressed, with recently announced

changes in changes in Brazil and the UK in particular. In Canada, the confectionery

business is being reorganised both to focus on a smaller range of more profitable

branded products and to reduce direct and indirect costs, which are uncompetitive. The

company has also introduced a new organisational structure to clarify accountability and

enable swifter decision-making.

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Industry analysts have also questioned the company’s long-term benefits from operating

a drinks business, particularly in fiercely competitive U.S. markets, along side a global

confectionery business.

Figure 3.11: Cadbury Schweppes SWOT analysis

• Strong brands earn a significant amount of trust and loyalty from consumers • A well balanced portfolio now includes leading brands across the chocolate, sugar, medicated confectionery and chewing gum segments

• Will changing consumer tastes, which favour healthy, sugar-free alternatives, limit growth in traditional markets?• Must continue to innovate and support brands with high quality marketing to maintain awareness and consumer loyalty

• Integration of Adams brings greater potential to cross-sell different products in a variety of markets• Distribution channels in confectionery markets offer margin growth

• Production and organisational inefficiencies must be addressed• Weaker performance in Asian markets in 2003• Analysts question whether a drinks business fits well with global confectionery operations?

Company Strengths

Company ThreatsCompany Opportunities

Company Weaknesses

Source: Author research and analysis Business Insights

Though further outside the immediate control of the company, markets in Asia have also

suffered decreasing operating profits, particularly in Australia and China, as a

combination of reduced consumer demand following significant price increases, de-

stocking by the trade and the impact of SARS.

As the company strives to deliver the benefits of the Fuel for Growth initiative, it

anticipates cost increases during 2004, most notably in raw materials, insurance,

employee benefits and depreciation. Unfortunately for the company this is inevitable in

the short-term if it is to ensure more profitable longer-term growth.

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Access to higher growth categories

The greatest source of future growth for the company is likely to be from the full

integration and growth potential of the Adams business. As a result of the acquisition,

the company now believes it has leadership positions in sugar and functional

confectionery and the number two position in gum while gaining access to major new

markets. The acquisition of Adams has taken the company into higher growth categories

with greater potential to cross-sell different products in a variety of markets, particularly

as chocolate confectionery markets become increasingly mature.

The expansion of distribution channels in confectionery also offers Cadbury Schweppes

an opportunity to boost sales. Whilst supermarkets are increasing their share of the

confectionery market, value growth has not accompanied volume growth as prices have

lowered. However, an increase in sales via the impulse market, at convenience stores

where overall margins are greater, will see value growth in the market.

Threat to indulgence from healthier alternatives

Whilst the company has introduced a number of new products over the last two years,

aiming to keep the company at the forefront of confectionery developments, it cannot

rest easy. In addition to innovation, the company must support its products with high

quality marketing if it is to maintain brand awareness and loyalty amongst consumers

that are becoming increasingly fickle.

Consumers, increasingly aware of the health implications of indulging themselves on

confectionery, will start to look to products they see as being healthier or a sugar-free

alternative. While the acquisition of Adams in the gum sector, where such products have

long been accepted, reduces Cadbury’s reliance on chocolate markets, it is only recently

that chocolate manufacturers have introduced such alternatives and the company cannot

afford to be left behind by such initiatives.

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Chapter 4

Danone

68

Chapter 4 Danone

Summary

Danone operates with three core businesses (fresh dairy products; beverages; cereal biscuits and snacks).

The company operates a portfolio of major international brands yet around 70% of its sales come from brands that are local market leaders.

Four brands represent almost 60% of the company’s sales. These are Danone (in fresh dairy products), LU (cereal biscuits and crackers) and Evian and Volvic (in the bottled water market).

At the start of 2003, the company set out its targets for the year, including an increase in like-for-like sales of between 5% and 7%. At the interim stage, Danone announced a 7.2% rise in sales, largely driven by the fresh dairy products and beverages sectors.

In December 2003, Danone announced that it had acquired Nestlé’s dairy business in Turkey, in a move that will double its sales in Turkey and strengthen its leading position in fresh dairy products.

In January 2004, Danone increased its shareholding in Stonyfield Farm from 40% to 80%. Stonyfield Farm is the largest organic yoghurt producer in the United States.

The sale of Galbani’s cheese business at the beginning of 2002 continued the Group’s strategy towards a more focused business, and meant that nearly all Group sales were in the three core businesses.

In addition to a greater focus on its three core business segments, the Group’s strategy extends to geographical targets. Although around 31% of sales are in emerging markets, the Group aims to increase this share to 40%.

Growth strategies in emerging markets link high-profile brands with wide-ranging distribution for sales close to consumers. Leading positions in local markets enables the Group to build long-term relationships with major retailers.

One of the most successful NPD launches of recent years was the Actimel brand, a drinkable yoghurt, developed to meet the latest trends in snacking.

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About Danone

Danone operates with three core businesses (fresh dairy products; beverages; cereal

biscuits and snacks). The company claims to be the global leader in the fresh dairy

products and bottled water markets and number two in cereal biscuits and snack

crackers. The company operates a portfolio of major international brands yet around

70% of its sales come from brands that are local market leaders.

History

Danone has its origins in glass packaging. Two glass companies, the Souchon-Neuvesel

glassworks and Glaces de Boussois, merged in 1966. Boussois-Souchon-Neuvesel,

which later became BSN, had an annual turnover of one billion francs. In 1969, BSN

took control of Evian (which, in addition to Badoit, owned the brand names

Jacquemaire and Fali), Kronenbourg and the European Breweries Company in 1970.

BSN wanted to start making the contents for its containers and the acquisitions meant

that BSN became the leading French manufacturer of beer, mineral waters and baby

food. In 1973, BSN and Gervais Danone merged to create the biggest food group in

France. Pasta, ready meals, fresh packaged foods and drinks became the Group’s main

product lines. By 1979, its estimated turnover was 16.5 billion francs.

In 1981, the Group exited the plate glass sector, selling off Boussois. Since then, the

Group has focused predominantly on food. BSN Gervais Danone decided at the start of

the 1980s to expand and particularly because of the low concentration of supermarket

and hypermarket chains, Italy and Spain were identified as key areas of growth. Through

a series of takeovers, partnerships and joint ventures, BSN Gervais Danone acquired a

large number of local companies in its traditional areas of business as well as new ones

(confectionery, sauces and condiments). In 1986, BSN Gervais Danone acquired

General Biscuit, a group with a network of companies in Germany, Belgium, France, the

Netherlands and Italy. The takeover marked its entry into the biscuit industry. In 1989

BSN Gervais Danone added to its portfolio of biscuit brands, acquiring Nabisco’s

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European subsidiaries: Belin in France, Jacob’s in the UK and Saiwa in Italy. Within less

than 20 years, the Group’s turnover had risen to 48.7 billion francs.

In 1993, following expansion into Eastern Europe, BSN Gervais Danone created a

specialised export division. The strategy was to determine which brands had

international potential. In June 1994, the Group dropped BSN from its name and

adopted Danone, the name of its leading brand, which was produced in 30 countries and

accounted for about one-quarter of its turnover. By 1996, Group turnover had reached

83.9 billion francs. In May 1997, the company announced a new strategy to focus on

three main market sectors: fresh dairy products, cereal biscuits & snacks and beverages.

The new strategy led to the sell-off of the Group’s grocery and confectionery brands. In

1999, the Group sold its Container business and withdrew from brewing activities,

followed by the sale of Galbani (a leader of the Italian cheese market and a major player

in the cured meat market) in 2002. In 2003, the Group employed over 100,000 people in

more than 120 countries.

Recent performance

In 2002, changes to the structure of the company, combined with negative exchange

rate effects, resulted in a decline in sales of 6%. Structural changes principally concerned

the sale of Galbani and to a lesser extent, changes at the bottled U.S. spring water

business as a result of a partnership agreement with The Coca Cola Company.

Additionally, acquisitions during the year, of which the main two were Frucor and

Shape, offset the disposals to only a very limited extent. On a like-for-like basis, organic

sales growth of 6% was recorded in 2002, derived from a 3.8% rise in volume and a

2.2% rise in value.

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Performance in 2003

At the start of 2003, the company set out its targets for the year. Among them was an

increase in like-for-like sales of between 5% and 7% and an increase in the operating

margin by 20 to 40 basis points.

At the interim stage, Danone announced a 7.2% rise in sales, largely driven by the fresh

dairy products and beverages sectors. The company reported that European sales rose

steadily, while business in Asia remained firm despite the SARS epidemic, in the second

quarter. Operating margin increases reflected growth in sales volumes plus the recent

disposal of business with profitability below the Group average.

Announcing its preliminary full-year 2003 results, in February 2004, Danone announced

overall consolidated net sales of €13,131 million, decreasing by 3.1%. However, at

constant exchange rates and on a like-for-like basis, net sales increased by 7.2%. Poor

performances in the company’s biscuit division led to speculation that the company may

seek a buyer for this part of the business. The overall 2003 performance was also

impacted by delays and cost rises to the company’s efficiency programme, Themis,

although Danone has raised its expectations of the potential cost savings through this

programme.

Financial performance 2003

Table 4.18: Danone financial performance 2000—2003

€ m 2000 2001 2002 2003 Turnover 14,287 14,470 13,555 13,131 Operating Profit 1,550 1,609 1,590 1,604


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Figure 4.12: Danone financial performance 2000—2003; turnover and operating profit

2000 2001 2002

Euro m

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000


2003


Table 4.19 illustrates the performance of the fresh dairy products, biscuits and cereals

and other food segments. Operating profit in the biscuits and cereals division dropped by

over 11% in 2003, as sales in the division fell by almost 5%.

Table 4.19: Danone food business performance 2000—2003

€ m 2000 2001 2002 2003 Fresh Dairy Products Turnover 6,530 6,945 6,276 6,185 Operating Profit 712 790 802 845 Biscuits and Cereal Turnover 3,255 3,371 3,232 3,071 Operating Profit 282 316 317 280 Other Food Turnover 378 375 356 318 Operating Profit 49 60 61 57


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In June 2003, Danone agreed to sell its remaining 44% stake in BSN Glasspack (a glass

packaging company) to Glasspack Participations, a holding company financed by

investment funds advised by CVC Capital Partners.

In December 2003, Danone announced that it had acquired Nestlé’s dairy business in

Turkey (subject to the approval of the Turkish antitrust authorities), in a move that will

double its sales in Turkey and strengthen its leading position in fresh dairy products. The

deal also includes the UHT milk business of Nestlé. Danone will own the local Mis

trademark and Nestlé branded products will be gradually integrated in Danone’s brand

portfolio including Danone, Tikvesli and Birtat.

At the same time, it was announced that Danone has assumed control of its Turkish

operations through the acquisition of the 50% shareholding held up to now by the

Turkish group Sabanci. Danone and Sabanci had been partners in this joint venture since

1997, developing leading positions in the fresh dairy products and water markets

(bottles under Hayat and Akmina brands and jugs under Flora brand).

In January 2004, Danone announced that it had increased its shareholding in Stonyfield

Farm, acquired in October 2001, from 40% to 80%. With sales around $140 million in

2003, Danone believes that Stonyfield Farm is the largest organic yoghurt producer in

the United States, growing annually, on average, over 20% on the last decade. It

believes that Stonyfield Farm belongs in the top four brands in the U.S. yoghurt market.

Market positioning

Dominant positions in every region

In the United States, Danone claims to be a leading producer of fresh dairy foods. In

addition, the Group claims to be the market leader in the Canadian bottled-water

market, and rank second in bottled water in North America. The company claims that

Evian is the premier brand of still bottled water in the United States.

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The Americas

In Latin America, Danone entered the fresh dairy market in Brazil in 1970 and in

Mexico in 1973. The Group claims to have leadership positions in these markets and

also in Argentina. The Group has also become a leading producer of cereal biscuits and

snack foods in South America (leading the Argentine and Brazilian markets), with the

Bagley’s and Danone brands.

Table 4.20: Danone market shares in the Americas, 2002

Country Market Category Company Value% Argentina Dairy Milk Danone Argentina 1.00 Argentina Dairy Overall Danone Argentina 6.40 Argentina Dairy Yoghurt Danone Argentina 57.70 Brazil Dairy Cheese Danone Ltda 1.30 Brazil Dairy Milk Danone Ltda 2.57 Brazil Dairy Overall Danone Ltda 6.30 Brazil Dairy Yoghurt Danone Ltda 30.60 Canada Dairy Overall Danone Inc 3.70 Canada Dairy Yoghurt Danone Inc 34.50 Mexico Dairy Overall Danone de México SA de CV 3.20 Mexico Dairy Yoghurt Danone de México SA de CV 23.90 US Dairy Overall Stonyfield Farm 0.20 US Dairy Yoghurt Stonyfield Farm 3.10


Asia-Pacific

Danone’s development in Asia-Pacific began in 1980, with a joint venture to

manufacture and market fresh dairy products in Japan. The company now claims to be

the leading producer of bottled water and biscuits in the region. This position is based

on penetration in a limited number of key countries and strong local brands.

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Table 4.21: Danone market shares in Asia-Pacific, 2002

Country Market Category Company Value% China Dairy Overall Shanghai Danone Yoghurt Co Ltd 0.50 China Dairy Yoghurt Shanghai Danone Yoghurt Co Ltd 7.30 Hong Kong Dairy Overall Danone, Groupe 1.10 Hong Kong Dairy Yoghurt Danone, Groupe 20.80 Japan Dairy Overall Calpis Ajinomoto Danone Co Ltd 0.70 Japan Dairy Yoghurt Calpis Ajinomoto Danone Co Ltd 3.60 Singapore Dairy Overall Danone, Groupe 0.20 Singapore Dairy Yoghurt Danone, Groupe 2.90 Singapore Savoury Snacks Overall Danone Marketing (S) Pte Ltd 11.30


Eastern Europe

Danone did not expand into Central and Eastern Europe until the 1990s, where,

according to the company, it quickly reached the rank of leader in fresh dairy products,

with the Danone brand, and in cereal biscuits and snack foods under the Opavia and

Bolshevik labels.

In January 2004, Danone announced that via its Russian subsidiary, Bolshevik, it is to

acquire Chupa Chups’ soft cake business in Russia (Chok and Rolls company). Danone

believes that with sales around $20 million in 2003, under the Tornado brand, the Chok

and Rolls company is the joint leader of the swiss rolls segment in Russia. Danone has

been present in the biscuits market in Russia since 1994, through the acquisition of

Bolshevik, with sales over $60 million in 2003.

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Table 4.22: Danone market shares in Eastern Europe, 2002

Country Market Category Company Value% Bulgaria Dairy Milk Danone Serdika AD 5.00 Bulgaria Dairy Overall Danone Serdika AD 8.70 Bulgaria Dairy Yoghurt Danone Serdika AD 36.90 Czech Republic Dairy Cheese Danone as 0.90 Czech Republic Dairy Milk Danone as 6.10 Czech Republic Dairy Overall Danone as 10.80 Czech Republic Dairy Yoghurt Danone as 37.20 Hungary Dairy Overall Danone Kft 7.00 Hungary Dairy Yoghurt Danone Kft 34.20 Poland Dairy Overall Danone Polska Sp zoo 5.20 Poland Dairy Yoghurt Danone Polska Sp zoo 33.30 Romania Dairy Overall Danone Romania SRL 3.60 Romania Dairy Yoghurt Danone Romania SRL 19.70 Russia Dairy Overall Danone Volga ZAO 0.50 Russia Dairy Yoghurt Danone Volga ZAO 9.70 Slovakia Dairy Overall Danone as 2.60 Slovakia Dairy Yoghurt Danone as 13.30 Slovakia Savoury Snacks Overall Danone as 4.20 Ukraine Dairy Overall Danone, Groupe 1.00 Ukraine Dairy Yoghurt Danone, Groupe 3.20 Source: Author analysis of Datamonitor research Business Insights

Middle East and Africa

Recent acquisitions in Morocco and Tunisia have extended the company’s previously

limited presence on the African continent. Despite this, the company claims to be the

market leader in the fresh dairy products segment in South Africa and holds strong

positions in Saudi Arabia, Morocco, Tunisia, Algeria and Israel.

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Table 4.23: Danone market shares in the Middle East and Africa, 2002

Country Market Category Company Value% Morocco Dairy Overall Danone, Groupe 5.90 Morocco Dairy Yoghurt Danone, Groupe 74.70 Saudi Arabia Dairy Milk Al Safi Danone 16.70 Saudi Arabia Dairy Overall Al Safi Danone 15.70 Saudi Arabia Dairy Yoghurt Al Safi Danone 34.00 Saudi Arabia Savoury Snacks Overall Danone, Groupe 0.10 South Africa Dairy Cheese Danone Clover (Pty) Ltd 10.80 South Africa Dairy Milk Danone Clover (Pty) Ltd 29.20 South Africa Dairy Overall Danone Clover (Pty) Ltd 27.40 South Africa Dairy Yoghurt Danone Clover (Pty) Ltd 54.50


Western Europe

Western Europe represents about 70% of the Group’s sales. According to company

literature, its is ranked number one in fresh dairy products, number one in cereal biscuits

and snack foods and number two in bottled water. The company’s main brands in

Western Europe are Danone, Lu, Jacob’s, Blédina, Evian and Chateau d’eau.

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Table 4.24: Danone market shares in Western Europe, 2002

Country Market Category Company Value% Austria Dairy Milk Danone GesmbH Austria 8.30 Austria Dairy Overall Danone GesmbH Austria 7.10 Austria Dairy Yoghurt Danone GesmbH Austria 8.00 Belgium Dairy Milk Danone NV/SA 5.50 Belgium Dairy Overall Danone NV/SA 9.80 Belgium Dairy Yoghurt Danone NV/SA 22.20 Belgium Confectionery ChocolateLU Benelux/General Biscuits België SA 2.50 Belgium Savoury Snacks OverallLU Benelux/General Biscuits België SA 1.90 Denmark Dairy Overall Danone A/S 0.80 Denmark Dairy Yoghurt Danone A/S 7.70 Finland Dairy Overall Danone Finland Oy 0.70 Finland Dairy Yoghurt Danone Finland Oy 6.40 France Dairy Milk Danone France SA 6.90 France Dairy Overall Danone France SA 13.20 France Dairy Yoghurt Danone France SA 38.80 France Savoury Snacks Overall LU SA 3.80 Germany Dairy Milk Danone GmbH 2.50 Germany Dairy Overall Danone GmbH 3.80 Germany Dairy Yoghurt Danone GmbH 8.10 Ireland Dairy Milk Danone Ireland Ltd 1.00 Ireland Dairy Overall Danone Ireland Ltd 2.20 Ireland Dairy Yoghurt Danone Ireland Ltd 10.70 Italy Confectionery Chocolate Saiwa SpA 0.22 Italy Dairy Milk Danone SpA 1.30 Italy Dairy Overall Danone SpA 3.00 Italy Dairy Yoghurt Danone SpA 27.00 Italy Savoury Snacks Overall Saiwa SpA 3.90 Netherlands Dairy Milk Danone Nederland BV 0.60 Netherlands Dairy Overall Danone Nederland BV 1.80 Netherlands Dairy Yoghurt Danone Nederland BV 1.50 Portugal Dairy Milk Danone Portugal SA 0.30 Portugal Dairy Overall Danone Portugal SA 5.20 Portugal Dairy Yoghurt Danone Portugal SA 20.80 Spain Dairy Cheese Danone SA 1.20 Spain Dairy Milk Danone SA 0.80


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Table 4.25: Danone market shares in Western Europe, 2002 continued

Country Market Category Company Value% Spain Dairy Overall Danone SA 19.50 Spain Dairy Yoghurt Danone SA 56.00 Sweden Dairy Overall Danone, Groupe 0.10 Sweden Dairy Yoghurt Danone, Groupe 0.80 Switzerland Dairy Overall Danone, Groupe 0.20 Turkey Dairy Overall Danone SA 5.90 Turkey Dairy Overall Danonesa Gida San ve Ticaret AS 1.50 Turkey Dairy Yoghurt Danone SA 11.60 Turkey Dairy Yoghurt Danonesa Gida San ve Ticaret AS 2.20 UK Dairy Milk Danone Ltd 1.00 UK Dairy Overall Danone Ltd 0.50 UK Dairy Yoghurt Danone Ltd 0.60


Leading brands at Danone

Four brands represent more than 50% of the company’s sales, which the company have

dominant positions in worldwide markets. These are:

Danone: the leading brand worldwide for fresh dairy products;

LU: the world’s second largest cereal biscuit and snack crackers brand;

Evian and Volvic - two of the four biggest bottled water brands worldwide.

Product examples

Figure 4.13: A selection of brands from Danone

Source: http://www.danonegroup.com/brands/index_brands.html Business Insights

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A focus on high growth segments that match consumer needs

Danone follows a strategy of profitable growth, which is centred, on innovation and,

despite its global nature, close ties to consumers.

The sale of Galbani’s cheese business at the beginning of 2002 continued the Group’s

strategy towards a more focused business, and meant that nearly all Group sales were in

the three core businesses - fresh dairy, beverages, and biscuits and cereal. The Group

believes that growth rates in these segments are among the highest in the food industry

and that the momentum reflects a close match with trends in consumer tastes,

particularly with products associated with health, wellbeing and convenience. Poor

performances in the biscuit division in 2003 led to speculation in early 2004 that a buyer

may be sought for the division. However, this followed increased investment in the

division by Danone in January 2004, when it acquired Chupa Chups’ soft cake business

in Russia.

In addition to a greater focus on its three core business segments, the Group’s strategy

extends to geographical targets. Although around 31% of sales are in emerging markets,

the Group aims to increase this share to 40%, which will enable it to benefit from the

growth potential of developing economies and also the steady demand of more mature

markets. The international expansion strategy has focused on a limited number of

countries, selected for their growth potential.

Growth strategies in emerging markets link high-profile brands with efficient, wide-

ranging distribution for sales close to consumers. Leading positions in local markets has

enabled the company to build long-term agreements with major retailers, providing

added competitive advantage in addition to that achieved in terms of its marketing

expertise, industrial efficiency, breadth of product ranges and targeted R&D.

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With almost 60% of Group sales recorded from four brands (Danone, Evian, LU and

Wahaha) and 97% sourced to the Group’s three main segments, the Group is able to

optimise its marketing expenditure which, in turn, provides a key advantage in the

strategy of profitable growth centred on innovation and close links to consumers. This is

being consolidated with the extension and promotion of tag brands such as

Taillefine/Vitalinea for low-fat products and Prince for children’s snacks.

Success in NPD

A focus for Danone in recent months has been the introduction of premium products

into their portfolios. The company sees this as a means of differentiating its products

from less expensive, private label alternatives.

Danone’s worldwide R&D centre, Danone Vitapole, serves all three of the Group’s core

businesses. Operational since September 2002, Danone Vitapole undertakes work on

research, development, quality control and food safety. Based in Palaiseau, France, the

company employs an R&D community of over 1,000 staff, including 600 researchers

and engineers to develop the Groups’ products and processes. Exchanges of research

between divisions have generated insights with the potential for short and medium-term

development, with applications in each business line for deployment in multiple markets.

Recent successes have included Actimel, a drinkable yoghurt, developed to meet the

latest trends in snacking. The sales of Actimel, a product present in 15 countries, grew

at an annual rate of more than 40% in 2000. Powered by strong growth in traditional

European markets, Actimel was launched in Mexico, Poland and Argentina. Similar

drinkable yoghurts have become a key element in the growth of the Group’s fresh dairy

products business: Drinkable Bio in Spain, Danimals Drinkable in the United States,

Danonino in Mexico and Drinkable Petit Gervais in a number of other countries.

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Online purchasing accounts for one-quarter of purchases

Danone is an active user of CPGmarket.com, an online marketplace for consumer

packaged goods that the company co-founded in 2001. Danone has used the site for

over 1,000 projects covering raw materials, packaging and services, in more than 160

markets. In 2002, Internet transactions accounted for over 25% of volumes purchased

by Danone worldwide and 35% of the total for Western Europe. Over 40 Danone

subsidiaries in 20 countries use CPGmarket.com and overall, buyers have used it to

negotiate contracts totalling over €1.5 billion.

Also in 2001, Danone launched THEMIS, a programme promoting dissemination of

best practices throughout the Group. THEMIS simplifies and harmonises operating

processes across all business functions, from sales to production. Improved sales

forecasts and planning is optimising the flow of finished products and raw materials,

thus reducing inventories and the risk of building up stocks of products that have passed

their expiry date. After successful testing at four pilot sites, Group-wide deployment of

THEMIS began in mid-2002. Although the costs of the programme increased in 2003,

the level of potential cost-savings was also upgraded. By 2004, some 30 companies

around the world will have completed implementation.

SWOT analysis


Danone in the form of a SWOT analysis, highlighting the relative strengths, weaknesses,

opportunities and threats faced by the company.

Leadership brings competitive advantages

Danone claims to be the global leader in the fresh dairy products and bottled water

markets and number two in cereal biscuits and snack crackers. With size and leadership

comes the ability to negotiate strong distribution agreements with supermarket chains.

This provides added competitive advantage in addition to that achieved in terms of its

marketing expertise, industrial efficiency, breadth of product ranges and targeted R&D.

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The sale of non-core businesses means that Danone is a more focused business and

nearly all Group sales are in three core businesses, fresh dairy, beverages, and biscuits

and cereal, where it has most expertise.

Despite the fact that the company is a global leader, it remains ‘close to the ground’ and

tailors its expertise to meet the needs of local markets. Around 70% of sales come from

brands that are local market leaders.

With almost 60% of Group sales recorded from four brands (Danone, Evian, LU and

Wahaha) and 97% sourced to the Group’s three main segments, Danone is able to

optimise its marketing expenditure which, in turn, provides a key advantage in the

strategy of profitable growth centred on innovation and close links to consumers.

Figure 4.14: Danone SWOT analysis

• Leadership allows the company to negotiate strong agreements with retailers

• The sale of non-core businesses means that Danone is now a more focused business

• Danone is able to optimise its marketing expenditure which, provides a key advantage

• A focus for Danone in recent months has been the introduction of premium products to counter threats from less expensive, private label alternatives

• In Spain, Danone faced the threat of legal action for alleged abuse of its market dominance

• The acquisition of Nestlé’s dairy business in Turkey will double its sales in Turkey and strengthen its leading position in fresh dairy products

• Danone believes that growth rates in its three core segments are among the highest in the food industry

• The company has ambitious targets for sales growth in emerging markets

• Despite the fact that the company realises the majority of its sales from local market leaders, Western European markets account for about 70% of the Group's sales

• Similarly, Danone is heavily reliant on the sales of its four major brandsand the performance of three core categories

Company Strengths


Company Weaknesses


• The sale of non-core businesses means that Danone is now a more




• The acquisition of Nestlé’s dairy business in Turkey will double its sales

position in fresh dairy products





Company Strengths


Company Weaknesses


• The sale of non-core businesses means that Danone is now a more focused business




• The acquisition of Nestlé’s dairy business in Turkey will double its sales in Turkey and strengthen its leading position in fresh dairy products





Company Strengths


Company Weaknesses


• The sale of non-core businesses means that Danone is now a more




• The acquisition of Nestlé’s dairy business in Turkey will double its sales

position in fresh dairy products





Company Strengths


Company Weaknesses

Source: Author research Business Insights

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Over reliance on regions, brands and categories

Despite the fact that the company realises the majority of its sales from local market

leaders, Western European markets account for about 70% of the Group’s sales. This is

a particularly high proportion for a global company. Whilst it is as susceptible as other

companies to regional factors that influence a market, these may have a greater impact

upon Danone due to its reliance in the region.

Similarly, whilst its four major brands is a strength of the company, which together

represent almost 60% of the company’s sales, any disruption to one of these, be it

product- or category-related, could have far-reaching consequences on the company’s

performance. This was seen to some extent with the poor performances in 2003 of the

company’s biscuit and cereals division.

Continuing the theme, following regional and product concentration, the sale of

Galbani’s cheese business at the beginning of 2002 meant that nearly all Group sales

were in the three core businesses, fresh dairy, beverages, and biscuits and cereal, leaving

the company heavily reliant upon the performance of these categories.

Expanding into emerging markets

In December 2003, Danone announced that it had acquired Nestlé’s dairy business in

Turkey in a move that will double its Turkish sales and strengthen its leading position in

fresh dairy products. The deal also includes the UHT milk business of Nestlé.

Though nearly all Group sales are in the three core businesses, the company believes

that growth rates in these segments are among the highest in the food industry and that

the momentum reflects a close match with trends in consumer tastes, particularly with

products associated with health, wellbeing and convenience.

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In addition to a greater focus on its three core business segments, the Danone’s strategy

extends to geographical targets. Although around 31% of sales are in emerging markets,

the Group aims to increase this share to 40%.

Growth of private labels and legal action in Spain

In Spain, the company faced the threat of legal action from Müller in the premium

yoghurt market. In March, Danone launched two new yoghurt lines, Maxifruit and

Duetto, taking a similar position to Müller’s own premium line of yoghurts, Capa and

Duo. Müller reacted by accusing Danone of abusing its dominance of the market in

launching the products, suggesting that it may have prevented the introduction of

Müller’s own products into the retail network, especially in chains that are already

heavily dependent on Danone’s existing range of dairy products. Danone has denied any

sort of misconduct.

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Chapter 5

General Mills

87

Chapter 5 General Mills

Summary

General Mills is a global manufacturer of consumer foods products with more than 100 U.S. consumer brands, over 30 of which generate annual retail sales in excess of $100 million.

In 2001, General Mills acquired Pillsbury, maker of refrigerated dough products, baked goods, pizzas, snacks, soups and Mexican foods, for $10.5 billion from Diageo of the UK.

In the year to May 2003, General Mills’ net sales grew 32% to $10.5 billion, reflecting an incremental five months of Pillsbury results. On a comparable basis sales grew 6%.

The company’s major businesses include Big G cereals, with consumer brands such as Cheerios, Wheaties and Lucky Charms; convenient dinner options including the Betty Crocker, Old El Paso Mexican and Green Giant vegetables brands; bakery and dough products from Pillsbury; a range of snack brands and Yoplait, a market leader in the US with products such as Yoplait Original, Yoplait Light, Colombo, Trix yoghurt, Yumsters, and Go-GURT.

Within General Mills’ International Division, the portfolio of brands includes Häagen-Dazs, Pillsbury, Betty Crocker, Green Giant and Old El Paso Mexican foods. Cereal Partners Worldwide is a joint venture with Nestlé that builds cereal brands in international markets.

In 2004 General Mills has set out to focus on four strategies that have already proved successful in the past. The strategies are: product innovation, channel expansion, international expansion and margin expansion.

General Mills is looking to capture a growing share of away-from home food sales, whilst international expansion is also an important target for the company.

The addition of Pillsbury has enhanced these strategies and the company’s mix of retail categories offers further opportunities for product and marketing innovation, especially with the expansion of distribution networks of the leading brands into fast-growing retail channels, including natural and organic stores.

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About General Mills

General Mills is a leading global manufacturer of consumer foods products. Its global

brand portfolio includes Betty Crocker, Pillsbury, Green Giant, Haagen-Dazs, Old El

Paso and Bugles. It also has more than 100 U.S. consumer brands, more than 30 of

which generate annual retail sales in excess of $100 million.

General Mills is also a leader in the bakeries and foodservice business as a major

supplier of baking and other food products to the foodservice and commercial baking

industries. Additionally, the company markets organic food products under the brands

Cascadian Farm and Muir Glen, and refrigerated entrées under the Lloyd’s brand. The

company employs 28,000 people worldwide, operates in more than 30 markets around

the world and exports to more than 90 countries.

History

The company has its roots in the late nineteenth century when, in 1866, Cadwallader

Washburn built a flourmill on the banks of the Mississippi River in Minneapolis, United

States. In 1869, Charles Pillsbury acquired Minneapolis Flour Mills. In 1928, General

Mills was founded through the merger of several milling companies. In 1966, General

Mills introduced Bugles, one of the company’s first snack products and in 1967

Pillsbury acquired Burger King.

In 1977, General Mills launched Yoplait yoghurt in America. In 1979, Pillsbury acquired

Green Giant and followed this with the acquisition of Häagen-Dazs in 1983. In 1989,

Pillsbury was acquired by Grand Metropolitan plc in the UK (which later merged with

Guinness to form Diageo).

In the early 1990s, General Mills formed two important strategic joint ventures: Cereal

Partners Worldwide, with Nestlé, and Snack Ventures Europe, with PepsiCo. In May

1995, the company completed its concentration on consumer packaged foods with the

spin-off to shareholders of the General Mills Restaurants Division as a separate public

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company, Darden Restaurants, Inc. In 2001, General Mills acquired Pillsbury,

manufacturer of refrigerated dough products, baked goods, pizzas, snacks, soups and

Mexican foods, for $10.5 billion from Diageo of the UK.

Recent performance

A good performance in 2003 despite problems in bakery

In the company’s fiscal year to May 2003, General Mills’ net sales grew 32% to $10.5

billion, reflecting both a strong performance of existing operations plus an incremental

five months of Pillsbury results. On a comparable basis (as if the company had owned

Pillsbury for all 12 months of both 2002 and 2003) sales grew 6%. The company’s profit

margin expanded as it captured cost synergies from the Pillsbury acquisition and net

earnings doubled to $917 million.

In the United States, net sales for the retail operations increased by 25% to exceed $7.4

billion, and operating profits grew 66% to $1.8 billion pre-tax. On a comparable basis,

unit volumes increased 4%, led by gains from Big G cereals, Yoplait yoghurt, Betty

Crocker dinner mixes and Progresso ready-to-serve soups.

The bakeries and foodservice division had a difficult year in 2003. Though sales

increased by 42%, operating profits and comparable unit volume were static, reflecting a

downturn in U.S. foodservice markets. In addition, price increases that were

implemented to offset higher commodity costs took longer than planned to realise.

For the company’s international business results, net sales for the wholly owned

international businesses grew 67% to reach $1.3 billion. In addition, the company’s

proportionate share of international joint venture revenues increased to more than $990

million. Comparable unit volumes increased by 2%, as gains were recorded in every

geographic region but Latin America, where volumes fell 20% due to difficult

macroeconomic conditions.

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Table 5.26: General Mills financial performance 2001—2004

US$ m 2001 2002 2003 Interim 2003 Interim 2004 (1) Turnover 5,450 7,949 10,506 5,315 5,578 Net Earnings 665 458 917 452 535 Note: (1) 26 weeks ending November 23rd, 2003.


Figure 5.15: General Mills financial performance 2001—2004; turnover and net earnings

0

2,000

4,000

6,000

8,000

10,000

12,000

2001 2002 2003 Interim 2003

Interim2004

TurnoverNet Earnings

$m

0

2,000

4,000

6,000

8,000

10,000

12,000

2001 2002 2003 Interim 2003

Interim2004

TurnoverNet Earnings

$m


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Table 5.27 illustrates the performance of the various divisions of General Mills in

2002—2003.

Table 5.27: General Mills performance by division 2002—2004

Net Sales, US$ m 2002 2003 Interim 2004 (1) Big G Cereals 1,866 1,998 Meals 1,144 1,702 Pillsbury USA 793 1,438 Snacking Products 722 788 Yoghurts/Organic/Other 815 932 Total US Retail 5,907 7,407 3,926 Bakeries and Foodservice 1,264 1,799 899 International 778 1,300 753 Note: (1) 26 weeks ending November 23rd, 2003.


Market positioning

A portfolio of international brands

The company’s major businesses include Big G cereals, a leader in the U.S. ready-to-eat

cereal category, with consumer brands such as Cheerios, Wheaties and Lucky Charms.

The meals division manufactures convenient dinner options under a number of brands

including Helper casseroles, Betty Crocker potato mixes, Old El Paso Mexican foods,

Progresso soups, Green Giant vegetables and meal starters, and Lloyd’s refrigerated

entrées.

According to General Mills, Pillsbury is the market leader in the refrigerated dough

category. Other products from the Pillsbury division include Pillsbury Home Baked

Classics, Pillsbury frozen waffles, and Totino’s frozen pizza and snacks.

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Table 5.28: General Mills market shares, 2002

Country Market Category Company Value% Argentina Chilled Food Overall Pillsbury Argentina SA 5.78 Australia Chilled Food Overall Pillsbury Australia Pty Ltd 13.51 Belgium Savoury Snacks Overall Smiths Food Group BV 22.30 Brazil Chilled Food Overall Pillsbury Brasil Ltda 5.68 Canada Confectionery Sugar General Mills Canada Inc 6.62 China Savoury Snacks Overall General Mills (China) Co Ltd 1.00 Ireland Savoury Snacks Overall Pillsbury Ireland Ltd 0.70 France Savoury Snacks Overall General Mills France SAS 0.50 Hong Kong Savoury Snacks Overall General Mills Inc 0.20 Hungary Savoury Snacks Overall SVE Hungary Kft 15.90 Netherlands Savoury Snacks Overall Smiths Food Group BV 33.40 Netherlands Savoury Snacks Overall Smiths Food Group BV 33.40 New Zealand Chilled Food Overall Pillsbury Australia Pty Ltd 4.13 Portugal Savoury Snacks Overall Pillsbury Ibérica SA 2.40 South Africa Savoury Snacks Overall Pillsbury SA (Pty) Ltd 0.40 Spain Savoury Snacks Overall Snack Ventures SA 40.30 US Chilled Food Overall General Mills Inc 0.58 US Savoury Snacks Overall General Mills Inc 2.80 US Dairy Overall General Mills Inc 2.10 US Confectionery Sugar General Mills Inc 4.55 US Dairy Yoghurt General Mills Inc 31.80 Venezuela Chilled Food Overall Pillsbury de Venezuela CA 3.54


The company’s baking products division produces a wide range of baking solutions

including Betty Crocker dessert mixes, Bisquick baking mixes, Betty Crocker cakes and

frostings, and Gold Medal flour.

General Mills’ snacks division manufactures brands such as Fruit Roll-Ups fruit snacks,

Chex Mix snack mix, Pop Secret microwave popcorn and Nature Valley granola bars.

The company believes that Yoplait is a market leader in the United States with products

such as Yoplait Original, Yoplait Light, Colombo, Trix yoghurt, Yumsters, and Go-

GURT. Health Ventures businesses include Small Planet Foods and organic food

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brands, Cascadian Farm and Muir Glen, as well as 8th Continent, a soy products joint

venture with DuPont.

General Mills’ bakeries and foodservice division markets unbaked, part-baked and fully

baked dough products and mixes to foodservice operators, and retail and wholesale

bakeries. Many branded products are also sold through non-grocery outlets such as

school cafeterias, restaurants and convenience stores.

Within General Mills’ International Division, the portfolio of brands includes Häagen-

Dazs ice cream, Pillsbury dough-based products, Betty Crocker desserts and mixes,

Green Giant vegetables and Old El Paso Mexican foods. Cereal Partners Worldwide

(CPW), a joint venture with Nestlé, builds cereal brands in international markets around

the world, whilst Snack Ventures Europe (SVE), a joint venture with PepsiCo is a

leading snack manufacturer in Europe.

Figure 5.16: A selection of brands from General Mills

Source: http://www.generalmills.com/corporate/businesses/ Business Insights

94


Innovation and international expansion will drive sales

In the latter half of 2003 and into 2004 General Mills has set out to focus on four

strategies that have already proved successful in the past:

Product innovation, which drives unit volume and market share gains;

channel expansion, to ensure that the company’s products are available as widely as

possible;

international expansion, to build the company’s brands in fast-growing markets

around the world;

margin expansion, to grow earnings faster than sales.

The addition of Pillsbury has enhanced these strategies and the company’s mix of retail

categories offers further opportunities for product and marketing innovation, especially

with the expansion of distribution networks of the leading brands into fast-growing retail

channels, including natural and organic stores. In addition, General Mills is looking to

capture a growing share of away-from home food sales. International expansion is an

important target for the company and it will look to drive sales growth through both its

wholly owned operations and joint ventures. From a financial perspective, the company

expects to achieve margin expansion through a continuous focus on productivity

savings.

NPD targets consumer megatrends in 2003

In February 2003, General Mills introduced Berry Burst Cheerios. The two new

products - Berry Burst Cheerios Strawberry and Berry Burst Cheerios Triple Berry

(strawberries, blueberries and raspberries) provides the taste and experience of fresh

fruit through the process of freeze-drying. Freeze-drying maintains a food product’s

original appearance, texture and nutrition. When milk is added to the cereal, the fruit re-

95

hydrates. With health-conscious consumers in mind, a serving (30 grams) of Berry Burst

Cheerios contributes 110 calories and provides 70% of the recommended daily

allowance for folic acid and 60% of the recommended daily allowance for iron.

Additionally, Berry Burst Cheerios offers consumers the same cholesterol-lowering

properties as original Cheerios. In January 2004, the company extended the range of

Berry Burst Cheerios with Strawberry Banana Berry Burst Cheerios, a variety featuring

a combination of real bananas, strawberries and Cheerios.

Also in February 2003, General Mills launched five new snacking products. The new

products in fruit snacks, microwave popcorn and grain snacks were introduced under

the Betty Crocker, Pop Secret and Nature Valley brands. Sesame Workshop, the non-

profit educational organisation and producers of Sesame Street, and Betty Crocker

combined to introduce Sesame Street Elmo Fruit Snacks. The innovative packaging of

Elmo Fruit Snacks encourages kids to eat and learn. Three different themed packages,

which include a mix of 12 different inner snack pouches have learning themes and

educational games for families to enjoy together. These learning activities are featured

on both the outside and inside of the outer packages and on the individual snack

pouches.

In June 2003, General Mills launched Oatmeal Crisp Fruit ‘n Cereal Bars, the latest

addition to their bars line-up that includes Nature Valley and Milk ‘n Cereal Bars.

Meeting the convenience requirements of snacking consumers, the bars were launched in

three flavours - Strawberry, Apple Cinnamon, and Blueberry. Appealing to health-

conscious consumers, the bars contain 12 vitamins and minerals and have only 150

calories and two grams of fat per bar.

In September 2003, Pillsbury launched three new products, Soft White Dinner Rolls,

Crusty Sourdough Dinner Rolls and Extra Large Easy Split Biscuits, to extend the

company’s line of freezer-to-oven biscuits, dinner rolls and sweet rolls. Like the other

Pillsbury Home Baked Classics items, the new dinner rolls and biscuits transfer straight

from the freezer to the oven, with no thawing or proofing required. They offer

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convenient portion control with a re-sealable bag and individually frozen items, so

families can bake just the number they need, then store the rest of the bag for later.

In October 2003, Pillsbury extended their range of Pillsbury Waffle Sticks with Dippin’

Cups and additions to the Pillsbury Toaster Strudel pastries line. Pillsbury Mini

Pancakes with Dippin’ Cups build on the success of their original frozen breakfast

dipping product. Mini Pancakes with Dippin’ Cups are 3-inch diameter pancakes that

come with individual syrup cups for dipping. Both the pancakes and syrup cups are

microwavable, and easy for kids to prepare. Consumers can choose from two flavours,

Buttermilk and Blueberry. Additionally, two new flavours of Pillsbury Waffle Sticks

with Dippin’ Cups, Chocolate Chip and Cinnamon, were launched as well as additional

flavours of Pillsbury Toaster Strudel pastries.

SWOT analysis


General Mills in the form of a SWOT analysis, highlighting the relative strengths,

weaknesses, opportunities and threats faced by the company.

Strong brands across several categories

General Mills operates more than 100 U.S. consumer brands, more than 30 of which

generate annual retail sales in excess of $100 million. The acquisition of Pillsbury

extended the portfolio so that General Mills is also a leader in the bakeries and

foodservice business as a major supplier of baking and other food products to the

foodservice and commercial baking industries.

97

Figure 5.17: General Mills SWOT analysis

• General Mills operates more than 100 US consumer brands, more than 30 of which generate annual retail sales in excess of $100 million

• The acquisition of Pillsbury extended the portfolio

• The continued integration of Pillsbury will enhance the company’s growth strategies

• General Mills is looking to capture a growing share of away-from home food sales, whilst international expansion is an important target

• Higher supply-chain costs due in large part to higher prices on key commodities

• The Bakeries and Foodservice division had a difficult year in 2003 reflecting a downturn in US foodservice markets

Company Strengths


Company Weaknesses

• The threat of higher commodity costs.

• Overall trends that see foodservice taking an increasing share of out-of-home food sales pose a threat to future sales.

• General Mills operates more than 100 US consumer brands, more than 30 of which generate annual retail sales in excess of $100 million

• The acquisition of Pillsbury extended the portfolio

• The continued integration of Pillsbury will enhance the company’s growth strategies

• General Mills is looking to capture a growing share of away-from home food sales, whilst international expansion is an important target

• Higher supply-chain costs due in large part to higher prices on key commodities

• The Bakeries and Foodservice division had a difficult year in 2003 reflecting a downturn in US foodservice markets

Company Strengths


Company Weaknesses

• The threat of higher commodity costs.

• Overall trends that see foodservice taking an increasing share of out-of-home food sales pose a threat to future sales.


Weaker markets and higher commodity costs

Although the company achieved growth in unit volume, sales and earnings through the

first half of the company’s 2004 fiscal year (the six months to November 23, 2003),

volume trends weakened in the second quarter. Supply-chain costs are expected to be

higher than planned, due in large part to higher prices on key commodities such as

wheat, oil, eggs and vanilla.

The bakeries and foodservice division had a difficult year in 2003. Operating profits and

comparable unit volume were static, reflecting a downturn in U.S. foodservice markets.

In addition, price increases that were implemented to offset higher commodity costs

took longer than planned to realise.

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For the company’s international business results, comparable unit volumes decreased in

Latin America, where volumes fell 20% due to difficult macroeconomic conditions.

Joint ventures and international expansion

The company is willing to take on joint ventures to realise growth potential in markets

where it has insufficient expertise such as Cereal Partners Worldwide, with Nestlé and

Snack Ventures Europe, with PepsiCo.

The continued integration of Pillsbury will enhance the company’s growth strategies and

the company’s mix of retail categories and offers further opportunities for product and

marketing innovation, especially with the expansion of distribution networks of the

leading brands into fast-growing retail channels, including natural and organic stores.

In addition, General Mills is looking to capture a growing share of away-from home

food sales, whilst international expansion is an important target for the company and it

will look to drive sales growth through both its wholly owned operations and joint

ventures.

Threats

General Mills as well as many other companies have had to face up to the threat of

higher commodity costs. In 2003, price increases that were implemented to offset higher

commodity costs took longer than planned to realise, to the detriment of the company’s

performance.

In addition, although out-of home foodservice markets have suffered from slower rates

of growth in recent years, overall trends that see foodservice taking an increasing share

of out-of-home food sales do pose a threat to future sales.

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Chapter 6

Heinz

101

Chapter 6 Heinz

Summary

According to Heinz, its brands hold number one and number two market positions in more than 50 countries. The Heinz brand is worth $2.5 billion and Heinz’s top-15 brands account for two-thirds of the company’s annual sales.

The company’s operations may be segmented into three main areas: ketchup, condiments and sauces; meals and snacks; baby foods.

In June 2002, Heinz disposed of a number of North American businesses and merged them with Del Monte Foods Company in a move designed to make Heinz a more focused, predictable and faster-growing company. The businesses together generated approximately $1.8 billion in annual sales.

In January 2003, the company announced that it was to make a number of changes to its U.S. business structure as part of the company’s transformation of its North America operations into a more effective, efficient and customer-focused operation.

Heinz’s Brand Growth Strategy is based on four imperatives designed to drive profitable growth; remove the clutter; squeeze out costs; and measure and recognise performance.

Heinz admits that its biggest growth opportunity is its biggest brand - Heinz Ketchup. The company believes that it has a 30% share of the world’s ketchup market, and has set a target of a global market share of 50%. The company plans to achieve this through growing shares in developed markets, building foodservice tabletop ketchup outside the United States and driving usage in emerging markets.

In July 2003, Heinz announced that Farley’s First and Second Milk are now enhanced with nucleotides. Nucleotides are nutrients found naturally in breast milk that help develop a baby’s immune system.

In October 2003, Heinz announced that it would launch low carbohydrate ketchup. Heinz One Carb Ketchup is designed for consumers who wish to moderate their carbohydrate intake.

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About Heinz

Based in the United States, Heinz is a global food company. According to the company,

its brands hold number one and number two market positions in more than 50 countries.

The Heinz brand is worth $2.5 billion and Heinz’s top-15 brands account for two-thirds

of the company’s annual sales and 60% of sales are derived from outside of the United

States. The company is also a supplier of branded products to customers in both the

retail grocery and foodservice channels.

In June 2002, Heinz disposed of a number of North American businesses and merged

them with Del Monte Foods Company in a move designed to make Heinz a more

focused, predictable and faster-growing company. The businesses, which together

generated approximately $1.8 billion in annual sales (or 20% of annual revenues),

included North American pet food and pet snacks, U.S. tuna, U.S. private label soups

and U.S. baby foods.

History

In 1869, the first Heinz product was horseradish, which was sold in a clear glass bottle.

After horseradish came pickles, sauerkraut and vinegar. These were delivered by horse-

drawn wagons to grocers in and around Pittsburgh, Pennsylvania. After bankruptcy in

1875, Henry Heinz restarted production with the help of his family and the company

launched a new tomato ketchup product. Red and green pepper sauces soon followed,

then cider vinegar and apple butter, chilli sauce, mincemeat, mustard, tomato soup,

olives, pickled onions, pickled cauliflower, baked beans and sweet pickles.

In 1886, Heinz visited England and persuaded Fortnum & Mason to accept all seven of

his products for distribution. By 1896, the first overseas office had opened near the

Tower of London and this was joined in 1905 by a factory in Peckham and in 1919 by a

site in Harlesden that soon became the second English plant of Heinz. In the same year

Henry Heinz died of pneumonia at the age of 75. He was succeeded by his son, Howard.

Through the Howard Heinz era, as in that of his father, all growth was internal with all

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overseas ventures being built from scratch. This continued to be the policy for most of

the tenure of H. J. Heinz II, who became president in 1941. The first exception was the

acquisition of a food processor in the Netherlands in 1958, and soon the exception

became the rule. In the next few years, companies were acquired in Italy, Portugal,

Mexico, and several in the United States.

Under R. Burt Gookin, who became president in 1966, the pace of acquisitions and

growth quickened. By 1972, Heinz had reached the billion-dollar mark in sales. Dr.

O’Reilly became president and CEO in 1979, launching an era in which Heinz became a

leader in the nutrition and wellness revolution. Company production bases were

launched in Spain, Portugal and New Zealand and penetrated markets in South Africa,

Russia, the Czech Republic, Hungary, South Korea, China, India, Egypt, Botswana and

Zimbabwe.

William R. Johnson took over as President in 1996, CEO in 1998 and Chairman in 2000.

The company’s international growth strategy continued with the acquisition of

companies in The Netherlands, Indonesia, Philippines, Singapore and Costa Rica. In

2002, the company disposed of a number of businesses in a merger with Del Monte that

was designed to make Heinz a more focused company able to invest more effectively in

its strongest brands.

Recent performance

In 2003, Heinz performance was on target with its own forecast range and arguably

became a stronger global food company following the spin-off of a number of businesses

to Del Monte (at the end of 2002). The company reduced its net debt by $1.3 billion and

generated operating free cash flow of $752 million.

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Greater focus boosts performance in 2003

In 2003 (year ending April 30, 2003), Heinz reported net income for the year of $566.3

million, compared with $833.9 million, in the previous fiscal year. Sales grew by 8.2%

to $8.24 billion, driven by favourable exchange translation rates and acquisitions but

were partially offset by a 2.0% decline in volume. During 2003, the company recognised

charges of $162.4 million after tax, relating to the Heinz/Del Monte transaction, to

reduce overheads of the remaining core businesses, exiting a UK pizza business and the

loss on the sale of Omstead Foods, a Canadian-based frozen fish and vegetable business.

Financial performance

Table 6.29: Heinz financial performance 2001—2004

US$ m 2001 2002 2003 Interim 2003 Interim 2004 Turnover 6,988 7,614 8,236 3,938 3,986 Operating Profit 989 1,300 1,759 627 698


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Figure 6.18: Heinz financial performance 2001—2004; turnover and operating profit comparison

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In November 2003, Heinz reported results for the second quarter ended October 29, and

announced net income of $191.5 million. The company was particularly pleased with its

margin performance in Asia Pacific, where the operating income margins increased.

Heinz Europe’s sales increased $60.5 million, driven by higher volumes for John West

and Petit Navire seafood, Heinz Salad Cream and convenience meals. Overall volume in

Europe increased, led by good performances in the UK and Western Europe. European

volume gains were partially offset by decreases in baby food and frozen food products,

and disposals reduced sales 2.3%, primarily related to the sale of the UK frozen pizza

business and the Northern European bakery business. Table 6.30 illustrates the

performance of the separate divisions over a three and a half year period.

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Table 6.30: Heinz divisional performance 2001—2004

US$ m 2001 2002 2003 Interim 2003 Interim 2004 Heinz North America Turnover 2,087 2,217 2,273 n/a n/a Operating Profit 492 477 383 n/a n/a U.S. Frozen Turnover 957 1,171 1,156 n/a n/a Operating Profit 84 245 200 n/a n/a Europe Turnover 2,583 2,834 3,148 1,388 1,510 Operating Profit 389 542 554 274 316 Asia/Pacific Turnover 1,041 981 1,151 507 625 Operating Profit 96 82 118 46 78 Other Turnover 320 410 508 387 176 Operating Profit 49 55 90 53 20 In January 2003, Heinz reorganised its U.S. businesses as follows: North America Consumer Products Turnover 1,006 973 Operating Profit 225 233 U.S. Foodservice Turnover 650 703 Operating Profit 97 107


In January 2003, the company announced that it was to make a number of changes to its

U.S. business structure as part of the company’s transformation of its North America

operations into a more effective, efficient and customer-focused operation. Two

business units were created, Heinz US “Away from Home” (focused on Heinz’s

restaurant and on-the-go eating businesses) and Heinz US “Consumer Products” (retail

businesses in ketchup, condiments & sauces and frozen meals & snacks). The two units

will have full responsibility for all related business functions, including marketing, sales,

finance and the supply chain.

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Foodservice

In June 2003, Heinz announced that its Foodservice Division had acquired Seattle-based

Truesoups, a manufacturer and marketer of frozen, premium, ready-to-heat-and-serve

soups for casual dining restaurants and foodservice distributors. Truesoups specialises in

making fresh-ingredient soups for well-known and rapidly growing fast-casual dining

chains. Heinz’s Foodservice Division represents approximately 40% of Heinz North

America’s sales.

Market positioning

Global brand reach

The company’s operations may be segmented into three main areas: ketchup,

condiments and sauces; meals and snacks; baby foods.

The Heinz brand is synonymous with ketchup. Each year, Heinz sells 650 million bottles

of ketchup and 11 billion packets of ketchup and dressings each year. The company’s

ketchup, condiments and sauces sales are worth almost $2.5 billion across in 140

countries. The company’s range of condiments include Salad Cream in the UK; the

Orlando range in Spain; Banquette in Costa Rica; UFC “banana” ketchup in the

Philippines and ABC soy sauce in Indonesia. In the United States, the company

manufactures Jack Daniel’s and Yoshida’s grilling sauces, the Heinz 57 Sauce and the

range of Classico pasta sauces.

In the meals and snacks segment, the company’s operations are split between frozen

foods and soups, beans and pasta. Frozen foods represent more than $2 billion in sales.

Ore-Ida is a branded potato processor that manufactures Funky Fries. Bagel Bites and

Hot Bites feature in the after-school snacks market, whilst the company also produces

Boston Market HomeStyle frozen meals and side dishes. In the UK, the company serves

health conscious consumers with Weight Watchers from Heinz and also produces Jane

Asher desserts and Linda McCartney meat-free products.

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Table 6.31: Heinz market shares, 2002

Country Market Category Company Value% Australia Savoury Snacks Overall Heinz Co Australia Ltd, HJ 0.20 Australia Chilled Food Overall Heinz Wattie’s of Australia 0.47 Belgium Dairy Overall Heinz Co, HJ 0.20 Belgium Dairy Yoghurt Heinz Co, HJ 2.50 India Dairy Milk Heinz India Pvt Ltd 2.70 India Dairy Overall Heinz India Pvt Ltd 2.60 New Zealand Chilled Food Overall Heinz-Wattie Foods Ltd 5.29 Sweden Dairy Overall Svenska Heinz AB 0.10 Sweden Dairy Yoghurt Svenska Heinz AB 0.80


Heinz is a leader in the soup category in Europe and, according to the company, holds

the number one position in the UK market. In the beans and pastas sector, recent

acquisitions in Europe have been Honig dry soup in the Netherlands along with HAK

vegetables and KDR spreads and sprinkles, a traditional Dutch topping for breakfast

toast. The baby food market is worth nearly $1 billion to Heinz. According to the

company, it is a leader in Italy, Canada, Venezuela, and Australia. In the UK and India,

Heinz has the Farley’s and Farex brands.

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Figure 6.19: A selection of brands from Heinz

Source: http://www.heinz.com/jsp/world.jsp Business Insights


A focused portfolio

The company’s biggest growth opportunity is its biggest brand - Heinz Ketchup with a

30% share of the world’s ketchup market, and a set target of a global market share of

50%. The company plans to achieve this through growing shares in developed markets,

building foodservice tabletop ketchup outside the United States and driving usage in

emerging markets.

Heinz’s Brand Growth Strategy is based on four imperatives designed to drive profitable

growth; remove the clutter; squeeze out costs; and measure and recognise performance.

As a result of the decision to dispose of businesses in a merger with Del Monte in 2002,

Heinz created a simpler, more focused portfolio, which concentrates on higher-margin,

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higher-growth businesses. Following the transaction, the company announced that it

planned to strengthen its portfolio with significantly increased marketing investment in

the coming years.

NPD targets changing consumer requirements

In the UK in November 2003, Heinz and Fisher Price, a leading toy brand, teamed up to

offer consumers the chance to claim items from the new Fisher Price innovative and

interactive range of toys, Peek-a-Blocks, by collecting tokens through an on-pack

promotion. The Fisher Price Peek-a-Blocks range consists of six blocks, a giraffe, a

truck and a wagon, all of which are interactive and encourage learning. Heinz ran a

token collection scheme for the free Peek-a-Blocks toys across the Heinz Farley’s

standard cereals range. The promotion was also used to support recent re-branding at

Heinz and was used to build consumers’ loyalty and a family association to the brand.

Also in the UK, in October 2003, Heinz launched Mum’s Own jarred savoury recipes,

based on real mums’ homemade dishes. Heinz undertook extensive further research in

order to better understand mums’ needs and the result was 17 contemporary dishes

created by 17 consumer mothers. The products aim to meet the needs of new parents

and young families, such as recipe choice, nutritional balance, quality and convenience

and was supported via press advertising, sampling, direct mail and consumer and trade

PR.

In the United States, Ore-Ida launched three Extra Crispy versions of its most popular

products - Golden Crinkles, Fast Fries and Tater Tots, in January 2004. The Extra

Crispy product line is set to be the first of several significant innovations over the next

12-18 months that will address consumer demands for greater convenience and healthy

eating alternatives.

In October 2003, Heinz announced that it would launch a low carbohydrate ketchup

product. Heinz One Carb Ketchup is designed for consumers who wish to moderate

their carbohydrate intake without having to compromise on taste. The new ketchup will

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contain one gram of carbohydrates per serving and along with Heinz’s No Salt Added

Ketchup and Organic Ketchup, provides consumers with a variety of products to

support healthier/dieting lifestyle needs. In addition, Classico, the company’s premium

pasta sauces brand has introduced a new line of products in the meat-based sector under

the Classico Homestyle Meat Selections range and include Classic Beef with Onions and

Garlic and Hearty Steak with Burgundy Wine Sauce.

In July, Heinz announced that Farley’s First and Second Milk are enhanced with

nucleotides. Nucleotides are nutrients found naturally in breast milk. Nucleotides play a

vital role in developing babies’ immune systems and have been proven to help babies

fight off common tummy bugs and upsets by promoting the growth of “good” bacteria

in the gut. Nucleotides also play an important role in promoting babies’ healthy growth.

Farley’s has included nucleotides, at similar levels as found in breast milk, to Farley’s

First and Second Milk. Both of these products also contain a full range of vitamins,

minerals, LCPs (long chain lipids), energy and protein, whilst Farley’s Follow-On Milk,

which is suitable from the age of six months, is fortified with iron. To meet consumers’

convenience requirements, Farley’s is also extending its offering in the ready-to-use

format range by introducing a new 250ml carton, in addition to its existing 500ml pack.

SWOT analysis


Heinz in the form of a SWOT analysis, highlighting the relative strengths, weaknesses,


Strong brands and a focused approach

According to the company, its brands hold number one and number two market

positions in more than 50 countries. Whilst Heinz’s top-15 brands account for two-

thirds of the company’s annual sales, it should also be noted that 60% of sales are

derived from outside of its origin in the United States.

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The company now has a greater focus on its core operations than it had previously. In

June 2002, Heinz disposed of a number of North American businesses in a move

designed to make Heinz a more focused, predictable and faster-growing company.

Figure 6.20: Heinz SWOT analysis

• Strong, established brands that hold number one and number two market positions in more than 50 countries • Diversified customer base - 60% of sales are derived from outside of the US • Greater focus on core operations

• The company’s biggest growth opportunity is Heinz Ketchup. The company has set a target of a global market share of 50%• The company plans to grow shares in developed markets, build foodservice tabletop ketchup outside the United States and drive usage in emerging markets

• In January 2003, the company recognised that operations were not as efficient and streamlined as they should be. It announced that it was to make a number of changes in its US business structure to introduce a more effective, efficient and customer-focused operation

Company Strengths


Company Weaknesses

• Whilst its main brand is its biggest strength, such a reliance on any one category or brand could be considered risky should unforeseen developments hinder the growth or performance of the core markets.


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Chapter 7

Hershey

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Chapter 7 Hershey

Summary

Hershey Foods Corporation is a leading North American manufacturer of chocolate and non-chocolate confectionery and chocolate-related grocery products. Operations of Hershey Foods Corporation are concentrated in two divisions. U.S.-related manufacturing and Hershey International, which exports to over 90 countries.

The company’s main brands are Hershey’s, Reese’s, Kit Kat, Kisses, Twizzlers, Jolly Rancher, Carefree and Ice Breakers. Hershey’s sales are split as 80% chocolate products and 20% non-chocolate. The international business outside of North America accounts for less than 5% of total sales.

In July 2003, Hershey announced a number of initiatives in its value enhancing strategy, including the introduction of new products and various initiatives to streamline its supply chain, which included a realignment of the sales organisation and the disposal of non-strategic brands and products.

Hershey has license agreements with affiliated companies of Cadbury Schweppes to manufacture and/or market and distribute confectionery products worldwide as well as Cadbury and Caramello confectionery products in the United States.

The Corporation also has an agreement with Nestlé SA, to manufacture and distribute Kit Kat and Rolo confectionery products in the United States.

Wal-Mart Stores, Inc. and subsidiaries is the corporation’s largest customer and represented about 17% of sales in 2002. Other large customers include K-mart, Target, Albertsons, CVS, and VSA.

Hershey is looking to leverage its core competencies in the broader snack market. It believes that targeted adjacent segments offer growth opportunities, as consumers are likely to select well-known brands in a broader array of snacks.

Hershey has identified margin growth opportunities across their supply chains that include product line rationalisation and increased manufacturing efficiency.

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About Hershey

Hershey Foods Corporation is a leading North American manufacturer of chocolate and

non-chocolate confectionery and chocolate-related grocery products, and has a variety

of international operations.

Operations of Hershey Foods Corporation are concentrated in two divisions. In the

United States, Hershey Chocolate North America is a producer of chocolate and non-

chocolate confectionery products, as well as chocolate-related grocery products.

Hershey International oversees the corporation’s international interests and exports to

over 90 countries worldwide.

With sales of $4.1 billion in 2002, the company’s main brands are Hershey’s, Reese’s,

Kit Kat, Kisses, Twizzlers, Jolly Rancher, Carefree and Ice Breakers. Hershey’s sales

are split as 80% chocolate products and 20% non-chocolate products. The International

business outside of North America accounts for less than 5% of the Corporation’s total

sales.

History

In early 1894, the Hershey Chocolate Company was born as a subsidiary of Milton

Hershey’s existing Lancaster caramel business. In addition to chocolate coatings, Mr.

Hershey made breakfast cocoa, sweet chocolate and baking chocolate. In 1900, Mr.

Hershey sold the Lancaster Caramel Company for $1 million. However, he retained the

chocolate manufacturing equipment and the rights to manufacture chocolate, believing a

large market existed for affordable confections that could be mass-produced. As the

company grew, the Hershey Corporation was formed in the State of Delaware in

October, 1927.

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Recent performance

Hershey’s leadership position within the U.S. confectionery market is a source of

competitive advantage. In 2002, Hershey’s leading brands accounted for almost 60% of

retail sales, however another focus in 2002 was “instant consumables”- convenient, on-

the-go confectionery such as loose bars and individual packages of gum and mints.

These items provide a significant source of incremental sales.

Performance in 2003

In July 2003, Hershey announced a number of initiatives in its value enhancing strategy,

including the introduction of new products and various initiatives to streamline its

supply chain, which included a realignment of the sales organisation and the disposal of

non-strategic brands and products.

During the third quarter of 2003, the Corporation realised funds from the sale of a

group of gum brands to Farley’s and Sathers Candy Company, Inc. The gum brands

included Fruit Stripe chewing gum, Rain-Blo gum balls and Super Bubble bubble gum.

Proceeds from the sale of the gum brands totalled approximately $20.0 million.


Table 7.32: Hershey financial performance 2000—2003

$ m 2000 2001 2002 2003 Turnover (1) 3,820 4,137 4,120 4,173 Net Income 335 207 404 458 Notes: (1) Net Sales;


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Figure 7.21: Hershey financial performance 2000—2003; turnover and net income

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In May 2003, Hershey announced that it had agreed the sale of the Sixlets brand to

SweetWorks. Included in the transaction were the rights to sell Sixlets branded

products, under license. In January 2003, SweetWorks purchased the Ovation chocolate

brand from Hershey Foods.

Also in May, Hershey launched plans to build a new distribution centre in the Gateway

Commerce Centre in Madison County, Illinois. The 1.1 million-square-foot distribution

centre is expected to be operational by March 2004 as part of the company’s strategy to

improve customer service and implement a low-cost supply chain.

In October 2003, the company announced that consolidated net sales for the first nine

months of 2003 were $2,993 million compared with $2,964 million for the first nine

months of 2002. Net income for the first nine months of 2003 was $312 million,

compared with $273 million for the comparable period of 2002.

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At the end of January 2004, Hershey announced its results for the fourth quarter of

2003 and preliminary full-year results for 2003. Boosted by new products such as

Hershey’s S’mores and Swoops, in the fourth quarter Hershey recorded net income of

$144.9 million, compared to $130.3 million in 2002. Fourth-quarter consolidated net

sales were $1.18 billion, compared with $1.16 billion a year earlier.

For the full year 2003, consolidated net sales were $4.17 billion, compared with $4.12

billion for 2002. Net income for 2003 was $457.6 million, compared with $403.6 million

for 2002. Announcing the results, the company stated that its plans for the year include

accelerating new product launches and introducing higher-margin items.

Market positioning

Higher margins in confectionery

The Corporation’s principal product groups include: confectionery products sold in the

form of bar goods, bagged items and boxed items; grocery products in the form of

baking ingredients, chocolate drink mixes, peanut butter, dessert toppings and

beverages. Operating profit margins vary considerably among individual products and

brands, however Hershey believes that margins on confectionery products are generally

greater than those on certain other food products.

Hershey’s principal confectionery brands include: Almond Joy and Mounds candy bars,

Cadbury Creme Eggs candy, Hershey’s Cookies ‘n’ Creme candy bar, Hershey’s milk

chocolate and milk chocolate with almonds bars, Hershey’s Nuggets chocolates,

Hershey’s Kisses and Hershey’s Hugs chocolates, Jolly Rancher candy, Kit Kat wafer

bar, Milk Duds candy, PayDay peanut caramel bar, Reese’s crunchy cookie cups,

Reese’s NutRageous candy bar, Reese’s peanut butter cups, Sweet Escapes candy bars,

TasteTations candy, Twizzlers candy, Whoppers malted milk balls, and York

peppermint patties.

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Grocery products include Hershey’s baking chocolate, Hershey’s chocolate drink,

Hershey’s chocolate milk mix, Hershey’s Chocolate Shoppe ice cream toppings,

Hershey’s cocoa, Hershey’s syrup, Hershey’s Hot Cocoa Collection hot cocoa mix,

Reese’s peanut butter, and Hershey’s, Reese’s and Heath baking pieces.

The Americas

Table 7.33: Hershey market shares in the Americas, 2002

Country Market Category Company Value% Canada Confectionery Chocolate Hershey Canada Inc 19.62 Canada Confectionery Gum Hershey Canada Inc 0.60 Canada Confectionery Sugar Hershey Canada Inc 2.17 Colombia Confectionery Sugar Hershey Foods Corp 0.20 Mexico Confectionery Chocolate Hershey México SA de CV 19.74 Mexico Confectionery Sugar Hershey México SA de CV 1.05 Mexico Dairy Milk Hershey México SA de CV 0.90 Mexico Dairy Overall Hershey México SA de CV 0.40 US Confectionery Chocolate Hershey Foods Corp 33.73 US Confectionery Gum Hershey Foods Corp 7.77 US Confectionery Sugar Hershey Foods Corp 12.54 US Dairy Milk Hershey Foods Corp 0.10


Outside the Americas

Internationally, the company exports Hershey’s branded confectionery and grocery

products to over 90 countries worldwide.

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Table 7.34: Hershey market shares outside the Americas, 2002

Country Market Category Company Value% China Confectionery Chocolate Hershey Foods Corp 6.05 Greece Confectionery Chocolate Hershey Foods Corp 0.40 Hong Kong Confectionery Chocolate Hershey Food Ltd 0.42 Japan Confectionery Chocolate Hershey Japan Co Ltd 0.92 New Zealand Confectionery Chocolate Hershey Foods Corp 1.40 New Zealand Dairy Milk Hershey Foods Corp 0.10 Philippines Confectionery Chocolate Hershey Foods Corp 19.07 Philippines Confectionery Sugar Hershey Foods Corp 1.40 Philippines Dairy Milk Hershey Foods Corp 2.20 Philippines Dairy Milk Hershey Philippines Inc 0.10 Philippines Dairy Overall Hershey Foods Corp 1.60 Russia Confectionery Chocolate Hershey Foods Corp 0.35 Saudi Arabia Confectionery Chocolate Hershey Foods Corp 0.82 Saudi Arabia Confectionery Sugar Hershey Foods Corp 0.60 Singapore Confectionery Chocolate Hershey Foods Corp 5.77 South Africa Confectionery Gum Hershey Foods Corp 4.10 Taiwan Confectionery Chocolate Hershey Foods Corp 7.32 Taiwan Dairy Milk Hershey Foods Corp 0.70 Taiwan Dairy Overall Hershey Foods Corp 0.50 Thailand Confectionery Chocolate Hershey Foods Corp 5.30 Vietnam Confectionery Chocolate Hershey Foods Corp 0.27


Hershey has license agreements with affiliated companies of Cadbury Schweppes to

manufacture and/or market and distribute York, Peter Paul Almond Joy and Peter Paul

Mounds confectionery products worldwide as well as Cadbury and Caramello

confectionery products in the United States, subject to a minimum sales requirement.

The Corporation also has an agreement with Societe des Produits Nestlé SA, which

licenses the Corporation to manufacture and distribute Kit Kat and Rolo confectionery

products in the US, subject to certain conditions, including minimum unit volume sales.

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Product examples

Figure 7.22: A selection of brands from Hershey

Source: http://www.hersheys.com/products/ Business Insights


Hershey’s stated mission is to be a focused food company in North America and

selected international markets and a leader in every aspect of its business, particularly

the North American confectionery market and the U.S. market for chocolate-related

grocery products.

In March 2003, the company stated that accelerating profitable top-line growth was its

number-one priority, with two components to deliver against this priority. First, the

company is seeking to increase its leadership position in the U.S. confectionery market.

Secondly, the company is looking to leverage its core competencies in the broader snack

market. Targeted adjacent segments offer incremental growth opportunities, as

consumers are likely to select well-known brands in a broader array of snacks.

Additionally, the company has identified further margin expansion opportunities across

the supply chain that will enable further investment in growth initiatives. These include

product line rationalisation and increased manufacturing efficiency. The company’s

cocoa costs will increase in 2004 as a result of recent price increases in the world cocoa

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market. However, these raw material cost increases will be offset through a combination

of price increases and/or product weight changes, and an improved sales mix.

Hershey’s customers and competitors

Wal-Mart Stores, Inc. and subsidiaries is the corporation’s largest customer and

represented about 17% of sales in 2002. Other large customers include K-mart, Target,

Albertsons, CVS, and VSA. In the U.S. chocolate confectionery sector, Hershey’s

largest competitor is Mars, followed by Nestlé and Russell Stover. In the domestic non-

chocolate gum and mint categories the corporation’s largest competitors are Wrigley

and Kraft/Nabisco.

Private label – no concern

Hershey believes that private label represents around 2% of confectionery category

sales, a share that it believes is fairly constant. The corporation does not see private label

products as a significant threat to its sales as it believes that consumers recognise the

superior value, quality, and taste of branded confectionery products. Hershey also

believes that U.S. confectionery manufacturers have maintained a very good price-value

relationship which has been a major reason behind the fact that private label accounts for

only 2% of the market.

Hershey sells to between eight and 10 different customer types, including grocery

wholesalers, chain grocery stores, confectionery distributors, mass merchandisers,

vending companies, wholesalers, convenience stores, concessionaires and food

distributors. Full-time sales representatives, food brokers and part-time retail sales

merchandisers sell the company’s products.

NPD tracks consumer megatrends in 2003

In April 2003, Hershey introduced, for the first time in its 109-year history, sugar free

chocolate confectionery featuring Reese’s Sugar Free Peanut Butter Cup Miniatures,

Hershey’s Sugar Free Chocolate sweets, Hershey’s Sugar Free Chocolate sweets with

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Almonds and Hershey’s Sugar Free Dark Chocolate sweets. The company positioned

the products as having the same high quality and taste, but without the sugar and about

19% fewer calories. The brands contain a sugar substitute (lactitol), which is slowly

metabolised and generally causes only a small rise in blood sugar levels.

Other recent new product introductions from Hershey have included S’mores candy bar

(incorporating graham crackers, marshmallow and Hershey’s milk chocolate), Swoops

chocolate slices (in four flavours, packaged in re-sealable on the go containers) and

Reese’s mini pieces in portable tubes, as well as additional Limited Edition Reese’s

products.

In December 2003, Hershey launched one gram Sugar Carb bars to meet increasing

consumer interest in foods for low-carbohydrate lifestyles. The bars are formulated with

sugar alcohols and fibre in place of traditional sweeteners, delivering a product with only

one gram of sugar per 1.1 oz. bar. The new chocolate flavour bar contains around 20%

fewer calories than a regular Hershey’s milk chocolate bar and has minimal impact on

blood sugar levels, an important key to maintaining a low-carbohydrate lifestyle for

health conscious consumers. The bars will initially be launched in three flavours,

chocolate, chocolate with almonds and chocolate with soy crisps.

In the same year, Hershey introduced two new flavours of Hershey’s Kisses Limited

Editions: Hershey’s Kisses Mint Chocolates and Extra Creamy Hershey’s Kisses with

Toffee & Almonds. In July, in response to consumer demand, Hershey’s Kisses Rich

Dark chocolates were also added to the permanent Hershey’s Kisses collection.

SWOT analysis


Hershey in the form of a SWOT analysis, highlighting the relative strengths, weaknesses,


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Strengths

Hershey’s leadership position within the U.S. confectionery market is a source of

competitive advantage in building relationships with both customers (distribution chains)

and consumers. A major company strength is the number of different customer types it

sells its products through from chain grocery stores to vending companies.

Recent supply chain rationalisation has delivered significant improvements within the

company’s logistics area in recent years, delivering better customer service at lower

costs.

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Figure 7.23: Hershey SWOT analysis

• Leadership positions within the US confectionery market are a source of competitive advantage

• Hershey sells to a diversified range of between 8-10 different customer types

• Rationalisation has delivered better customer service at lower costs

• Raw material cost increases in 2004 will be offset by price increases, product weight changes, and an improved sales mix

• Consumer health concerns. In April 2003, Hershey introduced, for the first time in its 109-year history, sugar free chocolate confectionery

• New products, better programming and targeted support at store level, has seen recent market share gains in convenience channels

• Growth in international markets is an important source of growth

• Leverage its core competencies in the broader snack market

• Dependency upon US markets. International business outside of North America accounts for less than 5% of the Corporation’s total sales

• Supply chain inefficiencies and poor customer service have hindered performance

Company Strengths


Company Weaknesses

• Leadership positions within the US confectionery market are a source of competitive advantage

• Hershey sells to a diversified range of between 8-10 different customer types

• Rationalisation has delivered better customer service at lower costs

• Raw material cost increases in 2004 will be offset by price increases, product weight changes, and an improved sales mix

• Consumer health concerns. In April 2003, Hershey introduced, for the first time in its 109-year history, sugar free chocolate confectionery

• New products, better programming and targeted support at store level, has seen recent market share gains in convenience channels

• Growth in international markets is an important source of growth

• Leverage its core competencies in the broader snack market

• Dependency upon US markets. International business outside of North America accounts for less than 5% of the Corporation’s total sales

• Supply chain inefficiencies and poor customer service have hindered performance

Company Strengths


Company Weaknesses


Weaknesses

Dependency upon U.S. markets is a primary weakness for Hershey. Whilst the company

has leadership positions in the U.S. market, its international business outside of North

America accounts for less than 5% of the Corporation’s total sales. This makes the

company heavily dependent upon the performance of the U.S. market and, in particular

Wal-Mart. Wal-Mart Stores, Inc. and subsidiaries is the corporation’s largest customer

and represented about 17% of Hershey’s sales in 2002.

In recent years, the company has suffered from supply chain inefficiencies and poor

customer service. In July 2003, Hershey announced a number of initiatives in its value

enhancing strategy, including various initiatives to streamline its supply chain, which

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included a realignment of the sales organisation and the disposal of non-strategic brands

and products.

Hershey has also launched plans to build a new distribution centre as part of the

company’s strategy to improve customer service and implement a low-cost supply chain.

Opportunities

In recent years, convenience stores have been an area of focus for Hershey. The

company has historically been underrepresented in this market segment, though a

combination of new products, better programming and targeted support at store level,

has seen recent market share gains.

Growth in international markets has been restricted in recent years and the global

marketplace remains an important source of growth to the company. The company has

stated that strategic alternatives to address the long-term opportunities have been

reviewed as it seeks to invest resources proportionally with potential growth prospects.

Additionally, the company has identified further margin expansion opportunities across

the supply chain that will enable further investment in growth initiatives. These include

product line rationalisation and increased manufacturing efficiency.

Threats

The company’s cocoa costs will increase in 2004 as a result of recent price increases in

the world cocoa market. The company does not expect these to pose too serious a

threat to its financial performance as the cost increases will be offset through a

combination of price increases and/or product weight changes, and an improved sales

mix.

Hershey must also realise that chocolate confectionery markets are increasingly mature

and susceptible to declining growth rates. The company is also recognising the threat to

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its core chocolate product posed by consumer health concerns and reacting by launching

new products such as sugar free chocolate confectionery. The brands contain a sugar

substitute (lactitol), which is slowly metabolised and generally causes only a small rise in

blood sugar levels.

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Chapter 8

Kellogg

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Chapter 8 Kellogg

Summary

Kellogg is a leading producer of cereal and convenience foods, including cookies, crackers, toaster pastries, cereal bars, frozen waffles and meat alternatives.

The company’s products are manufactured in 18 countries and marketed in more than 180 countries around the world and its brands include Kellogg’s, Keebler, Pop-Tarts, Eggo, Cheez-It, Nutri-Grain, Rice Krispies, Special K, Murray, Austin, Morningstar Farms, Famous Amos, Carr’s, Plantation, and Kashi.

Between 1997 and 2000, difficult trading conditions in the cereal category, combined with heavy price promotion by competitors and a lack of sustained marketing support, contributed to falling sales at Kellogg.

The company responded by accelerating investment in long-term growth strategies, including product development, technology, and efficiency initiatives.

The acquisition of Keebler in 2001 has helped Kellogg to achieve greater scale in the United States, including a stronger presence in traditional supermarkets and in non-traditional channels such as convenience and gas stores, vending and foodservice.

Kellogg has reported strong performances in the first half of 2003, which continued into the third-quarter, though the snacks business has faced difficulties. 2004 will see a change in strategy for the snacks business, from an “acquire-and-integrate” approach to one of sustainable, organic growth.

In May 2003, Kellogg announced plans to expand its reach beyond the cereal and snack food aisles with extensive licensing initiatives in the toy, clothing, entertainment, publishing, and food categories.

In 2004, Kellogg is undertaking a series of productivity initiatives. These include a snack plant consolidation, capacity rationalisation and workforce reduction.

A key operating principle for Kellogg is to achieve greater value for the consumer (to ultimately achieve higher value/dollar sales and profit), rather than promoting greater volume sales through discounting.

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About Kellogg

Established in 1906, Kellogg is a leading producer of cereal and convenience foods,

including cookies, crackers, toaster pastries, cereal bars, frozen waffles, meat

alternatives, pie crusts and cones.

The company’s products are manufactured in 18 countries and marketed in more than

180 countries around the world and its brands include Kellogg’s, Keebler, Pop-Tarts,

Eggo, Cheez-It, Nutri-Grain, Rice Krispies, Special K, Murray, Austin, Morningstar

Farms, Famous Amos, Carr’s, Plantation, and Kashi.

History

William Kellogg’s accidental discovery of cereal in 1894 marked the beginning of the

business. The first production of the newly invented cereal began in 1906 and the first

marketing campaigns saw sales of the new product leap from 33 cases to 2,900 cases

per day.

In 1914, W. K. Kellogg began worldwide expansion of the cereal business with

introduction of Kellogg’s Corn Flakes in Canada and in 1922, sales started in the UK. In

1924, the company built its first plant in Australia. In 1930, Kellogg became the first

company to print nutrition messages, recipes and product information on its packages

and in 1938, the company built a plant in Manchester, UK. This was followed by new

plants in Mexico in 1951 and Japan in 1963.

The mid-1990s saw rapid expansion with the construction of plants in Latvia, India and

China. In 1999, Kellogg purchased Worthington Foods, maker of Morningstar Farms,

Worthington, Loma Linda and Natural Touch products. The following year, the

company acquired Kashi Company, which produces all-natural foods that are free of

highly refined sugars, unnecessary additives and preservatives. This was followed in

2001 by the acquisition of Keebler Foods Company, a leading cookie and cracker

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manufacturer in the United States. In 2002, the company formed a multi-year global

relationship with Disney to launch several new cereal and snack food products.

Recent performance

The March 2001 acquisition of Keebler Foods Company was by far the largest

acquisition in the company’s history and its more diversified product portfolio will



categories. The company also believes that Keebler takes second place in the cookie and

cracker categories, both of which it rates as “growing faster than most other U.S. food

categories”. Additionally, Keebler’s direct store door (DSD) delivery system is expected

to increase the growth potential of Kellogg snack foods such as Rice Krispies Treats

squares and Nutri-Grain bars.

The acquisition has helped Kellogg to achieve greater scale in the United States,

including a stronger presence in traditional supermarkets and in non-traditional channels

such as convenience and gas stores, vending, foodservice, club stores, and mass

merchandise stores. Cost synergies, which are expected to reach $170 million annually

over three years, will also increase Kellogg’s financial flexibility.

Eleven Kellogg and Keebler brands had 2000 retail sales of at least $100 million in the

United States, two of which were greater than $1 billion. These brands include (2000

sales in brackets): Kellogg’s cereal ($2.5 billion), Keebler cookies and crackers ($1.3

billion), Pop-Tarts toaster pastries ($500 million), Eggo waffles ($390 million), Cheez-It

crackers ($313 million), Nutri-Grain cereal bars ($230 million), Rice Krispies Treats

squares ($150 million), Murray cookies ($143 million), Austin snacks ($129 million),

Morningstar Farms products ($120 million) and Famous Amos cookies ($100 million).

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Between 1997 and 2000, difficult trading conditions in the cereal category combined

with heavy price promotion by competitors contributed to the company’s net sales

falling by 3.1%. The poor performance was also attributed to the company having fewer

new products in 2000 and a lack of sustained marketing support for products introduced

in 1999. Perhaps more significantly, operating profits fell by over 17% over the 1997—

1999 period, though they recovered in 2000. The decline was attributable primarily to

increased production, distribution, and promotional expenditures for convenience food

products and higher energy costs.

The company responded by accelerating investment in long-term growth strategies,

including product development, technology, and efficiency initiatives. In 2000, Kellogg

implemented a growth strategy designed to restore industry-leading growth and vitality

to the company.

In 2002, the company’s net sales increased by 10%, boosted by owning Keebler Foods

for one additional quarter versus the prior year. On a comparable basis, adjusting for

that acquisition and a small disposal, net sales growth was 4%. At the same time,

operating profit increased by 29%, or 8% on a comparable basis. It was driven by strong

gross profit margin expansion, which enabled the company to increase its investment in

new products and brand building.

Performance in 2003

During April 2002, the company sold certain assets of Keebler’s Bake-Line private-label

unit, including a bakery in Marietta, Oklahoma, to Atlantic Baking Group. This was

followed in January 2003, with the sale of additional private-label operations.

Kellogg has reported strong performances in the first half of 2003, which continued into

the third-quarter, even after significant reinvestment for future growth. Through the first

nine months of 2003, reported net earnings increased by 13% to $599.1 million,

compared to year-earlier earnings of $529.9 million. During the third quarter of 2003

(period ending September 27, 2003), the company reported consolidated internal net

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sales growth of 4.5%. U.S. net sales in the retail cereal channel increased approximately

11%, as a combination of brand-building activities and innovation resulted in higher

volumes.

Excluding the impact of private-label business disposals during the previous 12 months,

internal net sales of the U.S. snacks business, (which includes cereal bars and other

wholesome snacks, cookies, and crackers), declined by around 4% in the third quarter.

Over three-quarters of this decline was attributable to two factors:

Discontinuance of a low-margin contract manufacturing relationship in May 2003;

an acceleration of stock-keeping unit (SKU) rationalisation, beginning in the second

quarter of 2003.

The remainder of the decline was attributable to a fall in cookie sales, as a result of

aggressive price-promotion by competitors and a relative lack of innovation and brand-

building activities, problems that are expected to persist.

In January 2004, the company reported full-year financial results for 2003, with an

increase in net sales of 6% to $8.8 billion. Whilst Kellogg USA reported net sales

growth of 2% in 2003, Kellogg International recorded net sales growth of 15%, which

was led by Latin America and continued growth in cereal and snacks in Mexico in

particular.

Operating profit increased by 2% in 2003, taking into account an 11% drop in the fourth

quarter. The company attributed this to “substantial reinvestment for the future”. In

addition, the company absorbed substantial asset write-offs and up-front costs related to

productivity initiatives, such as capacity rationalisation in Australia, Argentina and the

United States, as well as other supply-chain and overhead reductions in Europe.

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Table 8.35: Kellogg’s financial performance 2000—2003

$ m 2000 2001 2002 2003 Turnover 6,087 7,548 8,304 8,812 Operating Profit 990 1,168 1,508 1,544


Figure 8.24: Kellogg’s financial performance 2000—2003; turnover and operating profit

01,0002,0003,0004,0005,0006,0007,0008,0009,000

10,000

2000 2001 2002 2003


$m


During the second half of 2003 and throughout 2004, management is undertaking a

series of productivity initiatives. These include a snack plant consolidation in Australia,

manufacturing capacity rationalisation in the Mercosur region of Latin America, and

plant workforce reduction in the UK.

Table 8.36 illustrates the performance of the various operating segments divisions over a

three and a half year period. Net sales in the U.S. increased by 69% between 2000 and

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2002, whilst operating profits rose by 60%. The company is in the process of

reorganising its geographic management structure to North America, Europe, Latin

America, and Australia/Asia by 2004.

Table 8.36: Kellogg’s divisional performance 2000—2003

$ m 2000 2001 2002 2003 U.S. Net Sales 3,264 4,889 5,525 5,629 Operating Profit 670 876 1,073 1,055 Europe Net Sales 1,462 1,361 1,470 1,734 Operating Profit 235 246 253 280 Latin America Net Sales 624 650 631 646 Operating Profit 162 171 170 169 Other Net Sales 716 648 678 802 Operating Profit 89 103 104 140


The company’s long-term annual growth targets are low single-digit for sales and mid

single-digit for operating profit. In addition, the company’s results for its 2004 fiscal

year will include a 53rd week, which could add around one percentage point of extra

growth to its sales results.

Market positioning

Meeting consumer needs in cereals, snacks and health foods

Keebler, founded in 1853, is a leading cookie and cracker manufacturer in the United

States, with brands such as Austin, Cheez-It, Chips Deluxe, Club, Famous Amos, Fudge

Shoppe, Keebler, Murray, Plantation Sunshine, Town House and Zesta. Through its

Little Brownie Bakers subsidiary, Keebler is also a leading licensed supplier of Girl

Scout Cookies.

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Table 8.37: Kellogg market shares, 2002

Country Market Category Company Value% Colombia Dairy Overall Kellogg de Colombia SA 0.30 Colombia Dairy Yoghurt Kellogg de Colombia SA 1.60 Thailand Savoury Snacks Overall Kellogg (Thailand) Ltd 0.20 UK Confectionery Sugar Kellogg Co of Great Britain Ltd 1.97 US Savoury Snacks Overall Keebler Foods Co 0.30


Morningstar Farms is a leading vegetarian food brand in the United States. The

company offers a selection of vegetarian foods including vegetarian hamburgers, hot

dogs, chicken, buffalo wings, breakfast meats and egg substitutes.

Natural appeal

Kashi was created in 1984 and manufactures all-natural food products such as cereals,

whole-grain rice, crackers and the GoLEAN slimming system. Each product is

minimally processed and free of highly refined sugars, unnecessary additives, and

preservatives. Natural Touch also meets consumer’s requirements for food without

artificial additives, flavours or colours. Their products are made from all-natural

ingredients with minimal processing. Vegetarian products include meatless burgers,

chicken, fish, gravy mixes, corn dogs, chilli and breakfast meats. Other natural and

functional brands include Worthington and Loma Linda.

In 2003, Kellogg’s Rice Krispies celebrated its 75th anniversary with a number of

promotions and events. The year also saw the 150th anniversary of the Keebler brand.

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Figure 8.25: A selection of products from Kellogg

Source: http://63.79.76.140/kelloggco/our_brands/index.html Business Insights


Three fundamental targets

In 2000, Kellogg implemented a growth strategy designed to restore industry-leading

growth and vitality to the company. This was based on three fundamental targets:

“Prioritise to Win”. The company made the decision to prioritise investments first to

the United States and then to other core markets, including the UK/Republic of

Ireland, Mexico, Canada, and Australia/New Zealand;

“Set the Right Targets”. The company recognised that in the past targets have been

driven by short-term results at the expense of healthy, long-term growth. As a result

the company set more realistic targets;

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“Sweat the Execution”. Realising that execution is at the heart of any food

company’s competitive edge, the company acknowledged that it must be aligned

behind a business plan and focused on achieving the delivery of that plan. Finally, the

company is now better placed to share proven ideas across functions, businesses,

and geographies. The company’s managers now appreciate that its portfolio is

focused and consistent enough to enable them to share ideas from business to

business.

A key operating principle for Kellogg is to achieve greater value for the consumer (to

ultimately achieve higher value/dollar sales and profit), rather than promoting greater

volume sales through discounting. The company believes that “volume to value” is the

best way to produce sustainable, profitable growth. More recently, the company has

focused on selling more of its most profitable brands, including new offerings that carry

higher margins. In addition, it has realised additional cost savings from the Keebler

acquisition, which have led to improvements in its gross profit margin.

The company will continue to leverage its consumer recognition and the overall growth

of the food and beverage licensing industry with its expanded licensing programme. In

November 2003, in conjunction with Bruce Brown Fashions Inc., Kellogg launched a

woman’s clothing line designed for active woman, inspired by the Special K consumer.

For children, Kellogg linked up with Modern Publishing for a new series of colouring

and activity books features Kellogg’s cereal characters in fun settings for kids to colour.

In the freezer cabinet, Kellogg has partnered with The Jel Sert Company, a

manufacturer of freezer pops, to introduce Fudge Shoppe Fudge Pops.

In addition, 2004 will see a fundamental change in strategy for the company’s snacks

business, from an “acquire-and-integrate” approach to one of sustainable, organic

growth.

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NPD focuses on helping modern, busy consumers

In May 2003, Kellogg’s Pop-Tarts introduced a new permanent addition to its range,

the first yoghurt filled variety. Pop-Tarts Yoghurt Blasts pastries feature alternating

stripes of real fruit with yoghurt filling inside a toastable, vanilla-flavoured crust.

Available in strawberry and blueberry, the new products are topped with frosting that

coordinates with the colour of the yoghurt filling.

August 2003 saw the introduction of new Kellogg’s Krave snack bars. The snack bars

offer adults an alternative to chocolate confectionery. Targeting health conscious

consumers that want to manage their chocolate cravings, the new bars have nearly half

the fat of leading confectionery bars, as well as being a good source of protein and

calcium. Krave snack bars contain 11 essential vitamins and minerals and 50% of daily

value of anti-oxidants, vitamins A, C and E, and have nearly as much calcium as a cup of

low fat cottage cheese. The bars come in two flavours – Chocolate Delight and

Chocolate Peanut. Chocolate delight features whipped chocolate blended with toasted

grains and toffee bits in a chocolate coating, while chocolate peanut flavour includes

chewy nougat with crispy rice, caramel and chopped peanuts in a chocolate coating.

In September 2003, Kellogg launched Nutri-Grain Granola Bars and Snack Bites. These

were introduced to “help busy adults succeed in their morning marathons”, targeting

time poor consumers who do not have the time to prepare breakfast for themselves

whilst meeting their family’s needs. The bars and bites were launched in six varieties:

honey oat and raisin, mixed berry and chocolatey chip granola bars; as well as oatmeal

raisin, berry medley and chocolatey chip granola bites.

In November 2003, Kellogg Company launched a limited edition Dr. Seuss’ The Cat in

the Hat cereal and Pop-Tarts toaster pastries through a promotion with Universal

Pictures/DreamWorks Pictures/Imagine Entertainment’s Dr. Seuss’ The Cat in the Hat.

This was the latest partnership from Kellogg that uses licensed characters.

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In January 2004, the company launched Eggo French Toaster Sticks with two primary

customers in mind, children who like French toast and their parents who usually don’t

have time to make it. As the first French toast offering for the Eggo brand, Eggo French

Toaster Sticks take only a few minutes to prepare. Eggo French Toaster Sticks,

available in original and cinnamon flavours, contain less fat than competitive products,

have 220 calories per serving and include a number of key vitamins and nutrients,

ranging from calcium and iron, to Vitamin A and Folic Acid. The product launch

included an integrated marketing campaign with in-store sampling and point of sale

materials, along with an online, print and TV broadcast advertising campaign.

SWOT analysis


Kellogg in the form of a SWOT analysis, highlighting the relative strengths, weaknesses,


Strengths

The company’s products are manufactured in 18 countries and marketed in more than

180 countries around the world. Eleven Kellogg and Keebler brands had 2000 retail

sales of at least $100 million in the United States, two of which were greater than $1

billion.

Kellogg’s growth prospects are supported by the company’s underlying strength and

stability: its nearly century-long record of leadership in the grain-based food business

together with the non-cyclical nature of its products.

The acquisition of Keebler delivered a more diversified product portfolio, which will



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categories and that Keebler takes second place in the cookie and cracker categories,

both of which it rates as “growing faster than most other U.S. food categories”.

Figure 8.26: Kellogg SWOT analysis

• Eleven Kellogg and Keebler brands had 2000 retail sales of at least $100 million in the US, two of which were greater than $1 billion

• The acquisition of Keeblerdelivered a more diversified product portfolio which will undoubtedly boost the company’s growth

• Boxed cereal markets are facing pressure from private label alternatives and a perceived lack of convenience

• Kellogg faces significant increases in the prices of certain ingredients, packaging, and energy.

• Possible dependence upon a small number of customers

• Promotions, NPD and brand extensions are essential to achieve growth in cereals

• Keebler acquisition brings stronger presence in traditional supermarkets and in non -traditional channels

• Expand reach beyond the cereal and snack foods with licensing initiatives

• Sales decline expected in 2004, for the cookie sector due principally to category factors

• Recent decline was also attributable to a relative lack of innovation and brand-building activities, problems which are expected to persist

Company Strengths


Company Weaknesses

• Eleven Kellogg and Keebler brands had 2000 retail sales of at least $100 million in the US, two of which were greater than $1 billion.

• The acquisition of Keeblerdelivered a more diversified product portfolio which will undoubtedly boost the company’s growth.

• Boxed cereal markets are facing pressure from private label alternatives and a perceived lack of convenience.


• Possible dependence upon a small number of customers.

• Promotions, NPD and brand extensions are essential to achieve growth in cereals.

• Keebler acquisition brings stronger presence in traditional supermarkets and in non -traditional channels.

• Expand reach beyond the cereal and snack foods with licensing initiatives.

• Sales decline expected in 2004, for the cookie sector due principally to category factors.

• Recent decline was also attributable to a relative lack of innovation and brand-building activities, problems which are expected to persist.

Company Strengths


Company Weaknesses

• Eleven Kellogg and Keebler brands had 2000 retail sales of at least $100 million in the US, two of which were greater than $1 billion

• The acquisition of Keeblerdelivered a more diversified product portfolio which will undoubtedly boost the company’s growth

• Boxed cereal markets are facing pressure from private label alternatives and a perceived lack of convenience


• Possible dependence upon a small number of customers

• Promotions, NPD and brand extensions are essential to achieve growth in cereals

• Keebler acquisition brings stronger presence in traditional supermarkets and in non -traditional channels

• Expand reach beyond the cereal and snack foods with licensing initiatives

• Sales decline expected in 2004, for the cookie sector due principally to category factors

• Recent decline was also attributable to a relative lack of innovation and brand-building activities, problems which are expected to persist

Company Strengths


Company Weaknesses

• Eleven Kellogg and Keebler brands had 2000 retail sales of at least $100 million in the US, two of which were greater than $1 billion.

• The acquisition of Keeblerdelivered a more diversified product portfolio which will undoubtedly boost the company’s growth.

• Boxed cereal markets are facing pressure from private label alternatives and a perceived lack of convenience.


• Possible dependence upon a small number of customers.

• Promotions, NPD and brand extensions are essential to achieve growth in cereals.

• Keebler acquisition brings stronger presence in traditional supermarkets and in non -traditional channels.

• Expand reach beyond the cereal and snack foods with licensing initiatives.

• Sales decline expected in 2004, for the cookie sector due principally to category factors.

• Recent decline was also attributable to a relative lack of innovation and brand-building activities, problems which are expected to persist.

Company Strengths


Company Weaknesses


Weaknesses

The company expects another year of sales decline in 2004 for the cookie portion of its

U.S. snacks business, due principally to category factors, aggressive SKU eliminations,

and discontinuance of a custom manufacturing business during 2003.

Opportunities

To maintain growth in its core cereals markets, the company must embrace a range of

strategies including promotions, new product development and brand extensions,

particularly focused at the convenience market to cater for the on-the-go snack culture.

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This will include the continued development of cereal into bars, which usually demand a

higher price point.

The Keebler acquisition has helped Kellogg to achieve greater scale in the United States,

including a stronger presence in traditional supermarkets and in non-traditional channels

such as convenience and gas stores, vending, foodservice, club stores, and mass

merchandise stores. Cost synergies associated with the acquisition will also increase

Kellogg’s financial flexibility.

Following a difficult trading in the years 1997—2000, the company believes that

“volume to value” is the best way to produce sustainable, profitable growth. More

recently, the company has focused on selling more of its most profitable brands,

including new offerings that carry higher margins.

The company is seeking to further expand its reach beyond the cereal and snack food

aisles with extensive licensing initiatives in the toy, clothing, entertainment, publishing,

and food categories. The company will continue to leverage its consumer recognition

and the overall growth of the food and beverage licensing industry with its expanded

licensing programme.

Threats

Traditional boxed cereal markets are facing pressure from private label alternatives and a

perceived lack of convenience. The company has experienced intense competition for

sales of all of its principal products in its major markets, both domestically and

internationally.

In a threat to profitability, in 2004, Kellogg will face higher employee expenses and

significant increases in the prices of certain grains, cocoa, other ingredients, packaging,

and energy.

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The company has a dependence upon a small number of customers. Its largest customer,

Wal-Mart and its subsidiaries, accounted for approximately 12% of consolidated net

sales during 2002, largely within the United States. During 2002, the company’s top five

customers, collectively, accounted for approximately 30% of the company’s

consolidated net sales and approximately 40% of U.S. net sales.

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Chapter 9

Kraft

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Chapter 9 Kraft

Summary

Kraft is the largest branded food and beverage company in North America and the second largest in the world. Kraft Foods markets food and beverage brands in five product sectors: snacks, beverages, cheese, grocery, and convenient meals - in more than 150 countries.

The company’s brands include Kraft cheese, Jacobs and Maxwell House coffees, Nabisco cookies and crackers, Philadelphia cream cheese, Oscar Mayer meats, Post cereals, and Milka chocolates.

Throughout the first nine months of 2003, several factors contributed to lower than anticipated volume growth at Kraft. These included trade inventory reductions, warehouse consolidations and store closings.

The appointment of Roger Deromedi as the Chief Executive Officer of Kraft in December 2003 reflected the company’s slow sales growth and difficulty launching new brands rather than extending existing brands.

In January 2004, Kraft announced a new global organisational structure, its global ‘One Company’ structure, to better position Kraft to deliver sustainable growth.

The company announced three elements to its new strategy: a new global marketing and category development group; geographic-based commercial units; and key functions are now to be worldwide in scope.

Kraft’s brand strategy focuses on fast-growing sectors such as snacks, beverages and convenient meals. These offer the best growth potential and account for the majority of the company’s revenues (around 66% in 2002).

Kraft is seeking to exploit faster growing distribution channels such as convenience stores, mass merchandisers, drug stores, and vending machines, all of which it believes are growing faster than the traditional grocery channel.

Category leadership provides Kraft with the benefits of scale, consumer loyalty and greater in-store emphasis by retailers. This enables Kraft to win a significant share of a category’s growth and profit.

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About Kraft


second largest in the world. Kraft Foods markets food and beverage brands in five

product sectors: snacks, beverages, cheese, grocery, and convenient meals - in more

than 150 countries. The company’s brands include Kraft cheese, Jacobs and Maxwell

House coffees, Nabisco cookies and crackers, Philadelphia cream cheese, Oscar Mayer

meats, Post cereals, and Milka chocolates.

Kraft believes its brands hold the market leading position in 21 of its 25 top categories

in the United States and 21 of its top 25 country categories internationally. The

company operates 218 manufacturing and processing facilities worldwide, with 100 of

those located in North America. In 2002, revenues reached nearly $30 billion and

operating companies income was $6.4 billion.

History

Kraft has its roots in a diverse range of companies, some of which were established over

200 years ago. The company’s history can be traced back to 1767 when Bayldon and

Berry began selling candied fruit peel in York, England. Joseph Terry later joined the

company and the business grew to become Terry’s of York. However, the Kraft name

first appeared in 1903 when James Kraft began a wholesale cheese business in Chicago,

Illinois. By 1914, the company had opened its first plant and began manufacturing its

own cheese. In 1923, Vegemite yeast spread was introduced in Australia by Fred

Walker & Co. of Melbourne. In 1926, the Kraft Cheese Company acquired an interest in

the company.

In 1924, Kraft opened his first office in London. This was followed by offices in

Hamburg in 1927, at the same time as Kraft Cheese Company Ltd. was established in

England. In 1928, the Kraft Cheese Company acquired the Phenix Cheese Corporation,

maker of the Philadelphia brand cream cheese (introduced in the United States in 1880).

In 1934, Kraft acquired Kohler-Werke of Lindenberg, Germany and established Kraft

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Kase-Werke, G.m.b.H. In 1950, Kraft Deluxe process cheese slices and launched them

in the United States; the first commercially packaged sliced process cheese in the

country. In 1955, the product was introduced to the UK. Also in 1955, Kraft formed

Kraft Foods de Mexico, S.A. de C.V. and opened a processing plant near Monterey,

Mexico.

In 1988, Kraft was acquired by Philip Morris, making Philip Morris the world’s largest

consumer products company. The following year, the food products divisions of Philip

Morris, General Foods and Kraft, were joined to become Kraft General Foods. Kraft

General Foods International was also established. In 1990, Kraft General Foods

International acquired Jacobs Suchard, making it the number one in the European roast

and ground coffee market and a leader in confectionery. Acquired brands included Carte

Noire, Grand Mere and Jacobs coffee and Suchard, Milka, Toblerone and Cote d’Or

chocolates. In 1992, Kraft General Foods International acquired Splendid, the second

largest Italian coffee manufacturer, and El Caserio, a leader in processed cheese in

Spain. Kraft General Foods International also made 14 other acquisitions during the

year.

Between 1992—1993, Kraft moved into the Central and Eastern European market, with

the acquisition of five local confectionery companies in the region: Csemege in Hungary,

Figaro in Slovakia, Kaunas in Lithuania, Olza in Poland and Republika in Bulgaria. In

1993, Kraft General Foods International acquired Freia Marabou a.s. (Scandinavia’s

premier confectioner) and Terry’s of York, in the UK. Also that year, Kraft General

Foods acquired the United States and Canadian ready-to-eat cereal business from RJR

Nabisco, including the Shreddies and Shredded Wheat cereal products. The following

year, Kraft General Foods International acquired the Lyons instant coffee business from

Lyons Tetley in the UK. The company also acquired a majority interest in Poiana,

Romania’s leading confectioner.

In 1995, Kraft General Foods was reorganised and renamed Kraft Foods, Inc. and Kraft

General Foods International was renamed Kraft Foods International (KFI). In 1996, the

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company extended its presence in the Latin American chocolate market with the

purchase of Lacta in Brazil.

In 2000, Kraft Foods’ parent company Philip Morris acquired Nabisco Holdings, a

world leader in cookies, crackers and snacks, for almost $15 billion. The Nabisco brands

were integrated into the Kraft Foods business worldwide. The following year, Philip

Morris offered an Initial Public Offering for Kraft Foods. Also in 2001, KFI

strengthened its coffee businesses in Central and Eastern Europe and North Africa

through the acquisition of several brands including Nova Brasilia in Bulgaria; Nova

Brasilia, Classic Brasilier and Prestige in Romania; and Samar and Gaouar in Morocco.

In January 2003, Philip Morris, the parent company of Kraft Foods, changed its name to

Altria Group, Inc. to communicate its corporate structure with greater clarity. In

addition to owning 84% of Kraft, Altria is the parent company of Philip Morris

International, Philip Morris USA and Philip Morris Capital Corporation. It is also the

largest shareholder in the world’s second-largest brewer, SABMiller plc.

Recent performance

Performance in 2003

Throughout the first nine months of 2003, several factors contributed to lower than

anticipated volume growth at Kraft. These factors included trade inventory reductions,

resulting from several customers experiencing financial difficulty, warehouse

consolidations, store closings and retailers’ stated initiatives to reduce working capital.

To improve volume and share trends, Kraft announced in September that it would

increase investment in certain U.S. businesses in 2003 and expects this to continue into

2004.

In the first nine months of 2003, Kraft realised volume gains of 0.6%, largely due to

growth in the beverages, desserts and cereals segments, growth in developing markets,

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new product introductions and the impact of acquisitions. These were partially offset by

the impact of disposals and lower consumption in certain categories, particularly U.S.

cookies. Net revenues over the first three-quarters of the year increased by $804 million

(3.7% on the same period in 2002) and operating income increased by $43 million

(1.0%).

At the end of January 2004, Kraft announced it was to cut 6,000 jobs as part of its

strategy aimed at strengthening performance and achieving long-term growth targets. A

global restructuring programme is expected to involve the closure of up to 20 of Kraft’s

production facilities worldwide and the elimination of about 6,000 positions at all levels

of the company, or about 6% of its total workforce, over the next three years.

The announcement came as the company reported full-year 2003 net revenues of $31.0

billion, compared to $29.7 billion in the previous year. Commenting on the results, CEO

Roger Deromedi stated: “While Kraft’s fourth quarter results were in line with our

expectations, we clearly are not satisfied with our performance in the quarter or for the

full year.”


Table 9.38: Kraft financial performance 2000—2003

$ m 2000 2001 2002 2003 Net Revenues 22,922 29,234 29,723 31,010 Operating Income 4,012 4,884 6,114 6,011


The appointment of Roger Deromedi as the Chief Executive Officer of Kraft in

December 2003 reflected the company’s slow sales growth and difficulty launching new

brands rather than extending existing brands. Whilst the company has found success

with brand extensions for such products as Oreos and Jell-O, it has failed to produce

new brands that private labels cannot easily reproduce as a ‘me-too’ product.

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Figure 9.27: Kraft financial performance 2000—2003; turnover and operating income

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2000 2001 2002 2003

Net RevenuesOperating Income

$m


The following table illustrates the performance of each of the reporting divisions of

Kraft over the 2000—2003 period.

Table 9.39: Kraft divisional performance 2000—2003

$ m 2000 2001 2002 2003 -Cheese, Meals and Enhancers Net Revenue 7,923 8,732 9,172 9,439 Operating Income 1,845 2,099 2,210 2,230 -Biscuits, Snacks and Confectionery Net Revenue 293 5,071 4,887 4,801 Operating Income 100 966 1,051 887 -Beverages, Desserts and Cereals Net Revenue 4,267 4,237 4,412 4,567 Operating Income 1,090 1,192 1,136 1,247 -Oscar Mayer and Pizza Net Revenue 2,829 2,930 3,014 3,100 Operating Income 512 539 556 556


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Table 9.40: Kraft divisional performance 2000—2003 continued

$ m 2000 2001 2002 2003 Total Kraft Foods North America Net Revenue 15,312 20,970 21,485 21,907 Operating Income 3,547 4,796 4,953 4,920 -Europe, Middle East and Africa Net Revenue 6,398 5,936 6,203 7,045 Operating Income 1,019 861 962 1,012 -Latin America and Asia-Pacific Net Revenue 1,212 2,328 2,035 2,058 Operating Income 189 378 368 270 Total Kraft Foods International Net Revenue 7,610 8,264 8,238 9,103 Operating Income 1,208 1,239 1,330 1,282


Acquisitions and sales

In March, Kraft reached a preliminary agreement to acquire the Family Nutrition

Company S.A.E., a leading producer of biscuits and snack cakes in Egypt. The Family

Nutrition Company was a privately owned family business with 2002 revenues of

approximately $40 million and employing over 1,800 people.

In April 2003, Kraft reached an agreement to sell its retail rice business in Germany,

Austria and Denmark to Ebro Puleva SA, a leading Spanish producer of sugar, dairy and

rice products. The sale includes the reis-fit brand marketed in Germany and Austria and

ris-fix sold in Denmark.

In September 2003, Kraft announced plans to sell its Invernizzi branded cheese business

in Italy to Groupe Lactalis, a leading French producer of dairy products. The proposed

sale includes the Invernizzi gorgonzola, crescenza and mozzarella businesses and a

manufacturing facility in Caravaggio, Italy. The transaction reflects Kraft’s strategy of

focusing on growing its leading brands in its core categories. In Italy, these brands

include Philadelphia, Sottilette, Susanna, Giravolte, Jocca and Osella cheeses, Hag and

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Splendid coffees, Simmenthal canned meats and Milka, Cote d’Or and Toblerone

chocolates.

Also in September, Kraft announced the acquisition of the Back to Nature brand cereal

and granola business from Organic Milling, Inc., a privately held manufacturer of natural

products.

Market positioning

Coverage across five global product sectors

Kraft’s brand portfolio covers five global product sectors: snacks, beverages, cheese,

grocery, and convenient meals. The two dominant brands are Kraft and Nabisco. The

company believes that Kraft, with $3.6 billion in revenues, is the world’s leading brand

of cheese, though it also includes salad and spoonable dressings, packaged dinners,

barbecue sauce and other products. Nabisco is the company’s umbrella brand for the

cookies and crackers business and has over $3.5 billion in sales.

The Americas

Our other leading brands include Oscar Mayer, the leading processed meats brand in the

United States; Maxwell House, a leading coffee brand marketed in more than 78

countries; Philadelphia, a leading global cream cheese brand; and Post, a ready-to-eat

cereal brand in the United States.

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Table 9.41: Kraft market shares in the Americas, 2002

Country Market Category Company Value% Argentina Confectionery Chocolate Kraft Suchard Argentina SA 12.04 Argentina Confectionery Chocolate Nabisco Terrabusi 5.45 Brazil Confectionery Chocolate Kraft Foods Brasil SA 29.76 Brazil Savoury Snacks Overall Kraft Foods Brasil SA 3.80 Canada Chilled Food Overall Kraft Canada Inc 1.23 Canada Confectionery Chocolate Kraft Canada Inc 0.20 Canada Confectionery Sugar Kraft Canada Inc 4.67 Canada Dairy Cheese Kraft Canada Inc 26.60 Canada Dairy Overall Kraft Canada Inc 8.20 Colombia Confectionery Sugar Nabisco Royal Colombiana SA 0.12 Mexico Dairy Cheese Kraft Foods de México SA de CV 4.50 Mexico Dairy Overall Kraft Foods de México SA de CV 1.50 US Confectionery Sugar Callard & Bowser Suchard Inc 2.20 US Dairy Cheese Churny Cheese Inc 0.70 US Dairy Overall Churny Cheese Inc 0.20 US Chilled Food Overall Kraft Foods Inc 17.98 US Confectionery Sugar Kraft Foods Inc 7.50 US Dairy Cheese Kraft Foods Inc 33.60 US Dairy Overall Kraft Foods Inc 10.90 US Dairy Yoghurt Kraft Foods Inc 5.40 US Savoury Snacks Overall Kraft Foods Inc 3.90 US Confectionery Gum Nabisco Foods Co 2.52 Venezuela Dairy Cheese Alimentos Kraft de Venezuela CA 21.20 Venezuela Dairy Overall Alimentos Kraft de Venezuela CA 9.10 Venezuela Savoury Snacks Overall Nabisco de Venezuela CA 3.10 Venezuela Confectionery Sugar Nabisco de Venezuela CA 7.82


Asia-Pacific

Important markets for the company’s Philadelphia cream cheese brand in Asia-Pacific

are Australia, Hong Kong, Japan, Philippines, Singapore and South Korea. Kraft Singles

have important shares in Australia, Hong Kong, Indonesia, Malaysia, Singapore, South

Korea and the Philippines.

Major markets for the company’s Ritz crackers brand include China, Hong Kong,

Indonesia, Taiwan and Thailand. In the dressings sector Vegemite is one of Australia’s

best-known brands and is also popular in New Zealand.

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Table 9.42: Kraft market shares in Asia-Pacific, 2002

Country Market Category Company Value% Australia Confectionery Chocolate Kraft Jacobs Suchard (Australia) 1.40 Australia Dairy Cheese Kraft Foods Ltd 14.50 Australia Dairy Overall Kraft Foods Ltd 2.90 Australia Confectionery Sugar Nabisco Group Ltd 1.00 China Savoury Snacks Overall Nabisco (China) Ltd 1.10 Hong Kong Confectionery Chocolate Kraft Foods Ltd (Asia) 9.35 Hong Kong Confectionery Gum Kraft Foods Ltd (Asia) 3.52 Hong Kong Confectionery Sugar Kraft Foods Ltd (Asia) 1.40 Hong Kong Dairy Cheese Kraft Foods Ltd 49.60 Hong Kong Dairy Overall Kraft Foods Ltd 0.60 Hong Kong Savoury Snacks Overall Kraft Foods Ltd 3.20 Indonesia Confectionery Chocolate Kraft Ultrajaya Indonesia PT 1.22 Indonesia Dairy Cheese Kraft Ultrajaya Indonesia PT 62.30 Indonesia Dairy Overall Kraft Ultrajaya Indonesia PT 1.50 Indonesia Savoury Snacks Overall Kraft Ultrajaya Indonesia PT 0.20 Japan Savoury Snacks Overall Yamazaki Nabisco Co Ltd 2.60 Malaysia Confectionery Chocolate Kraft Foods Malaysia 1.02 Malaysia Confectionery Gum Kraft Foods Malaysia 6.07 Malaysia Confectionery Sugar Kraft Foods Malaysia 0.30 Malaysia Dairy Cheese Kraft Foods Malaysia 48.30 Malaysia Dairy Overall Kraft Foods Malaysia 0.20 Malaysia Savoury Snacks Overall Nabisco Group Ltd 0.90 New Zealand Dairy Cheese Kraft Foods Ltd 2.40 New Zealand Dairy Overall Kraft Foods Ltd 0.50 Philippines Confectionery Chocolate Kraft Foods (Philippines) Inc 3.20 Philippines Confectionery Sugar Kraft Foods (Philippines) Inc 3.75 Philippines Dairy Cheese Kraft Foods (Philippines) Inc 53.50 Philippines Dairy Overall Kraft Foods (Philippines) Inc 12.70 Philippines Savoury Snacks Overall Nabisco Philippines Inc 1.20 Singapore Confectionery Chocolate Kraft Foods (S) Pte Ltd 2.95 Singapore Confectionery Sugar Kraft Foods (S) Pte Ltd 0.47 Singapore Dairy Cheese Kraft Foods (S) Pte Ltd 29.00 Singapore Dairy Overall Kraft Foods (S) Pte Ltd 4.70 Singapore Savoury Snacks Overall Kraft Foods (S) Pte Ltd 6.80 South Korea Dairy Cheese Kraft Co Ltd 2.10 South Korea Dairy Overall Kraft Co Ltd 0.10 South Korea Dairy Milk Dongsuh Foods Co Ltd 4.40 South Korea Dairy Overall Dongsuh Foods Co Ltd 3.20 Taiwan Confectionery Chocolate Kraft Foods Taiwan Ltd 3.45 Taiwan Confectionery Gum Kraft Foods Taiwan Ltd 1.07 Taiwan Confectionery Sugar Kraft Foods Taiwan Ltd 1.57 Taiwan Dairy Cheese Kraft Foods Taiwan Ltd 16.00 Taiwan Dairy Overall Kraft Foods Taiwan Ltd 0.40 Thailand Confectionery Chocolate Kraft Foods (Thailand) Ltd 5.72 Thailand Confectionery Sugar Kraft Foods (Thailand) Ltd 1.70 Thailand Dairy Cheese Kraft Foods (Thailand) Ltd 31.00 Thailand Dairy Overall Kraft Foods (Thailand) Ltd 0.80


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Eastern Europe

Milka is a leading chocolate confectionery brand. Major markets for the brand in

Eastern Europe include Bulgaria, Czech Republic, Hungary, Poland and Slovakia.

Kraft also manufactures Prince Polo & Siesta, a crunchy wafer brand that is popular in

Czech Republic, Poland and Slovakia and 3-Bit, a crunchy biscuit product that has

significant shares in the Czech Republic, Hungarian, Polish and Slovakian confectionery

markets.

In the snacks markets, Estrella is popular in Latvia, Lithuania and Russia, whilst Lux is

available in the Ukraine.

Table 9.43: Kraft market shares in Eastern Europe, 2002

Country Market Category Company Value% Bulgaria Confectionery Chocolate Kraft Foods Bulgaria AD 45.58 Bulgaria Confectionery Sugar Kraft Foods Bulgaria AD 0.70 Bulgaria Dairy Milk Kraft Foods Bulgaria AD 0.70 Bulgaria Dairy Overall Kraft Foods Bulgaria AD 0.10 Bulgaria Savoury Snacks Overall Kraft Foods Bulgaria AD 2.10 Czech Republic Confectionery Chocolate Kraft Jacobs Suchard spol sro 19.34 Czech Republic Confectionery Sugar Kraft Jacobs Suchard spol sro 6.47 Hungary Confectionery Chocolate Kraft Foods Hungária Kft 20.24 Hungary Dairy Milk Kraft Foods Hungária Kft 0.60 Hungary Dairy Overall Kraft Foods Hungária Kft 0.20 Poland Confectionery Chocolate Kraft Foods Polska Sp zoo 14.02 Romania Confectionery Chocolate Kraft Foods Romania SA 33.88 Romania Confectionery Sugar Kraft Foods Romania SA 26.24 Romania Savoury Snacks Overall Kraft Foods Romania SA 1.30 Ukraine Confectionery Chocolate Kraft Foods Ukraina Open JSC 13.79



Saudi Arabia is an important market in the dessert sector for Kraft’s Dream Whip, a

whipped cream dessert-topping product.

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Table 9.44: Kraft market shares in the Middle East and Africa, 2002

Country Market Category Company Value% Morocco Confectionery Sugar Kraft Foods International 2.47 Morocco Confectionery Sugar Nabisco Group Ltd 1.40 Saudi Arabia Confectionery Chocolate Kraft Jacobs Suchard Ltd 6.22 Saudi Arabia Dairy Cheese Kraft Jacobs Suchard Ltd 16.10 Saudi Arabia Dairy Overall Kraft Jacobs Suchard Ltd 4.40 Saudi Arabia Savoury Snacks Overall Nabisco Arabia Co Ltd 1.90 Saudi Arabia Dairy Overall Nabisco Arabia Co Ltd 0.50 South Africa Confectionery Chocolate Kraft Foods International 0.40 South Africa Confectionery Sugar Kraft Foods International 1.90 South Africa Dairy Cheese Kraft Foods International 0.10 South Africa Confectionery Gum Nabisco South Africa (Pty) Ltd 6.45 South Africa Confectionery Sugar Nabisco South Africa (Pty) Ltd 12.89


Western Europe

The Philadelphia cream cheese brand has several important European markets. These

include Austria, Belgium, Germany, Holland, Ireland, Italy, Scandinavia, Spain and the

UK.

Major markets for the Milka brand in Western Europe include Austria, Belgium, France,

Germany, Italy, Netherlands, Portugal, Spain, Switzerland and Turkey.

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Table 9.45: Kraft market shares in Western Europe, 2002

Country Market Category Company Value% Austria Confectionery Chocolate Kraft Foods Österreich GmbH 33.36 Austria Dairy Cheese Kraft Foods Österreich GmbH 4.00 Austria Dairy Milk Kraft Foods Österreich GmbH 1.60 Austria Dairy Overall Kraft Foods Österreich GmbH 1.80 Belgium Chilled Food Overall Kraft Foods International 0.1 Belgium Confectionery Chocolate Kraft Foods Belgium SA 29.14 Belgium Confectionery Sugar Kraft Foods Belgium SA 3.47 Belgium Dairy Cheese Kraft Foods Belgium SA 2.00 Belgium Dairy Overall Kraft Foods Belgium SA 0.90 Denmark Savoury Snacks Overall Estrella A/S 23.20 Denmark Confectionery Chocolate Kraft Freia Marabou A/S 12.04 Denmark Dairy Cheese Kraft Freia Marabou A/S 4.00 Denmark Dairy Milk Kraft Freia Marabou A/S 1.20 Denmark Dairy Overall Kraft Freia Marabou A/S 2.20 Egypt Confectionery Chocolate Kraft Jacobs Suchard Ltd 0.42 Finland Confectionery Chocolate Kraft Foods Finland AB 9.37 Finland Dairy Milk Kraft Foods Finland AB 0.60 Finland Dairy Overall Kraft Foods Finland AB 0.30 France Chilled Food Overall Kraft Foods France SA 0.3 France Confectionery Chocolate Kraft Foods France SA 10.94 France Dairy Milk Kraft Foods France SA 0.20 Germany Confectionery Chocolate Kraft Foods Deutschland GmbH & Co 13.79 Germany Dairy Cheese Kraft Foods Deutschland GmbH & Co 6.80 Germany Dairy Milk Kraft Foods Deutschland GmbH & Co 1.90 Germany Dairy Overall Kraft Foods Deutschland GmbH & Co 3.00 Greece Confectionery Chocolate Kraft Foods Hellas SA 26.26 Greece Dairy Cheese Kraft Foods Hellas SA 0.70 Greece Dairy Milk Kraft Foods Hellas SA 0.10 Greece Dairy Overall Kraft Foods Hellas SA 0.60 Ireland Confectionery Chocolate Kraft Foods Ireland Ltd 2.75 Ireland Confectionery Sugar Kraft Foods Ireland Ltd 2.40 Ireland Dairy Cheese Kraft Foods Ireland Ltd 13.10 Ireland Dairy Overall Kraft Foods Ireland Ltd 2.20 Italy Confectionery Chocolate Kraft Jacobs Suchard SpA 2.12 Italy Dairy Cheese Kraft Jacobs Suchard SpA 7.90 Italy Dairy Milk Kraft Jacobs Suchard SpA 0.20 Italy Dairy Overall Kraft Jacobs Suchard SpA 4.90 Netherlands Confectionery Chocolate Kraft Foods Nederland BV 9.90 Netherlands Confectionery Sugar Kraft Foods Nederland BV 0.60 Netherlands Dairy Cheese Kraft Foods Nederland BV 0.30 Netherlands Dairy Overall Kraft Foods Nederland BV 0.10 Norway Confectionery Chocolate Kraft Foods Norge AS 46.18 Norway Confectionery Sugar Kraft Foods Norge AS 5.55 Norway Dairy Cheese Kraft Foods Norge AS 0.80 Norway Dairy Overall Kraft Foods Norge AS 0.40 Portugal Confectionery Chocolate Kraft Foods Portugal Lda 4.60 Portugal Dairy Cheese Kraft Foods Portugal Lda 11.10 Portugal Dairy Milk Kraft Foods Portugal Lda 0.70 Portugal Dairy Overall Kraft Foods Portugal Lda 3.40

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Table 9.46: Kraft market shares in Western Europe, 2002

Country Market Category Company Value% Spain Confectionery Chocolate Kraft Foods España SA 6.02 Spain Confectionery Sugar Kraft Foods España SA 0.40 Spain Dairy Cheese Kraft Foods España SA 10.10 Spain Dairy Overall Kraft Foods España SA 2.40 Sweden Confectionery Chocolate Kraft Sverige AB 46.35 Sweden Confectionery Sugar Kraft Sverige AB 1.27 Sweden Dairy Cheese Kraft Freia Marabou Sverige AB 1.60 Sweden Dairy Milk Kraft Freia Marabou Sverige AB 5.20 Sweden Dairy Overall Kraft Freia Marabou Sverige AB 2.40 Switzerland Confectionery Chocolate Kraft Foods (Schweiz) AG 5.35 Switzerland Confectionery Sugar Kraft Foods (Schweiz) AG 4.37 Switzerland Dairy Cheese Kraft Foods (Schweiz) AG 0.30 Switzerland Dairy Milk Kraft Foods (Schweiz) AG 0.70 Switzerland Dairy Overall Kraft Foods (Schweiz) AG 0.30 Turkey Confectionery ChocolateMarsa Kraft Gida Sanayii ve Ticaret AS 3.15 UK Chilled Food Overall Kraft Foods UK Ltd 0.51 UK Confectionery Chocolate Kraft Foods UK Ltd 3.97 UK Confectionery Sugar Kraft Foods UK Ltd 0.30 UK Dairy Cheese Kraft Foods UK Ltd 5.50 UK Dairy Overall Kraft Foods UK Ltd 1.60


Product examples

In the convenience sector, Lunchables, a selection of cheese, cracker and meat pre-

packed lunches are popular in Belgium, France, Italy and the UK. In the UK, in August

2003, Kraft published an announcement in the national press regarding a Lunchables

product recall. A small number of packs of Dairylea Lunchables StacKems were found

to contain small fragments of wire in the cracker biscuit, as a result of an isolated

manufacturing incident at a third party supplier. In May 2003, at a time when the Food

Standards Agency recommended salt levels in children’s food should be cut, Kraft

Foods announced it was cutting the average salt content from 2.5 grams to 2 grams a

pack. According to Bob Fenton from Kraft Foods: “The whole thing about Lunchables

is that they should be bought as an occasional treat and our research shows that many

youngsters don't have more than seven or eight a year”.

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Figure 9.28: A selection of brands from Kraft

Source: http://www.kraft.com/brands/ Business Insights

Foodservice

In addition to the retail products, Kraft also serves foodservice markets. Kraft

Foodservice has launched www.kraftfoodservice.com to feature a searchable library of

over 750 recipes, product information catalogues and new product news. New

foodservice products include:

Available in 1-gallon bulk and 2 oz. portion control pouches - Kraft Signature

Oriental Sesame Dressing;

portion control cups (2 oz) to add flavour to menu items with products such as Kraft

Ranch, Blue Cheese, and Honey Mustard Dressings, Kraft Sweet n' Sour and Tartar

Sauces and Bull’s Eye Barbeque Sauce;

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Oscar Mayer branded bacon.


New structure for 2004

In January 2004, Kraft announced a new global organisational structure, its global ‘One

Company’ structure, as part of a strategy to better position Kraft to deliver sustainable

growth. The company announced three elements to the new strategy. Firstly, a new

global marketing and category development group is being formed to accelerate growth

and global expansion. Secondly, geographic-based commercial units will be responsible

for driving strong results country by country with the best programmes and execution

for local consumers and customers. Thirdly, key functions are to be worldwide in scope,

to increase effectiveness and drive cost savings across Kraft’s business system. All three

groups will work together in alignment with the company’s global consumer sectors -

beverages, snacks, cheese & dairy, convenient meals, and grocery.

The new Global Marketing & Category Development division will lead Kraft’s growth

agenda by driving category development across countries with global category

strategies, new-product growth platforms and marketing expertise.

Kraft’s geographic-based commercial units will be grouped into North America

Commercial and International Commercial, with direct responsibility for country-by-

country marketing and sales, including profit and loss responsibility. These organisations

will leverage local category strategies, growth platforms and global marketing

developed in cooperation with the Global Marketing & Category Development group.

For financial segment reporting purposes, Kraft Foods will have six segments: U.S.

beverages & grocery; U.S. snacks; U.S. cheese, Canada & North America foodservice;

U.S. convenient meals; Europe, Middle East & Africa; and Latin America & Asia

Pacific.

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Brand strategies drive performance

Fast-growing sectors

One of Kraft’s most important strengths is the power of its brands. As such, any growth

strategy must focus on these and especially those in fast-growing sectors such as snacks,

beverages and convenient meals. These sectors offer the most significant global growth

potential and account for the majority of the company’s revenues (around 66% in 2002).

To maximise growth, NPD, acquisitions and marketing support help build the brands

and capture an increasing share of category sales.

Health

The company has also recognised that it must be responsive to consumer’s demands for

products with positive health, energy, or nutritional attributes. These range from

reductions in fat, sugar, or calorie content; to foods fortified with vitamins, minerals, or

other nutrients; to soy-based meat alternatives.

Distribution channels

In addition, Kraft is seeking to exploit faster growing distribution channels such as

convenience stores, mass merchandisers, drug stores, and vending machines, all of

which it believes are growing significantly faster than the traditional grocery channel.

Kraft’s current share of total food and beverage sales in these alternate channels is not

as high as in the grocery channel, and its opportunity for growth is greater. In a similar

vain, the company is also to target fast-growing demographic and economic segments.

In the United States, African-Americans and Hispanics population groups are growing

almost five times faster than the rest of the population and the company is seeking to

improve its coverage of distribution channels that serve such consumers and developing

new products that will appeal to these consumers. In developing markets where

purchasing power is increasing, the company is also introducing premium products to

meet consumers’ needs.

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Kraft manages its business and brand portfolio through acquisitions, licensing

arrangements and disposals. Acquisitions and licensing arrangements seek to add

businesses that are in fast-growing categories, have valuable brands, and/or provide

improved scale and market positions. In turn, Kraft disposes of businesses that do not

meet growth or return expectations, that lack strategic fit, or which, by divesting them,

will improve productivity.

Advantages of global category leadership

Category leadership provides Kraft with the benefits of scale, consumer loyalty and

greater in-store emphasis by retailers. This enables Kraft to win a significant share of a

category’s growth and profit, which in turn helps generate resources to reinvest in

marketing and product innovation.

To help maintain the company’s leadership positions in its principal categories, it has

formed worldwide councils, which share best practices. Kraft is also pursuing growth in

Central and Eastern Europe, the Middle East, Latin America and Asia Pacific. In

developing markets, the company’s strategy has four key components:

Introduce additional snack, beverage and cheese categories in developing markets

where Kraft already have a presence;

introduce additional brands across key price segments within the categories where

Kraft already have a presence;

enter developing markets where Kraft does not yet have a presence;

pursue tactical fill-in acquisitions, especially in snacks and beverages, in developing

markets.

Initiatives respond to health concerns

In July 2003, in response to rising obesity rates around the world, Kraft announced a

series of commitments that are to focus in four key areas: product nutrition, marketing

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practices, consumer information and public advocacy and dialogue. As a part of the

process, Kraft formed a global council of advisors to help it structure its ongoing

response to obesity and develop policies, standards, measures and timetables for

implementation.

In the area of product nutrition, Kraft is committed to placing a cap on the portion size

of single-serve packages, introducing guidelines for the nutritional characteristics of all

products and making improvements to existing products and providing alternative

choices.

Where marketing is concerned, the company is seeking to eliminate all in-school

marketing. It also intends to apply locally appropriate criteria to use with the vending

industry in different regions of the world to determine the selection of Kraft products to

be sold through in-school vending machines. Additionally, it is to introduce guidelines

for all advertising and marketing practices, including advertising and marketing to

children, to encourage appropriate eating behaviours and active lifestyles.

Improving information to the consumer is also a commitment from Kraft, including the

provision of nutrition labelling in all markets worldwide (including markets where

labelling is not required), adding nutrition and/or activity-related information on product

labels and company websites and the introduction of guidelines for the use of health-

related claims in all markets, including markets where no restrictions exist.

SWOT analysis

The following section provides a brief appraisal of the performance and strategy of Kraft

in the form of a SWOT analysis, highlighting the relative strengths, weaknesses,


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Scale and leadership brings advantages

Competitive and scale advantages come with size and leadership. Category leadership

provides Kraft with the benefits of scale, consumer loyalty and greater in-store emphasis

by retailers.


second largest in the world. Kraft believes its brands hold the market leading position in

21 of its 25 top categories in the US and 21 of its top 25 country categories

internationally.

The company’s global scale including its position as the largest branded food and

beverage company in North America and the second largest in the world enables it to be

more efficient and effective in expanding brands geographically, while reducing costs

and improving productivity and margins.

167

Figure 9.29: Kraft SWOT analysis

• Leadership provides Kraft with the benefits of scale, consumer loyalty and greater in-store emphasis by retailers

• Global scale enables it to be efficient and effective in expanding geographically, while reducing costs and improving productivity and margins

• Consumer health concerns. Kraft faces the challenge of reducing or removing trans fats from many of its products

• Reduced volume growth due to trade inventory reductions, warehouse consolidations, store closings and retailer initiatives to cut working capital

• Exploit faster growing distribution channels which are growing faster than the traditional grocery channel

• Growth strategy must focus on brands in fast-growing sectors: snacks, beverages and convenient meals

• Leverage brands in new, developing markets and categories

• Recent management changes reflected the company’s slow sales growth and difficulty launching new brands

• Until structural changes in January 2004, Kraft was not positioned to fully exploit global growth opportunities

Company Strengths


Company Weaknesses

• Leadership provides Kraft with the benefits of scale, consumer loyalty and greater in-store emphasis by retailers

• Global scale enables it to be efficient and effective in expanding geographically, while reducing costs and improving productivity and margins

• Consumer health concerns. Kraft faces the challenge of reducing or removing trans fats from many of its products

• Reduced volume growth due to trade inventory reductions, warehouse consolidations, store closings and retailer initiatives to cut working capital

• Exploit faster growing distribution channels which are growing faster than the traditional grocery channel

• Growth strategy must focus on brands in fast-growing sectors: snacks, beverages and convenient meals

• Leverage brands in new, developing markets and categories

• Recent management changes reflected the company’s slow sales growth and difficulty launching new brands

• Until structural changes in January 2004, Kraft was not positioned to fully exploit global growth opportunities

Company Strengths


Company Weaknesses


Difficulty launching new brands

Recent management changes reflected the company’s slow sales growth and difficulty

launching new brands rather than extending existing brands. Whilst the company has

found success with brand extensions, it has failed to produce new brands that private

labels cannot easily reproduce.

In comparison to competitors, the company has been relatively slow to tap into the

market for cereal bars, however its acquisition of Nabisco has provided it with expertise

in both cereals and snack bars.

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Opportunities

In addition, Kraft is seeking to exploit faster growing distribution channels such as

convenience stores, mass merchandisers, drug stores, and vending machines, all of

which it believes are growing significantly faster than the traditional grocery channel.

Kraft’s current share of total food and beverage sales in these alternate channels is not

as high as in the grocery channel, providing a significant opportunity for growth.

Over the next few years, Kraft expects to achieve significant cost savings as it integrates

the operations of Nabisco with Kraft Foods around the world.

One of Kraft’s most important strengths is the power of its brands. As such, any growth

strategy must focus on these and especially those in fast-growing sectors such as snacks,

beverages and convenient meals.

Threats

With an increasingly health-conscious focus, Kraft also faces the challenge of reducing

or removing trans fats from many of its products and this will remain a target for 2004.

In July 2003, in response to rising obesity rates around the world, Kraft announced a

series of commitments that are to focus in four key areas: product nutrition, marketing

practices, consumer information and public advocacy and dialogue. As a part of the

process, Kraft formed a global council of advisors to help it structure its ongoing

response to obesity and develop policies, standards, measures and timetables for

implementation.

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Chapter 10

Masterfoods

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Chapter 10 Masterfoods

Summary

Mars operates in over 100 countries. The company remains privately owned and operates its three core businesses, snackfood, petcare and main meal food, under the Masterfoods name in most parts of the world.

The company manufactures many top snack food and confectionery brands including M&M’s, Milky Way, Snickers, Mars and Twix.

The company’s brands also include Uncle Ben’s, the first mass-produced parboiled rice product whose range has now extended to include pasta and sauces.

As a privately owned corporation, Masterfood believes it enjoys greater flexibility and autonomy. In Europe, the Americas, Asia and Australia/New Zealand the combined businesses are run on a regional basis.

In Germany, a merger of Mars GmbH and Effem GmbH formed Masterfoods GmbH in January 2001, bringing together companies with an annual turnover of €1,500 million.

Also in January 2001, Mars Alimentaire, Doveurope and Unisabi, all subsidiaries of Mars, came together to form Masterfoods France, with sales of over €1,372 million.

In the UK, Masterfoods was formed in January 2002, by the merger of Mars Confectionery and Pedigree Masterfoods.

The increase in popularity of cookie bars in the United States in 2002, largely initiated by both Nabisco and Masterfoods USA slowed in 2003, though Masterfoods’ cookie line has grown into a $53 million brand.

Serving convenience and impulse markets, in January 2003, Masterfoods USA introduced its first bite-sized line. Popables features miniature Snickers, Three Musketeers or Milky Way sweets in a pouch.

In May 2003, Masterfoods in the UK announced that the recipes used for Mars and Snickers bars have changed amid health fears over a fatty ingredient.

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About Masterfoods

Mars is a $14 billion business operating in over 100 countries. The company remains

privately owned and operates its three core businesses, snackfood, petcare and main

meal food, under the Masterfoods name in most parts of the world.

Masterfoods USA records annual sales in excess of $5 billion and operates 15

manufacturing facilities.

Outside the Masterfoods structure, Mars also operates a smaller business, MEI/Drinks

Group, which makes drinks vending systems and electronic coin changers and other

electronic transaction solutions for a range of industries.

History

The company was established when Frank Mars and his wife Ethel started making and

selling a variety of butter-cream confectionery from their home in Tacoma Washington

in 1911. In 1920, the Milky Way bar was launched in the United States (which is known

in Europe as the Mars bar). Together with other confectionery brands such as Snickers,

they became the foundation of a global snack food business.

In the 1930s Forrest Mars made the first move into pet food and pioneered the

development of the European pet food industry. He created a successful formula that

was then transferred to the United States and the rest of the world. Mars was also the

first company to apply modern manufacturing techniques to parboil rice on a large scale.

Just six years after its 1946 launch, Uncle Ben’s became one of America’s top selling

brands of packaged long grain rice before being introduced successfully to international

markets.

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Master Foods of Australia was founded by Henry Lewis in 1926 and passed onto his

son’s, John, David and Victor before becoming part of the Mars family’s group of

companies in 1967.

In 1950, Henry and his sons a launched a brand name for their products, Masterfoods,

which was first registered in 1945 where it was used on re-packaged goods such as

herbs and spices. The very first product manufactured under the Masterfoods brand was

Bread & Butter Cucumbers. In 1952, a number of products were added to the

Masterfoods range: mustard, paprika, Lemon Aid and mint jelly. The first herbs and

spices in glass jars were also produced in 1954 and included products such as celery salt

and vanillin sugar.

In the 1960s the company was still importing speciality foods from overseas, one being

Uncle Ben’s rice from Mars in the United States. A relationship was formed which

eventually led to the purchase of the business in 1967. Master Foods of Australia now

offers over 700 products in categories as diverse as mustards, shelf stable dips, beans,

marinades, relishes, sauces, herbs and spices (dry & wet), pasta and stir fry sauces and

dressings. It exports to New Zealand, the United States and Canada, and throughout the

Asian and Pacific region as well as supplying the food service and industrial sectors.

Recent performance

As a profitable, privately owned corporation, Masterfood believes that it enjoys

unrivalled flexibility and autonomy. In Europe, the Americas, Asia and Australia/New

Zealand the combined core businesses are run on a regional basis, each reporting in to a

Regional President.

Performance in 2003

Confectionery brands account for the large majority of the company’s sales. It operates

a portfolio of leading brands including Mars, M&M’s and Snickers. However despite a

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strong portfolio, the company has faced difficulty in maintaining sales growth in recent

months.

In 2003, Mars extended some of its confectionery brands into biscuits, a market that is

set for higher growth rates than traditional chocolate confectionery. Additionally,

manufacturers are aware that consumers see biscuit categories as less unhealthy than

chocolate products. Mars’ Bisc& range includes biscuits topped with M&M’s, Twix,

Mars and Bounty. Mars’ products are individually wrapped items available in multi-

packs, designed to take advantage of the latest snacking and lunch box trends.

In October 2003, Mars’ Masterfoods USA announced it was conducting a review of its

media buying and planning business in the United States with a view toward

consolidating it.

Market positioning

Household names in confectionery, pet food, snacks, rice and vending

The company manufactures many top snack food and confectionery brands including

M&M’s, Milky Way, Snickers, Mars and Twix. In the pet care sector, Waltham

manufactures food brands such as Whiskas and Pedigree.

The Americas

The company’s brands also include Uncle Ben’s, the first mass-produced parboiled rice

product whose range has now extended to include pasta and sauces. In the beverages

sector, the company operates vending systems including Klix and Flavia.

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Table 10.47: Masterfoods market shares in the Americas, 2002 Country Market Category Company Value% Chile Confectionery Chocolate Mars Inc 0.32 US Confectionery Chocolate Mars Inc 30.51 US Confectionery Sugar Mars Inc 6.72 US Savoury Snacks Overall Mars Inc 0.20 Venezuela Confectionery Chocolate M&M Mars 9.40


Asia-Pacific

Effem China develops, produces and markets a range of snack food and pet food

products for sale in China (including Hong Kong) and for export to Japan. The company

employs over 500 people in Huairou and a further 300 sales associates across different

cities in China.

Table 10.48: Masterfoods market shares in Asia-Pacific, 2002

Country Market Category Company Value% Japan Confectionery Chocolate Master Foods Ltd 1.60 Malaysia Confectionery Chocolate Mars Inc 9.45 Malaysia Confectionery Sugar Mars Inc 1.45 Philippines Confectionery Chocolate Mars Inc 14.67 South Korea Confectionery Chocolate Masterfoods Korea 11.07 Thailand Confectionery Chocolate Mars Confectionery of Australia 10.10 Vietnam Confectionery Chocolate Mars Inc 4.10


Eastern Europe

In Poland, Masterfoods Polska is based in Sochaczew, 45 kilometres west of Warsaw

and employs 1,400 people. The site includes the head office built in 1994 and four

factories. In 1992, the company started manufacturing dog food and two years later a

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second dry pet food factory was opened. Between 1995 and 2001, the company

established further snack food and wet pet food factories.

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Table 10.49: Masterfoods market shares in Eastern Europe, 2002

Country Market Category Company Value% Bulgaria Confectionery Chocolate Masterfoods Bulgaria EOOD 4.30 Bulgaria Confectionery Sugar Masterfoods Bulgaria EOOD 2.15 Czech Republic Confectionery Chocolate Master Foods ks 5.37 Czech Republic Confectionery Sugar Master Foods ks 1.10 Hungary Confectionery Chocolate Masterfoods Hungary Kft 5.17 Hungary Dairy Milk Masterfoods Hungary Kft 1.50 Hungary Dairy Overall Masterfoods Hungary Kft 0.60 Poland Confectionery Chocolate Master Foods Polska 12.62 Poland Confectionery Sugar Master Foods Polska 2.50 Romania Confectionery Chocolate Master Foods Romania SRL 2.12 Romania Confectionery Sugar Master Foods Romania SRL 1.62 Russia Confectionery Chocolate Mars LLC Russia 9.75 Russia Confectionery Sugar Mars LLC Russia 0.97 Slovakia Confectionery Chocolate Master Foods Slovakia 2.65 Ukraine Confectionery Chocolate Masterfoods & Effem 7.10 Ukraine Confectionery Sugar Masterfoods & Effem 0.10



Master Foods South Africa was established in 1996. The market was initially developed

through the import of the company’s established brands and the first manufacturing

facilities and offices were built in Rosslyn, Pretoria in 1998.

In 2000, a local sugar confectionery business, Sovereign Sweets, was acquired. In just

three years, the business more than quadrupled in growth, making Streamers and Big

Time, two of the most recognised confectionery brands in South Africa. Based in Cape

Town, a dry food manufacturing facility was added to the site following the acquisition

of the Royco soups and sauces business in 2002.

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Table 10.50: Masterfoods market shares in the Middle East and Africa, 2002

Country Market Category Company Value% Egypt Confectionery Chocolate Mars Inc 5.55 Egypt Confectionery Chocolate Master Foods Middle East 0.50 Egypt Confectionery Sugar Mars Inc 1.82 Israel Confectionery Chocolate Mars BV 4.10 Morocco Confectionery Chocolate Mars Inc 15.24 Saudi Arabia Confectionery Chocolate Master Foods 37.18 Saudi Arabia Dairy Milk Master Foods Middle East FZE 1.10 Saudi Arabia Dairy Overall Master Foods Middle East FZE 0.50 South Africa Confectionery Chocolate Mars Inc 0.87 South Africa Confectionery Sugar Mars Inc 0.22


Western Europe

In Germany, a merger of Mars GmbH and Effem GmbH formed Masterfoods GmbH in

January 2001, bringing together 1,900 employees with an annual turnover of €1,500

million. Also in January 2001, Mars Alimentaire, Doveurope and Unisabi, all subsidiaries

of Mars, came together to form Masterfoods France, with sales of over €1,372 million

and 2,350 employees.

Table 10.51: Masterfoods market shares in Western Europe, 2002

Country Market Category Company Value% Austria Confectionery Chocolate Masterfoods Austria OHG 10.70 Austria Savoury Snacks Overall Masterfoods Austria OHG 1.20 Belgium Confectionery Chocolate Masterfoods NV SA 13.97 Denmark Confectionery Chocolate Masterfoods Denmark A/S 11.24 Finland Confectionery Chocolate Master Foods Oy 6.52 France Confectionery Chocolate Masterfoods France SA 6.17 Germany Confectionery Chocolate Masterfoods GmbH 14.99 Germany Savoury Snacks Overall Masterfoods GmbH 8.40 Greece Confectionery Chocolate Masterfoods NV SA 11.24 Greece Confectionery Sugar Masterfoods NV SA 1.60 Greece Dairy Milk Masterfoods NV SA 0.40 Greece Dairy Overall Masterfoods NV SA 0.10 Ireland Confectionery Chocolate Mars Ireland 23.71 Ireland Confectionery Sugar Mars Ireland 5.30 Ireland Dairy Milk Mars Ireland 0.10


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Table 10.52: Masterfoods market shares in Western Europe, 2002 continued

Country Market Category Company Value% Ireland Savoury Snacks Overall Masterfoods Ireland Ltd 0.60 Italy Confectionery Chocolate Masterfoods Italia SpA 4.15 Netherlands Confectionery Chocolate Mars BV 21.09 Netherlands Confectionery Sugar Mars BV 0.50 Norway Confectionery Chocolate Masterfoods Norway AS 8.80 Portugal Confectionery Chocolate Masterfoods de Portugal Inc 12.19 Sweden Confectionery Chocolate Masterfoods Sweden AB 5.92 UK Confectionery Chocolate Masterfoods UK Ltd 24.09 UK Confectionery Sugar Masterfoods UK Ltd 9.90 UK Dairy Milk Mars UK Ltd 0.30 UK Dairy Overall Mars UK Ltd 0.10


Masterfoods Italy was formerly known as Dolma S.p.a., which has been operating in

Italy since 1978. The company was based near Milan until 1990 when a new site at

Belgioioso was built. The Belgioioso site also includes a pet food factory that opened in

1996.

Product examples

In the UK, Masterfoods was formed in January 2002, by the merger of Mars

Confectionery and Pedigree Masterfoods.

Figure 10.30: A selection of brands from Masterfoods

Source: http://www.mars.com/What_do_we_do&63/ Business Insights

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Foodservice

MasterFoodServices is the foodservice division that provides solutions to the

foodservice industry. It represents the following brands: Uncle Ben’s, Seeds of Change,

Ebly, M&M’S, Snickers, Skittles, Dove, Milky Way, Combos, Twix, Starburst, Kudos,

Cookies&, and 3 Musketeers Brands, and the Ethel M Chocolates line of specialty

gourmet chocolates. The company has recently initiated the MastersProgram, which is

exclusively for foodservice professionals. It provides escalating discounts to member

operators who purchase from one or more areas of its brand portfolio.


NPD plays a vital role in growth

The increase in popularity of cookie bars in the United States in 2002, largely initiated

by both Nabisco and Masterfoods USA slowed in 2003, although Masterfoods’ cookie

line has grown into a $53 million brand, making the company the eighth-largest cookie

vendor.

Serving convenience and impulse markets, in January 2003, Masterfoods USA

introduced its first bite-sized line. Popables features miniature Snickers, Three

Musketeers or Milky Way sweets in a pouch. The company also sells M&M’s and

Skittles in containers for vehicle cup holders.

Product developments in the UK have recently seen mobile telephone operator O2

receive a contract from food manufacturer Masterfoods to run an on-pack text message

promotion. The Chococollect initiative will see consumers of promotional packs of

Mars, Twix, Bounty, Snickers, Snickers Cruncher and Maltesers confectionery being

provided with a number which they can send a text message to in order to potentially

win a prize. Chococollect started in April 2003 and initially ran for eight months. O2 will

also develop games, ring tones and other mobile content for Masterfoods and the

company’s brands.

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In May 2003, Masterfoods in the UK announced that Mars and Snickers bars have had

their recipe changed amid health fears over a fatty ingredient. Hydrogenated vegetable

fat has been removed from the chocolate bar because of its links with high cholesterol

levels and heart disease.

In August 2003, Masterfoods entered the energy bar sector with Snickers Marathon.

Snickers Marathons are 2-ounce bars with either a chewy chocolate peanut or multi-

grain crunch, each fortified with 16 vitamins and minerals. The bars also contain around

10g of a “special protein blend,” designed to provide a long-lasting energy boost.

Other new launches from Masterfoods USA in 2003 included a new Starburst flavour,

fruit and creme, as well as a breath freshener product, Aqua Drops, positioned as a thirst

quencher.

SWOT analysis


Masterfoods in the form of a SWOT analysis, highlighting the relative strengths,


Brand names carry cross-category

As a profitable, privately owned corporation, Masterfood believes that it enjoys

unrivalled flexibility and autonomy. The company’s strength lies in its chocolate

confectionery brands, which account for the majority of Mars’s confectionery sales.

In recent years the company has begun to reduce its reliance on chocolate confectionery

sales with a number of brand extensions. These have boosted company sales that were

coming under threat from more intense competition. Mars led the confectionery

category extension into ice cream markets, while the latest developments have included

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extensions into cake bars and biscuits. The brand extension policy also offers economies

of scale, particularly in the marketing and promotion of its products.

Figure 10.31: Masterfoods SWOT analysis

• Strong portfolio of category –leading confectionery brands

• Recent fall in reliance on chocolate confectionery sales with a number of brand extensions

• Brand extensions offer economies of scale, particularly in marketing and promotion activity

• Increasingly mature nature of chocolate confectionery, which is susceptible to declining growth rates

• Health-wise consumers look to products they see as being healthier or a sugar-free alternatives

• Extension of confectionery brands into biscuits, a market with higher growth rates than chocolate confectionery

• Functional confectionery - following entry into the energy bar sector, can other brands be extended into high growth categories?

• High dependence upon chocolate markets, given that those markets are increasingly mature and susceptible to declining growth rates

Company Strengths


Company Weaknesses

• Strong portfolio of category –leading confectionery brands

• Recent fall in reliance on chocolate confectionery sales with a number of brand extensions

• Brand extensions offer economies of scale, particularly in marketing and promotion activity

• Increasingly mature nature of chocolate confectionery, which is susceptible to declining growth rates

• Health-wise consumers look to products they see as being healthier or a sugar-free alternatives

• Extension of confectionery brands into biscuits, a market with higher growth rates than chocolate confectionery

• Functional confectionery - following entry into the energy bar sector, can other brands be extended into high growth categories?

• High dependence upon chocolate markets, given that those markets are increasingly mature and susceptible to declining growth rates

Company Strengths


Company Weaknesses


High dependency on chocolate

The company’s dependence upon chocolate markets could be perceived as a weakness,

especially given that chocolate confectionery markets are increasingly mature and

susceptible to declining growth rates.

Despite undertaking successful brand extensions, these may only take growth so far and

the company should look to innovate and expand into carefully targeted, but as yet un-

related sectors.

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Further potential for brand extensions

In 2003, Mars extended some of its confectionery brands into biscuits, a market that is

set for higher growth rates than traditional chocolate confectionery. Additionally,

manufacturers are aware that consumers see biscuit categories as less unhealthy than

chocolate products.

Opportunities outside of traditional chocolate markets were also extended in August

2003, when Masterfoods entered the energy bar sector with Snickers Marathon.

Additionally, it has added products ranging from breath mints to organic frozen foods

and drink vending machines.

Mature markets and health-wise consumers

With a large proportion of sales dependent upon chocolate confectionery, the company,

perhaps more than most, must be concerned with the increasingly mature nature of the

segment, which is susceptible to declining growth rates.

Additionally, consumers, increasingly aware of the health implications of indulging

themselves on confectionery, will start to look to products they see as being healthier or

a sugar-free alternative. It is only recently that chocolate manufacturers have introduced

such alternatives and the company cannot afford to be left behind such initiatives. For

example in May 2003, Masterfoods in the UK announced recipe changes amid health

fears over a fatty ingredient. In line with other confectionery manufacturers, the

company’s cocoa costs will increase in 2004 as a result of recent price increases in the

world cocoa market.

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Chapter 11

Nestlé

186

Chapter 11 Nestlé

Summary

Nestlé believes it is the undisputed leader in the food industry, with more than 470 factories around the world and sales of more than CHF 81 billion.

The company divides its brand portfolio into 10 sectors: baby foods, dairy products, breakfast cereals (through a joint venture with General Mills), ice cream; chocolate and confectionery; prepared foods, foodservices, beverages, bottled water and pet care.

The company’s leading brands include Alete, Coffee-Mate, Extrême, Maxibon, Crunch, Smarties, Kit Kat, Buitoni, Nesquik, Nescafé, Perrier and Vittel.

After a challenging first half of 2003, Nestlé recorded organic growth of 5.4% over the first nine months of 2003.

Product categories such as soluble coffee and frozen and chilled culinary products performed well in the first nine months of 2003, whilst ice cream and water benefited from the exceptionally hot European summer.

In June 2003, Nestlé announced it received the go-ahead to combine the Nestlé Ice Cream Company with Dreyer’s Grand Ice Cream Inc. As a result of the deal, Nestlé will own approximately 67% of the equity of Dreyer’s Holdings.

Nestlé has a joint venture with General Mills outside North America, Cereal Partners Worldwide, which is active in more than 80 countries. The joint venture has recently launched of breakfast cereal brands into the cereal bar market.

One of Nestlé’s key strategies is to grow its existing products through innovation and renovation while maintaining a balance in geographic activities and product lines.

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About Nestlé

Nestlé believes it is the undisputed leader in the food industry, with more than 470

factories around the world and sales of more than CHF 81 billion. The company divides

its brand portfolio into 10 sectors:

Baby foods (with brands including Alete and BEBA);

dairy products (Coffee-Mate, Gloria and LC1);

breakfast cereals (through a joint venture with General Mills)

ice cream (Extrême and Maxibon);

chocolate & confectionery (Crunch, Smarties and Kit Kat);

prepared foods (Maggi, Buitoni and Stouffer’s);

foodservices;

beverages (Milo, Nesquik, Nescafé and Nestea);

bottled water (Perrier, Sanpellegrino and Vittel);

petcare (Pro Plan, ONE, Tidy Cats, Fancy Feast and Felix).

History

In the mid-1860s Henri Nestlé, a trained pharmacist, began experimenting with various

combinations of cow’s milk, wheat flour and sugar in an attempt to develop an

alternative source of infant nutrition for mothers who were unable to breast feed. After

initial success, Farine Lactée Nestlé was soon marketed in much of Europe.

The Anglo-Swiss Condensed Milk Company, founded in 1866 by Americans Charles

and George Page, extended its product line in the mid-1870s to include cheese and

infant formulas. The Nestlé Company, which had been purchased from Henri Nestlé by

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Jules Monnerat in 1874, responded by launching a condensed milk product of its own

and the two companies remained competitors until their merger in 1905.

The company formed by the 1905 merger was called the Nestlé and Anglo-Swiss Milk

Company. By the early 1900s, it was operating factories in the United States, UK,

Germany and Spain. In 1904, Nestlé added chocolate to its range of food products after

reaching an agreement with the Swiss General Chocolate Company.

Condensed milk exports increased rapidly as the company replaced sales agents with

local subsidiary companies. In 1907, the company began full-scale manufacturing in

Australia, its second-largest export market. Warehouses were built in Singapore, Hong

Kong, and Bombay to supply the rapidly growing Asian markets.

The 1920s saw Nestlé’s first expansion beyond its traditional product line. The

manufacture of chocolate became the company’s second most important activity. In

1930, the Brazilian Coffee Institute sought new products to reduce Brazil’s large coffee

surplus. Eight years of research produced a soluble powder that has since revolutionised

coffee-drinking habits worldwide. Nescafé became an instant success and was followed

in the early 1940s by Nestea.

The close of World War II marked the beginning of the most dynamic phase of Nestlé’s

history. Throughout this period, Nestlé’s growth was based on its policy of diversifying

within the food sector to meet the needs of consumers. Dozens of new products were

added as growth within the company accelerated and outside companies were acquired.

In 1947, Nestlé merged with Alimentana S.A., the manufacturer of Maggi seasonings

and soups, becoming Nestlé Alimentana Company. The acquisition of Crosse &

Blackwell, the UK manufacturer of preserves and canned foods, followed in 1950, as

did the purchase of Findus frozen foods (1963), Libby’s fruit juices (1971) and

Stouffer’s frozen foods (1973). Meanwhile, sales of Nescafé continued to rise. From

1950 to 1959, sales of instant coffee nearly tripled, and from 1960 to 1974, they

quadrupled.

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In 1974, the company took the decision to diversify for the first time outside the food

industry when it became a major shareholder in L’Oréal, a leading cosmetics

manufacturer. Nestlé’s rapid growth in the developing world partially offset a slowdown

in the company’s traditional markets in the 1970s. Nestlé made its second venture

outside the food industry by acquiring Alcon Laboratories, a U.S. manufacturer of

pharmaceutical and ophthalmic products.

Between 1980 and 1984, the company divested a number of non-strategic or

unprofitable businesses. In 1984, Nestlé’s improved financial performances led to a new

round of acquisitions, including a public offer of $3 billion for Carnation. Consolidation

since 1996 has been demonstrated by the acquisition of the Italian mineral water concern

San Pellegrino (1997), the acquisition of Spillers Petfoods of the UK (1998), and also

with the decision to divest the Findus brand in order to concentrate on high added-value

frozen food products (1999). Since then, Ralston Purina was acquired (2002). In the

same year, the former Perrier Vittel water business was re-named Nestlé Waters. Also in

2002, the company made two major acquisitions in North America: Nestlé announced

that its U.S. ice cream business was to be merged into Dreyer’s, and it also acquired

Chef America, a U.S.-based hand-held frozen food product business.

Recent performance

In 2002, Nestlé recorded real internal growth (RIG) of 3.4%. This was below the

company’s trend target of 4%, primarily due to difficult trading conditions in Latin

America and Japan. RIG measures the like for like volume growth achieved by the

Group from one year to the next and excludes the impact of selling price increases.

Organic growth, which excludes acquisitions and divestitures (measured at constant

exchange rates), was 4.9%. Acquisitions, net of divestitures, contributed 8.4% to sales

with the biggest impact on sales in 2002, as well as on profitability, being the acquisition

of Ralston Purina.

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Nestlé set itself a target of achieving an organic growth rate of between 5-6% for 2003

as a whole.

Performance in 2003

After a challenging first half of 2003, Nestlé announced its results for the first nine

months of the year in October. The company recorded organic growth of 5.4% though

sales fell to CHF 64.6 billion, a drop of 2.4% due to an adverse foreign exchange impact

(at constant exchange rates sales increased by 6.8%).

European operations achieved organic growth of 2.3%. Markets in Eastern Europe,

with 10% growth, outperformed the more mature Western European markets, which

recorded 1.6% growth. The Americas region recorded organic growth of 5.9%. In Latin

America, the strength of the Group’s brands allowed it to increase prices in line with its

strategy to maintain margins despite difficult economic conditions. In Asia, Oceania and

Africa organic growth of 4.2% was achieved despite disruption caused by SARS and

troubles in the Ivory Coast. The Japanese market also saw the first signs of a recovery.


Table 11.53: Nestlé financial performance 2000—2003

CHF m 2000 2001 2002 Interim 2002 Interim 2003 Sales 81,422 84,698 89,160 44,219 41,437 Net Profit 5,763 6,681 7,564 5,656 2,780


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Figure 11.32: Nestlé financial performance 2000—2003; turnover and operating income

010,00020,00030,00040,00050,00060,00070,00080,00090,000

100,000

2000 2001 2002 Interim2003

SalesNet Profit

Interim2002

CHF m

010,00020,00030,00040,00050,00060,00070,00080,00090,000

100,000

2000 2001 2002 Interim2003

SalesNet Profit

Interim2002

CHF m


Product categories such as soluble coffee and frozen and chilled culinary products

performed well in the first nine months of the year, whilst ice cream and water benefited

from the exceptionally hot European summer. Chocolate, on the other hand, was

handicapped both by the hot weather and the price increases earlier in the year in

response to higher cocoa prices.

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Table 11.54: Nestlé Divisional Performance 2000—2003

Sales CHF m 2000 2001 2002 Interim 2003 Beverages 23,044 24,023 23,325 11,195 Coffee 9,096 8,937 8,287 Nestlé Waters 5,947 7,418 7,720 Other 8,001 7,668 7,318 Milk products, nutrition & ice cream 22,048 23,041 23,376 11,031 Milk products 12,471 13,061 12,339 Nutrition 4,989 5,366 5,143 Ice Cream 3,807 3,770 5,010 Other 781 844 884 Prepared dishes & cooking aids 14,564 15,092 15,834 7,573 Frozen & chilled 7,336 7,566 8,711 Culinary & others 7,228 7,526 7,123 Chocolate, confectionery & biscuits 10,974 11,244 10,774 4,415 Chocolate 8,427 8,745 8,493 Confectionery 1,406 1,377 1,306 Biscuits 1,141 1,122 975 PetCare 6,068 6,232 10,719 4,674 Pharmaceutical products 4,724 5,066 5,132 2,549 Total Group 81,422 84,698 89,160 41,437


In an effort to improve the growth and performance of Nestlé’s ice cream business and

enhance its competitive position, in January 2003, Nestlé announced it had acquired the

Mövenpick ice cream brand worldwide (with the exception of the New Zealand

manufacturing operations). Mövenpick Group operates its ice cream business mainly

through licensing agreements with companies in Germany, Norway, Sweden, Finland,

Egypt and Saudi Arabia. In Germany, the key market for Mövenpick ice cream, the

Schöller Company, acquired by Nestlé in March 2002, held the license. Whilst Nestlé

will continue to manufacture Mövenpick ice cream products in Switzerland, the

agreement does not include other Mövenpick food businesses such as coffee, jams,

chilled dairy products and wine nor the Hotel and Restaurant Business, which will

continue to be owned by the Mövenpick Group.

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In June 2003, Nestlé announced that the Federal Trade Commission in the United States

had cleared the transaction that combines the Nestlé Ice Cream Company and Dreyer’s

Grand Ice Cream Inc. Dreyer’s acquired Nestlé’s U.S. frozen dessert business in

exchange for a shareholding of Dreyer’s Grand Ice Cream Holdings, Inc., a newly

formed public holding company. Nestlé will own approximately 67% of the equity of

Dreyer’s Holdings.

As part of the agreement Dreyer’s must sell its Dreamery and Whole Fruit Sorbet

brands. Nestlé will sell most of its distribution operations in the United States to

CoolBrands. Additionally, Dreyer’s and Masterfoods U.S.A. terminated their ice cream

joint venture by the end of 2003, and Unilever had the right to terminate its Ben&Jerry’s

distribution relationship with Dreyer’s. Dreyer’s is the largest manufacturer and

distributor of ice cream and frozen dessert products in the United States. The company

sells ice cream under the Dreyer’s and Edy’s brand names in 14 western states in the

United States and just the Dreyer’s brand in parts of Asia.

In December 2003, Nestlé reached an agreement on the sale of its dairy business in

Turkey to Danone. The transaction concerns the Nestlé Turkey chilled dairy and UHT

milk products. However, Nestlé will retain a presence in the dairy market in Turkey

through one of its key strategic brands, Nesquik, and through Nestlé Cocuk (will

initially be manufactured by Danone for Nestlé). Nestlé hopes that the sale of this

business will allow Nestlé Turkey to grow by focusing its resources on its well-

established core categories.

Market positioning

“Factories or operations in almost every country in the world”

Nestlé claims to be the largest food and beverage company in the world, with factories

or operations in almost every country in the world.

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In North America, Nestlé operates the Häagen-Dazs brand. In 1999, Nestlé and

Pillsbury announced the formation of a 50/50 joint venture to include Nestlé’s novelty

ice cream business in the United States and Pillsbury’s U.S. Häagen-Dazs frozen dessert

business.

The Americas

In February 2004, Brazil’s antitrust regulator, CADE, ruled against Nestlé’s acquisition

of the chocolate manufacturer Garoto. Under Cade´s ruling, the local subsidiary of

Swiss food giant Nestlé will have to sell Garoto to a third party holding a share of less

than 20% of Brazil´s chocolate market. Through Garoto, Nestlé had boosted its market

share to 50% from 29%.

Table 11.55: Nestlé market shares in the Americas, 2002

Country Market Category Company Value% Argentina Confectionery Chocolate Nestlé Argentina SA 2.67 Argentina Confectionery Sugar Nestlé Argentina SA 0.45 Argentina Dairy Milk Nestlé Argentina SA 13.70 Argentina Dairy Overall Nestlé Argentina SA 7.80 Argentina Dairy Yoghurt Nestlé Argentina SA 3.60 Brazil Confectionery Chocolate Nestlé Brasil Ltda 26.66 Brazil Confectionery Sugar Nestlé Brasil Ltda 3.75 Brazil Dairy Milk Nestlé Brasil Ltda 17.30 Brazil Dairy Overall Nestlé Brasil Ltda 13.90 Brazil Dairy Yoghurt Nestlé Brasil Ltda 23.10 Canada Confectionery Chocolate Nestlé Canada Inc 14.72 Canada Dairy Milk Nestlé Canada Inc 3.90 Canada Dairy Overall Nestlé Canada Inc 2.00 Chile Confectionery Chocolate Nestlé Chile SA 23.94 Chile Dairy Milk Nestlé Chile SA 30.90 Chile Dairy Overall Nestlé Chile SA 22.20 Chile Dairy Yoghurt Nestlé Chile SA 30.60 Colombia Confectionery Chocolate Nestlé de Colombia SA 13.72 Colombia Confectionery Sugar Nestlé de Colombia SA 6.90 Colombia Dairy Cheese Nestlé de Colombia SA 0.30 Colombia Dairy Milk Nestlé de Colombia SA 14.10 Colombia Dairy Overall Nestlé de Colombia SA 9.60 Mexico Confectionery Chocolate Nestlé México SA de CV 20.92 Mexico Dairy Cheese Nestlé México SA de CV 5.70 Mexico Dairy Milk Nestlé México SA de CV 11.00 Mexico Dairy Overall Nestlé México SA de CV 11.00 Mexico Dairy Yoghurt Nestlé México SA de CV 24.30


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Table 11.56: Nestlé market shares in the Americas, 2002 continued

Country Market Category Company Value% US Chilled Food Overall Nestlé USA Inc 0.51 US Confectionery Chocolate Nestlé USA Inc 6.32 US Confectionery Sugar Nestlé USA Inc 3.65 US Dairy Milk Nestlé USA Inc 2.40 US Dairy Overall Nestlé USA Inc 1.50 Venezuela Confectionery Chocolate Nestlé de Venezuela SA 52.78 Venezuela Confectionery Gum Nestlé de Venezuela SA 3.42 Venezuela Confectionery Sugar Nestlé de Venezuela SA 7.25 Venezuela Dairy Milk Nestlé de Venezuela SA 6.10 Venezuela Dairy Overall Nestlé de Venezuela SA 3.10 Source: Author analysis of Datamonitor research Business Insights

Asia-Pacific

Introduced in 1938, today CRUNCH is Nestlé’s third largest confectionery brand sold in

about 40 countries worldwide and is available in the following varieties: Nestlé

CRUNCH, Nestlé White CRUNCH, Nestlé CRUNCH Pieces, Nestlé Buncha CRUNCH

and more recent products Nestlé Crunch with caramel and Nestlé CRUNCH assorted

minis.

Table 11.57: Nestlé market shares in Asia-Pacific, 2002

Country Market Category Company Value% Australia Confectionery Chocolate Nestlé Australia Ltd 17.44 Australia Confectionery Sugar Nestlé Australia Ltd 32.98 Australia Dairy Milk Nestlé Australia Ltd 4.20 Australia Dairy Overall Nestlé Australia Ltd 4.00 Australia Dairy Yoghurt Nestlé Australia Ltd 9.90 China Confectionery Chocolate Nestlé (China) Ltd 7.72 China Dairy Milk Nestlé (China) Ltd 3.70 China Dairy Overall Nestlé (China) Ltd 3.40 Hong Kong Confectionery Chocolate Nestlé Hong Kong Ltd 9.50 Hong Kong Confectionery Sugar Nestlé Hong Kong Ltd 6.00 Hong Kong Dairy Milk Nestlé Hong Kong Ltd 40.41 Hong Kong Dairy Overall Nestlé Hong Kong Ltd 39.60 Hong Kong Dairy Yoghurt Nestlé Hong Kong Ltd 35.10 India Confectionery Chocolate Nestlé India Ltd 21.12 India Confectionery Sugar Nestlé India Ltd 4.02 India Dairy Milk Nestlé India Ltd 2.50 India Dairy Overall Nestlé India Ltd 2.40 India Dairy Yoghurt Nestlé India Ltd 7.70 I Source: Author analysis of Datamonitor research Business Insights

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Table 11.58: Nestlé market shares in Asia-Pacific, 2002 continued

Country Market Category Company Value% Indonesia Confectionery Chocolate Nestlé Indonesia PT 4.12 Indonesia Confectionery Sugar Nestlé Indonesia PT 5.22 Indonesia Dairy Milk Nestlé (M) Bhd 1.00 Indonesia Dairy Milk Nestlé Indonesia PT 25.80 Indonesia Dairy Overall Nestlé (M) Bhd 1.00 Indonesia Dairy Overall Nestlé Indonesia PT 25.20 Japan Confectionery Chocolate Nestlé Japan Ltd 2.95 Japan Dairy Milk Nestlé Japan Ltd 2.90 Japan Dairy Overall Nestlé Japan Ltd 1.80 Japan Dairy Overall Nestlé Snow Co Ltd 0.20 Japan Dairy Yoghurt Nestlé Snow Co Ltd 0.80 Malaysia Confectionery Chocolate Nestlé (M) Bhd 27.21 Malaysia Confectionery Sugar Nestlé (M) Bhd 10.89 Malaysia Dairy Milk Nestlé (M) Bhd 33.70 Malaysia Dairy Overall Nestlé (M) Bhd 33.40 Malaysia Dairy Yoghurt Nestlé (M) Bhd 24.40 New Zealand Confectionery Chocolate Nestlé New Zealand Ltd 13.19 New Zealand Confectionery Sugar Nestlé New Zealand Ltd 29.49 New Zealand Dairy Milk Nestlé New Zealand Ltd 3.70 New Zealand Dairy Overall Nestlé New Zealand Ltd 2.50 Philippines Confectionery Chocolate Goya Foods Inc 6.55 Philippines Confectionery Chocolate Nestlé Philippines Inc 11.64 Philippines Confectionery Sugar Nestlé Philippines Inc 5.55 Philippines Dairy Milk Nestlé Philippines Inc 48.00 Philippines Dairy Overall Nestlé Philippines Inc 36.90 Philippines Dairy Yoghurt Nestlé Philippines Inc 57.50 Singapore Chilled Food Overall Nestlé Singapore Pte Ltd 0.93 Singapore Confectionery Chocolate Nestlé Singapore Pte Ltd 23.26 Singapore Confectionery Sugar Nestlé Singapore Pte Ltd 11.79 Singapore Dairy Milk Nestlé Singapore Pte Ltd 11.30 Singapore Dairy Overall Nestlé Singapore Pte Ltd 8.40 Singapore Dairy Yoghurt Nestlé Singapore Pte Ltd 0.50 South Korea Confectionery Sugar Nestlé Korea Ltd 1.07 South Korea Dairy Milk Nestlé Korea Ltd 1.70 South Korea Dairy Overall Nestlé Korea Ltd 1.20 Taiwan Confectionery Chocolate Nestlé Taiwan Ltd 3.55 Taiwan Confectionery Sugar Nestlé Taiwan Ltd 5.72 Taiwan Dairy Milk Nestlé Taiwan Ltd 7.10 Taiwan Dairy Overall Nestlé Taiwan Ltd 5.20 Thailand Confectionery Chocolate Nestlé (Thailand) Ltd 17.97 Thailand Confectionery Sugar Nestlé (Thailand) Ltd 3.80 Thailand Dairy Milk Nestlé (Thailand) Ltd 22.20 Thailand Dairy Overall Nestlé (Thailand) Ltd 17.50 Thailand Dairy Yoghurt Nestlé (Thailand) Ltd 4.30 Vietnam Confectionery Chocolate Nestlé Vietnam Ltd 1.67 Vietnam Dairy Milk Nestlé Vietnam Ltd 7.90 Vietnam Dairy Overall Nestlé Vietnam Ltd 8.40 Vietnam Dairy Yoghurt Nestlé Vietnam Ltd 10.30


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Eastern Europe

Nestlé originally entered dairy markets with shelf stable brands such as Nido, Nespray,

La Lechera and Carnation. It has since built an international presence in the chilled dairy

and ice cream sectors under the Nestlé brand.

Table 11.59: Nestlé market shares in Eastern Europe, 2002

Country Market Category Company Value% Bulgaria Confectionery Chocolate Nestlé Sofia AD 19.09 Bulgaria Confectionery Sugar Nestlé Sofia AD 10.54 Bulgaria Dairy Milk Nestlé Sofia AD 3.20 Bulgaria Dairy Overall Nestlé Sofia AD 0.60 Czech Republic Confectionery Chocolate Nestlé Cesko sro 56.95 Czech Republic Confectionery Sugar Nestlé Cesko sro 47.88 Czech Republic Dairy Milk Nestlé Cesko sro 6.15 Czech Republic Dairy Overall Nestlé Cesko sro 2.60 Hungary Confectionery Chocolate Nestlé Hungária Kft 15.82 Hungary Confectionery Sugar Nestlé Hungária Kft 18.29 Hungary Dairy Milk Nestlé Hungária Kft 2.90 Hungary Dairy Overall Nestlé Hungária Kft 1.30 Poland Confectionery Sugar Nestlé Polska Sp zoo 0.30 Poland Dairy Milk Nestlé Polska Sp zoo 1.70 Poland Dairy Overall Nestlé Polska Sp zoo 0.30 Slovakia Confectionery Chocolate Nestlé Slovensko sro 33.58 Slovakia Confectionery Gum Nestlé Slovensko sro 0.37 Slovakia Confectionery Sugar Nestlé Cesko sro 3.30 Slovakia Confectionery Sugar Nestlé Slovensko sro 21.90 Slovakia Dairy Milk Nestlé Slovensko sro 2.80 Slovakia Dairy Overall Nestlé Slovensko sro 1.20 Romania Confectionery Chocolate Nestlé Romania SRL 1.77 Romania Confectionery Sugar Nestlé Romania SRL 5.05 Russia Dairy Milk Nestlé Zhukovskoye Morozhenoye 0.20 Russia Dairy Overall Nestlé Zhukovskoye Morozhenoye 0.10 Ukraine Confectionery Chocolate Nestlé SA 1.70 Ukraine Dairy Milk Nestlé SA 0.20



Nestlé holds strong positions in several markets in the Middle East and Africa,

particularly in the chocolate confectionery in South Africa and the milk markets in Egypt

and Saudi Arabia.

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Table 11.60: Nestlé market shares in the Middle East and Africa, 2002

Country Market Category Company Value% Egypt Confectionery Chocolate Nestlé Egypt SAE 3.42 Egypt Confectionery Sugar Nestlé Egypt SAE 4.82 Egypt Dairy Milk Nestlé Egypt SAE 32.40 Egypt Dairy Overall Nestlé Egypt SAE 8.50 Egypt Dairy Yoghurt Nestlé Egypt SAE 10.80 Morocco Confectionery Chocolate Nestlé Maroc SA 17.87 Morocco Confectionery Sugar Nestlé Maroc SA 4.02 Morocco Dairy Milk Nestlé Maroc SA 1.60 Morocco Dairy Overall Nestlé Maroc SA 2.50 Saudi Arabia Confectionery Chocolate Nestlé SA 19.09 Saudi Arabia Confectionery Sugar Nestlé SA 7.85 Saudi Arabia Dairy Milk Nestlé SA 20.20 Saudi Arabia Dairy Overall Nestlé SA 9.80 South Africa Confectionery Chocolate Nestlé South Africa (Pty) Ltd 42.11 South Africa Confectionery Sugar Nestlé South Africa (Pty) Ltd 5.30 South Africa Dairy Cheese Nestlé South Africa (Pty) Ltd 1.90 South Africa Dairy Milk Nestlé South Africa (Pty) Ltd 14.30 South Africa Dairy Overall Nestlé South Africa (Pty) Ltd 10.00


Western Europe

In the company’s convenience foods sector, Maggi merged with Nestlé in 1947. Buitoni,

which has been producing pasta and sauces in Italy since 1827, became part of the

Nestlé Group in 1988.

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Table 11.61: Nestlé market shares in Western Europe, 2002

Country Market Category Company Value% Austria Confectionery Chocolate Nestlé Österreich GmbH 6.00 Austria Dairy Milk Nestlé Österreich GmbH 0.70 Austria Dairy Overall Nestlé Österreich GmbH 1.10 Austria Dairy Yoghurt Nestlé Österreich GmbH 2.40 Belgium Chilled Food Overall Nestlé Belgilux SA 18.42 Belgium Confectionery Chocolate Nestlé Belgilux SA 10.60 Belgium Confectionery Sugar Nestlé Belgilux SA 0.60 Belgium Dairy Milk Nestlé Belgilux SA 1.40 Belgium Dairy Overall Nestlé Belgilux SA 4.90 Belgium Dairy Yoghurt Nestlé Belgilux SA 12.40 Denmark Confectionery Chocolate Nestlé Danmark A/S 6.97 Denmark Confectionery Sugar Nestlé Danmark A/S 0.52 Denmark Dairy Milk Nestlé Danmark A/S 1.00 Denmark Dairy Overall Nestlé Danmark A/S 0.30 Finland Confectionery Chocolate Suomen Nestlé Oy 3.07 Finland Confectionery Sugar Suomen Nestlé Oy 2.07 Finland Dairy Milk Suomen Nestlé Oy 0.20 France Chilled Food Overall Nestlé France SA 7.1 France Confectionery Chocolate Nestlé France SA 16.72 France Confectionery Sugar Nestlé France SA 0.72 France Dairy Milk Nestlé France SA 3.30 France Dairy Overall Nestlé France SA 5.40 France Dairy Yoghurt Nestlé France SA 11.20 Germany Chilled Food Overall Nestlé Deutschland AG 0.5 Germany Confectionery Chocolate Nestlé Chocoladen GmbH 6.85 Germany Dairy Milk Nestlé Deutschland AG 11.80 Germany Dairy Overall Nestlé Deutschland AG 4.40 Germany Dairy Yoghurt Nestlé Deutschland AG 6.60 Greece Confectionery Chocolate Nestlé Hellas SA 11.89 Greece Confectionery Sugar Nestlé Hellas SA 0.47 Greece Dairy Milk Nestlé Hellas SA 12.50 Greece Dairy Overall Nestlé Hellas SA 3.40 Ireland Chilled Food Overall Nestlé Ireland Ltd 7.21 Ireland Confectionery Chocolate Nestlé Ireland Ltd 27.36 Ireland Confectionery Sugar Nestlé Ireland Ltd 19.42 Ireland Dairy Milk Nestlé Ireland Ltd 0.50 Ireland Dairy Overall Nestlé Ireland Ltd 0.30 Italy Chilled Food Overall Nestlé Italiana SpA 0.68 Italy Confectionery Chocolate Nestlé Italiana SpA 14.14 Italy Confectionery Sugar Nestlé Italiana SpA 5.17 Italy Dairy Cheese Nestlé Italiana SpA 0.30 Italy Dairy Milk Nestlé Italiana SpA 2.70 Italy Dairy Overall Nestlé Italiana SpA 1.40 Italy Dairy Yoghurt Nestlé Italiana SpA 2.70 Netherlands Confectionery Chocolate Nestlé Nederland BV 11.09 Netherlands Dairy Milk Nestlé Nederland BV 0.80 Netherlands Dairy Overall Nestlé Nederland BV 1.60 Netherlands Dairy Yoghurt Nestlé Nederland BV 0.90


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Table 11.62: Nestlé market shares in Western Europe, 2002

Country Market Category Company Value% Norway Chilled Food Overall Nestlé Norge AS 2.54 Norway Confectionery Chocolate Nestlé Norge AS 5.87 Norway Confectionery Sugar Nestlé Norge AS 0.30 Norway Dairy Milk Nestlé Norge AS 8.50 Norway Dairy Overall Nestlé Norge AS 3.30 Norway Dairy Yoghurt Nestlé Norge AS 0.50 Portugal Confectionery Chocolate Nestlé Portugal SA 29.94 Portugal Dairy Cheese Nestlé Portugal SA 10.70 Portugal Dairy Milk Nestlé Portugal SA 3.50 Portugal Dairy Overall Nestlé Portugal SA 10.90 Portugal Dairy Yoghurt Nestlé Portugal SA 25.10 Spain Chilled Food Overall Nestlé España SA (Grupo) 0.71 Spain Confectionery Chocolate Nestlé España SA (Grupo) 27.86 Spain Dairy Cheese Nestlé España SA (Grupo) 4.50 Spain Dairy Milk Nestlé España SA (Grupo) 2.80 Spain Dairy Overall Nestlé España SA (Grupo) 6.80 Spain Dairy Yoghurt Nestlé España SA (Grupo) 13.10 Sweden Confectionery Chocolate Nestlé Sverige AB 3.92 Sweden Confectionery Sugar Nestlé Sverige AB 0.77 Switzerland Confectionery Chocolate Nestlé Suisse SA 22.86 Switzerland Dairy Milk Nestlé Suisse SA 3.50 Switzerland Dairy Overall Nestlé Suisse SA 2.20 Switzerland Dairy Yoghurt Nestlé Suisse SA 5.80 Turkey Confectionery Chocolate Nestlé Gida Sanayii AS 19.72 Turkey Confectionery Sugar Nestlé Gida Sanayii AS 0.70 Turkey Dairy Cheese Nestlé Gida Sanayii AS 2.80 Turkey Dairy Milk Nestlé Gida Sanayii AS 12.00 Turkey Dairy Overall Nestlé Gida Sanayii AS 9.40 Turkey Dairy Yoghurt Nestlé Gida Sanayii AS 10.80 UK Confectionery Chocolate Nestlé UK Ltd 22.11 UK Confectionery Sugar Nestlé UK Ltd 11.17 UK Dairy Milk Nestlé UK Ltd 1.60 UK Dairy Overall Nestlé UK Ltd 1.30 UK Dairy Yoghurt Nestlé UK Ltd 0.20


Product examples

Nestlé has a joint venture with General Mills outside North America - Cereal Partners

Worldwide - that is active in more than 80 countries. The joint venture began in 1990,

and its rapid growth has been characterised by strong branding and lately the launching

of breakfast cereal brands into the fast-growing cereal bar market.

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Figure 11.33: A selection of brands from Nestlé

Source: http://www.nestle.com/Html/Brands/index.asp and http://www.cerealpartners.co.uk/brands.shtml Business Insights

Foodservice

Nestlé FoodServices provides food and beverage professionals with a wide selection of

branded products and solutions to meet the growing opportunities to service consumers

in out-of-home channels. For example, the Ortega Nachos Bar, is a self-serve station for

use in schools, C-stores, forecourts etc. The sector is split on a geographical basis with

five operating units: FoodServices Australia, FoodServices France, FoodServices

Malaysia, FoodServices Russia and FoodServices USA.

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Figure 11.34: Self-service snacking facility from Nestlé FoodServices

Source: Company information Business Insights


One of Nestlé’s key strategies is to grow its existing products through innovation and

renovation while maintaining a balance in geographic activities and product lines. The

company has stated that it will not sacrifice the long-term potential of products in favour

of short-term performance gains.

Driving growth and improving margins

Nestlé’s four pillar strategy is based on operational performance, product innovation,

product availability and consumer communication. In addition, the company has

implemented four efficiency programmes: GLOBE (Global Business Excellence), IC3

(Increasing Customer and Channel Contributions), Project FitNes and Target 2004+

(MH97).

Nestlé has four key strategies, which it is using to drive growth. IC3 is an initiative

based on benchmarking the company’s performance at comparable retail customers and

then working to improve the lower performing ones. Through product innovation and

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renovation, the company aims to ensure that its portfolio of products is updated through

new technologies and creative ideas, either through new products and brands,

derivatives of existing products, brand extensions or packaging innovations. Product

availability, the third driver of growth, aims to ensure that consumers have access to the

company’s products when, where and how they want them, whilst a focus on consumer

communication hopes to drive growth by building brand loyalty.

The three major projects

Nestlé has implemented three projects with the goal of improving the company’s

margins.

The first of these, GLOBE, is a programme tasked with improving the performance

and operational efficiency of the businesses. The programme was launched in July

2000 and runs to 2006;

launched at the start of 2002, project FitNes is focused on reducing administrative

costs by 1% of the company’s food and beverage sales by 2005;

finally, Target 2004+ was launched in January 2002 as an industrial efficiency

programme (following the MH97 project). The project recorded savings of CHF 1.2

billion in 2002, and total savings from the project are expected to reach CHF 2

billion by 2004.

SWOT analysis


Nestlé in the form of a SWOT analysis, highlighting the relative strengths, weaknesses,


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A global perspective

As a market leader, on a global scale, Nestlé is able to command both competitive and

scale advantages. Category leadership across a diversified portfolio of sectors also helps

the company to generate consumer loyalty and achieve greater in-store emphasis by

retailers.

As a global operator, Nestlé seeks to take advantage of scale, whilst leaving individual

operating decisions to country managers with specific expertise and experience in their

companies, thus retaining an element of focus on individual operations that are not

dictated to from a global headquarters.

Figure 11.35: Nestlé SWOT analysis

• A market leader, on a global scale, Nestlé commands competitive and scale advantages

• Category leadership helps generate consumer loyalty and achieve greater in-store emphasis by retailers

• Cereal Partners Worldwide: strong branding and an innovative approach

• Consumer trends towards healthier eating will impact sales of indulgent products in favour of reduced-fat alternatives

• Chocolate confectionery markets are increasingly mature and susceptible to declining growth rates

• The European dairy market remains a key strategic area for Nestlé with initiatives to prioritise this sector

• Brand extensions can boost sales in stagnant or declining segments and can be used to leverage expertise in successful categories

• Extending sales in non -retail channels

• The company’s ice cream business had underperformed. Realising this, the company has made efforts to improve the growth and performance of the business and enhances its competitive position

Company Strengths


Company Weaknesses

• A market leader, on a global scale, Nestlé commands competitive and scale advantages

• Category leadership helps generate consumer loyalty and achieve greater in-store emphasis by retailers

• Cereal Partners Worldwide: strong branding and an innovative approach

• Consumer trends towards healthier eating will impact sales of indulgent products in favour of reduced-fat alternatives

• Chocolate confectionery markets are increasingly mature and susceptible to declining growth rates

• The European dairy market remains a key strategic area for Nestlé with initiatives to prioritise this sector

• Brand extensions can boost sales in stagnant or declining segments and can be used to leverage expertise in successful categories

• Extending sales in non -retail channels

• The company’s ice cream business had underperformed. Realising this, the company has made efforts to improve the growth and performance

competitive position

Company Strengths


Company Weaknesses


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Successful brand extensions

Despite the recent sale of dairy activities in Turkey, the European dairy market remains

a key strategic area for Nestlé. The Group has launched a series of initiatives aimed at

refocusing and prioritising this sector. The LC1 brand was recently licensed to a third

party in Germany and Nestlé also reached an agreement with Emmi in Switzerland

concerning the production and distribution of its Hirz chilled dairy lines.

In Western Europe, the company sees opportunities to grow by extending coverage in

non-retail channels, whilst in Eastern Europe organic growth will provide the platform

for greater sales.

Nestlé has successfully launched brand extensions into chilled desserts and ice creams,

making use of its substantial dairy expertise to introduce Milkybar, Rolo and Smarties

desserts. In 2003, Nestlé also extended some of their confectionery brands into biscuits,

a faster growing segment than traditional confectionery markets, which are also

perceived to be less unhealthy than chocolate confectionery.

Nestlé has also extended brands within the confectionery market along age and gender

lines. After the company saw that KitKat Chunky cannibalised KitKat sales, the

Milkybar brand was extended to widen the consumer base by differentiating between

consumers. Milkybar Munchies were labelled ‘For Adults’ while Milkybar Choos were

targeted at children.

Future brand extensions may be used to boost sales in stagnant or declining segments or

to leverage expertise in particularly successful categories.

Health implications for indulgent products

Though the company is not as heavily dependent upon confectionery markets, in

comparison to Masterfoods, for example, it must be aware of consumers’ increasing

awareness of the health implications of indulging themselves on confectionery. While

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particularly pertinent for the confectionery markets, Nestlé must be aware of the threat

to food markets in general, from consumer trends towards healthier eating and position

its products accordingly.

As a leading player in chocolate confectionery, a proportion of Nestlé’s sales are under

threat from increasingly mature markets, which are susceptible to declining growth

rates. Additionally, in line with other confectionery manufacturers, the company’s cocoa

costs are likely to increase in 2004 as a result of recent price increases in the world

cocoa market.

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Chapter 12

Unilever Bestfoods

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Chapter 12 Unilever Bestfoods

Summary

Unilever is one of the world’s leading suppliers of fast moving consumer goods in foods, home care and personal product categories. The business is based on two global divisions: Unilever Bestfoods and Home and Personal Care.

In 2002, the company generated foods sales of €27 billion and owned eight foods brands with sales in excess of €1 billion. The foods business spans several categories including savoury and dressings, spreads and cooking products, health and wellness, ice cream and frozen foods.

Leading brands include Knorr, Findus. Birdseye, Slim-Fast, Magnum, Cornetto, Solero and Carte d’Or, Breyers and Ben & Jerry’s and Hellmann’s.

During 2000, Unilever made 20 acquisitions, the most important of these were Bestfoods, Ben & Jerry’s and Slim-Fast. Unilever acquired Bestfoods for an aggregate consideration of €26.1 billion.

Despite the integration of Bestfoods, the company announced it was disappointed with top line growth in 2003.

The company is seeking to extend brands across product categories, particularly those that feature high levels of consumer trust.

Unilever is the world’s biggest ice cream business and its symbol in the ice cream is the Heart, launched in 1997 to unite Unilever’s ice cream brands.

The company’s Path to Growth strategy was designed to accelerate top-line growth and increase operating margins with a series of initiatives to focus on fewer, stronger brands. However, in 2004, the company abandoned the growth targets set for the final year of Path to Growth, choosing to replace them with broad objectives to increase cashflow and returns to shareholders in dividends and share buybacks.

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About Unilever Bestfoods

Unilever is one of the world’s leading suppliers of fast moving consumer goods in foods,

home care and personal product categories. The business is based on two global

divisions: Unilever Bestfoods and Home and Personal Care. Both divisions have an

executive board, responsible for divisional strategy and for implementation across the

world. Over one-half of the company’s sales are generated by food division brands.

In 2002, the company generated foods sales of €27 billion and owned eight foods brands

with sales in excess of €1 billion. The foods business spans several categories including

savoury and dressings, spreads and cooking products, health and wellness, ice cream

and frozen foods.

The Unilever Group has two parent companies: Unilever NV and Unilever plc.

Although these companies are separate legal entities, with separate stock exchange

listings, in practice, Unilever operates as a single business with a single management

team – the Executive Committee of the Board, headed by the Group’s joint chairmen.

The Executive Committee is responsible for setting global strategy for overall business

performance. The company believes that this structure allows for faster decision-making

and strengthens its capacity for innovation by more effectively integrating research into

the divisional structure.

History

Unilever was created in 1930 when the British soapmaker Lever Brothers (founded in

1885) merged with the Dutch margarine producer, Margarine Unie. Between them, they

had operations in over 40 countries. Margarine Unie grew through mergers with other

margarine companies in the 1920s. Lever established soap factories around the world. In

1917, he began to diversify into foods, acquiring fish, ice cream and canned foods

businesses. In the 1930s, Unilever introduced improved technology to the business. The

business grew and new ventures were launched in Latin America.

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Sales and acquisitions

Since the announcement of the Path to Growth strategy in February 2000, the company

has sold a total of 87 companies with sale proceeds of €6.3 billion. Recent significant

activity in the company’s food business was the sale of 19 food brands to ACH Food

Companies, Inc., a subsidiary of Associated British Foods plc, for a total of

approximately $360 million in July 2002. The brands and related assets, acquired by

Unilever in connection with the October 2000 acquisition of Bestfoods, had combined

sales of $310 million in 2001. In November 2002, the company completed the sale of

Loders Croklaan Group, an international speciality oils and fats business, to IOI

Corporation Berhad of Malaysia for €217 million and in December 2002, the sale of the

Iberia Foods business was completed.

In January 2001, the company sold its dry soup and sauces businesses in Europe for a

debt free price of €1 billion. Annual sales of the businesses total approximately € 435

million. The businesses were being divested as a result of undertakings given to the

European Commission in connection with the acquisition of Bestfoods, which was

completed in October 2000. In February 2001, the company announced an agreement to

sell the Bestfoods Baking Company for a debt free price of €1.9 billion. In May 2001,

Unilever announced plans to sell a number of North American brands and related assets

from its Unilever Bestfoods portfolio and in August 2001, Unilever sold its North

American seafood businesses to Nippon Suisan (USA), Inc, a subsidiary of Nippon

Suisan Kaisha Limited for US$175 million.

During 2000, Unilever made 20 acquisitions. In the food business, the most important of

these were Bestfoods, Ben & Jerry’s and Slim-Fast. In October 2000, Unilever, through

its subsidiary Unilever United States, Inc., acquired Bestfoods for an aggregate

consideration of €26,083 million. In 2000, Unilever also disposed of 27 businesses for a

total consideration of approximately €642 million. Disposals included the European

Bakery Supplies Business, Benedicta, a culinary business in France, and various other

smaller businesses and brands.

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Recent performance

Unilever concentrates cash in the parent and finance companies in order to ensure

maximum flexibility in meeting changing business needs. Operating subsidiaries are

financed through the mix of retained earnings, third party borrowings and loans from

parent and group financing companies that is most appropriate to the particular country

and business concerned.

Leading brand growth revised downwards in 2003

Despite the successful integration of the Bestfoods acquisition and having reshaped the

company’s brand portfolio (including the sale of 110 businesses), the company

announced it was disappointed with top line growth in 2003. Good progress in the vast

majority of the business was not yet sufficient to offset the weaknesses in a limited

number of under-performing businesses when taken in conjunction with some one-off

factors in the first half of 2003.

In its preliminary 2003 results, Unilever announced a 10% rise in net profit before

exceptional items. However, sales growth in its leading brands, a key objective of the

Path to Growth strategy launched four years ago, was just 2.5%, well short of the target

rate of 5.5%-6.0%. Poor performances from Slim-Fast were thought to be largely

attributable for the lower sales growth. The diet food and drinks business suffered

following the popularity of low-carbohydrate diets. Slim-Fast’s revenues fell by one-fifth

last year, knocking 0.6% from the company’s overall sales growth. As a result, Unilever

is re-launching Slim-Fast with a wider variety of products, including low-carb items.

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Table 12.63: Unilever financial performance 2000—2003

€ m 2000 2001 2002 2003 (2) Group Turnover (1) 47,582 51,514 48,270 47,700 Group Operating Profit (3) 5,794 7,269 7,260 7,501 Notes: (1) Excluding share of sales from joint ventures; (2) Unaudited and provisional results released February 2004; BEIA - Before exceptional items and amortisation of goodwill and intangibles;


Figure 12.36: Unilever financial performance 2000—2003; turnover and operating profit

0

10,000

20,000

30,000

40,000

50,000

60,000

2000 2001 2002 2003

Group Turnover

Group Operating Profit

€ m


Difficult economic conditions in a number of countries in Europe in 2003 were reflected

in market growth rates that slowed significantly. Exceptional summer weather in Europe

in 2003 had a largely neutral effect on Unilever with benefits to ice cream and RTD Tea

but not for savoury, frozen food and cooking products. The company saw growth in

spreads and cooking products for its heart health brands Becel/Flora, whilst family

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brands such as Rama and Blue Band adopted a strategy of recovering substantial

increases in edible oil costs which some competitors have not followed. The Bertolli

brand recorded growth following its extensions into pasta sauces, dressings and

toppings. Ice cream sales grew strongly, helped by the hot summer weather and

innovations including Magnum 7 sins, Magnum Moments, Magnum snacking bars and

the roll out of the Fruit & Fresh mix of yoghurt and ice cream.

In North America, good performances from Hellmann’s, Lipton and Bertolli through

pasta sauces and frozen foods and Becel margarine in Canada were partly offset by

declines in spreads consumption because of lower butter prices, and by declines in

Bertolli olive oil and in Ragu pasta sauces. In Asia-Pacific, acquisitions and disposals

impacted upon overall performance in 2003. There were positive developments in

Indonesia, whilst Knorr Soupy Snax were launched in India and the Knorr brand

recorded good growth in China.

Table 12.64: Unilever food divisional performance 2000—2003

€ m 2000 2001 2002 (2) 2003 (1) Savoury & Dressings Turnover 5,950 9,597 9,503 9,482 Operating Profit 296 793 422 n/a Spreads and Cooking Turnover 6,670 6,681 6,216 5,419 Operating Profit 823 797 793 n/a Health, Wellness & Beverages Turnover 3,430 4,150 4,215 4,052 Operating Profit 391 267 354 n/a Ice Cream & Frozen Foods Turnover 7,848 7,727 7,456 7,517 Operating Profit 225 446 616 n/a Notes: (1) at constant exchange rates; (2) Re-stated 2002 turnover figures;


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Total shareholder return positioning

Total Shareholder Return (TSR) is a concept used to compare the performance of

different companies’ stocks and shares over time. It combines share price appreciation

and dividends paid to show the total return to the shareholder. Unilever calculates TSR

over a three-year rolling period and its TSR target is to be in the top third of a reference

group of 21 international consumer goods companies. The companies of the TSR peer

group are (alphabetical order): Avon, Beiersdorf, Cadbury, Clorox, Coca-Cola, Colgate,

Danone, Gillette, Heinz, Kao, L’Oreal, Lion, Nestlé, Pepsico, Philip Morris, Orkla,

Procter & Gamble, Reckitt Benckiser, Sara Lee, Shiseido and Unilever.

At the end of 2002, Unilever was positioned 12th, outside its target position, which

remains the top one-third of the reference group. However, on a one-year basis its TSR

ranking has been in the top one-third of the reference group for each of the last two

years.

In November 2003, Unilever agreed to sell its Ambrosia and Brown & Polson

businesses to Premier Foods for an undisclosed sum. Ambrosia, a business within

Unilever Bestfoods UK, produces and markets a range of milk-based ambient desserts

including ready-to-use custard, milk puddings and creamed rice puddings. Brown &

Polson is a long established brand relating to cornflour and, within foodservice channels,

ambient dessert products. Within the context of Unilever’s global Path to Growth

strategy, UBF-UK is focussing on a core portfolio of brands and believes that

Ambrosia’s and Brown & Polson’s lie outside of this.

Board changes announced in February 2004

In February, Unilever announced that Niall FitzGerald would retire from the company in

September 2004. Patrick Cescau, currently Foods Director, will succeed Mr FitzGerald

as Chairman of Unilever PLC (and Vice-Chairman of Unilever N.V.). In turn, Kees van

der Graaf, currently President of Ice Cream and Frozen Foods Europe, will succeed Mr

Cescau as Foods Director.

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Looking forward, the company’s 2004 outlook is for low double-digit growth in EPS

(BEIA). Unilever expects both improved growth in their leading brands and an increased

operating margin, to over 16%, to contribute to this. By the end of the year, the leading

brands should represent 95% of the company’s business.

Market positioning

From soups and dressings, to frozen food and ice cream

Knorr is sold in over 100 markets with sales of around €3.5 billion. It is growing fast

across emerging markets in Latin America, Africa, the Middle East and Asia. Brands

ranging from the UK’s Chicken Tonight to Asia’s Annapurna and Latin America’s

CICA are all part of the Knorr portfolio. Over time, as part of the company’s brand

focus programme, they are being migrated to share the Knorr name, packaging and

marketing communication.

Slim-Fast began life in the late 1970s in the United States as a healthy, nutritional

slimming aide. The brand has grown quickly as modern lifestyles meant that people ate

more and exercised less, while still being conscious of their health.

Unilever believes that the global ice cream business is worth €5 billion, and that it

accounts for a 17% market share. It sells ice cream in over 40 countries worldwide.

Unilever is committing 20% more investment in the next three years to marketing and

development activities to make the Heart a “power brand”. Other well-known Unilever

ice cream brands include Breyers and Ben & Jerry’s. Unilever’s ice cream companies,

united by the Heart logo, are known by different names in different countries, for

example Wall’s in the UK and South East Asia, Streets in Australia, Kibon in Brazil,

Algida in Italy, Langnese in Germany and Ola in the Netherlands. Together they

produce brands including Magnum, Cornetto, Solero and Carte d’Or.

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Table 12.65: Unilever market shares, 2002

Country Market Category Company Value% Austria Confectionery Gum Lever Fabergé GmbH 1.57 Austria Confectionery Sugar Unilever Bestfoods Austria GmbH 1.02 Austria Dairy Cheese Unilever Bestfoods Austria GmbH 0.50 Austria Dairy Overall Unilever Bestfoods Austria GmbH 0.10 Belgium Dairy Cheese Unilever Belgium NV 1.90 Belgium Dairy Milk Unilever Belgium NV 0.30 Belgium Dairy Overall Unilever Belgium NV 0.90 Brazil Dairy Milk Unilever Bestfoods Brasil Ltda 0.57 Brazil Dairy Overall Unilever Bestfoods Brasil Ltda 0.30 Chile Dairy Cheese Unilever Bestfoods Chile SA 0.30 France Dairy Cheese Unilever Bestfoods France SA 1.20 France Dairy Milk Unilever Bestfoods France SA 1.30 France Dairy Overall Unilever Bestfoods France SA 0.80 Germany Chilled Food Overall Bestfoods Deutschland GmbH 7.14 Germany Dairy CheeseUnilever Bestfoods Deutschland GmbH 4.70 Germany Dairy OverallUnilever Bestfoods Deutschland GmbH 1.70 Greece Dairy Cheese Elais Oleaginous Products SA 0.10 Greece Chilled Food Overall Unilever Hellas SA 4.58 Greece Confectionery Gum Unilever Hellas SA 0.30 India Confectionery Sugar Hindustan Lever Ltd 3.40 Ireland Chilled Food Overall Unilever Bestfoods Ireland Ltd 1.21 Ireland Dairy Overall Unilever Bestfoods Ireland Ltd 0.10 Ireland Savoury Snacks Overall Unilever Bestfoods Ireland Ltd 0.20 Italy Confectionery Gum Lever Fabergé Italia SpA 3.37 Italy Confectionery Sugar Lever Fabergé Italia SpA 1.02 Romania Savoury Snacks Overall Bestfoods Romania SRL 2.70 South Africa Dairy Cheese Unilever South Africa (Pty) Ltd 6.70 South Africa Dairy Overall Unilever South Africa (Pty) Ltd 1.50 Spain Dairy Milk Unilever Foods España SA 0.40 Spain Dairy Overall Unilever Foods España SA 0.10 Switzerland Confectionery Gum Lever Fabergé Schweiz 0.67 Turkey Confectionery Gum Unilever Sanayii ve Ticaret Türk AS 0.40 UK Dairy Cheese Unilever Bestfoods UK Ltd 0.20 UK Dairy Overall Unilever Bestfoods UK Ltd 0.50 UK Dairy Overall Bestfoods UK Ltd 0.30 UK Savoury Snacks Overall Unilever Bestfoods UK Ltd 0.90


Product examples

Hellmann’s is a €1.7 billion family covering four brands: Hellmann’s Wish-Bone, Calvé

and Amora. Unilever believes that each day, U.S. consumers buy more than one million

Hellmann’s products. These are sold through a variety of channels including

supermarkets, convenience stores and fast food restaurants. Hellmann’s world brands

are sold in more than 30 countries in North America, Latin America, Europe and now

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Australia where the brand was recently launched. The brand’s top five countries are the

United States, France, Brazil, the UK and Mexico.

Figure 12.37: A selection of brands from Unilever

Source: Unilever Business Insights

According to Unilever, Rama is the world’s largest margarine brand. Its main market is

Germany but it is also sold in Latin America, Eastern Europe and North Africa. The

company believes that Country Crock is the number one U.S. margarine brand. Blue

Band is sold in the Netherlands, UK and a number of other countries. Doriana and

Dorina are leading margarine brands in Latin America.

In the Healthy Heart sector, Becel was launched in the 1960s at the request of the

medical profession and was originally sold only in pharmacies. It is now sold across

continental Western Europe and also sold in Turkey, Canada and Brazil. Flora was

launched in the UK in 1964 as a sister brand to Becel and is now also sold in

Australasia, South Africa, Arabia, Ireland, Spain and Central and Eastern Europe.

Greater brand focus on brands with strong potential

Since Unilever’s Path to Growth strategy was launched in 2000, the company has

reduced the number of brands it manages from 1,600 to some 400 leading brands and

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just under 250 tail brands. This enables the company to concentrate resources on a

portfolio of leading brands with strong growth potential.

Brands can be local and also spread across categories

Not all of the company’s food brands have global appeal. For example, PG Tips and

Marmite in the UK, Maille in France, Breyers ice cream in the United States, and soy-

based drink brand AdeS in Latin America. Additionally, the company is seeking to

extend brands across product categories, particularly those that feature high levels of

consumer trust. In the food business, an example of this is the Bertolli’s Italian-inspired

food brand that has grown beyond olive oil into pasta sauces, bruschetta toppings,

dressings and spreads with olive oil.

Unilever has also announced plans to make greater use of its corporate brand in support

of its companies and products around the world. By 2005, subsidiary companies will

adopt the name and use it on corporate literature and signage. Eventually, the Unilever

name will appear on all product packaging.

NPD plays a key role

Oils, fats and spreads

Different oils are used for different tasks in Italy and this led to a new Bertolli range of

olive oils which, according to Unilever, became a market leader in Italy in 2002:

delicato, gentile, fragrante, robusto and classico. By extending beyond the olive oil

category and stretching the brand credentials to other products, Bertolli has grown

annually by an average of 10% in the last three years to over €500 million.

Blue Band, Rama, Country Crock and Doriana are the largest of the household-name

spreads and cooking product brands that make up the company’s Family brand world.

These brands are sold under more than 20 different names across the globe. NPD has

centred on healthy eating and New Blue Band Good Start margarine is fortified with

extra calcium and seven essential vitamins. Country Crock Plus Calcium & Vitamins less

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fat and calories than butter or margarine and no cholesterol. Additionally, Family brand

spreads in Belgium, Germany and the Netherlands are now made with blends of pure

natural oils.

The company has a strong innovation programme planned for both family and heart

health brands into 2004. This includes the roll out of the Rama/Blue Band Finesse range

of cream alternatives and the extension of the Pro.activ brand to adjacent categories, for

which it now has regulatory clearance.

Frozen foods

Iglo, Birds Eye and Findus make up the European family of frozen food brands at

Unilever. NPD has concentrated on convenience – helping people prepare healthy food

quickly. Innovations have included Steamfresh vegetables and a new range of premium

egg pasta meals from Italy. The Captain, a marketing icon since 1967, has been re-

launched and all artificial colours, flavourings and preservatives have been banned from

the range and there are strict rules on the amount of total fat, saturated fat and salt.

Additionally, the company is starting to utilise its expertise in frozen food to develop

frozen ranges for Knorr and Bertolli.

In frozen foods, the company’s priority going forward is to generate growth through a

more rapid transfer of successful concepts across markets, including Knorr frozen,

which is now in seven markets, and through planned innovations in the areas of kids’

nutrition, convenience meals and concepts based on fresh and natural ingredients such as

the recently launched range of Steam Fresh vegetables.

Knorr – the ‘number one brand’

Knorr is Unilever’s “number one brand” and its history dates back to 1838 with

experiments in drying seasonings and vegetables to preserve their flavour and nutritional

value. Recent innovations in the traditional Knorr range of bouillons and flavourings

have included new varieties influenced by Latin and Asian cooking such as garlic and

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tomato, as well as easy-to-use liquid bouillons. Meal kits and ready-to-mix sauces have

been introduced to meet the convenience requirements of today’s busy consumers and

Knorr has expanded its range of two-step cooking sauces, liquid soups, noodle snacks

and pasta sauces. In addition, Knorr frozen meals have also been launched in Europe.

Hellmann’s

Together with its sister brands, Amora, Calvé and Wish-Bone, Hellmann’s expertise is in

the dressings sector. Its history dates back almost 100 years to when Richard Hellmann,

a recent arrival to the United States from Germany, began selling the mayonnaise made

from his wife’s own recipe.

Hellmann’s continues to innovate and has launched new varieties of salad dressing,

mustard, ketchups and dipping sauces including Hellmann’s Dippin’ Sauces in flavours

including Rockin’ Ranch and Honey Mustard Madness. Hellmann’s new yoghurt-based

mayonnaise, Just 2 Good, contains low fat mayo and mayonnaise with olive oil as a

healthier option to traditional dressings. In addition, new packaging, including colourful,

fun and squeezable formats, has helped broaden the brand’s appeal.

Unilever’s Healthy Heart brands, Becel/Flora, have clinically-proven ways to help

consumers maintain a healthy heart. The company recognises that coronary heart disease

is the principal cause of premature death worldwide and reducing cholesterol is key to

minimising the risks. The pro.activ brand is clinically proven to reduce harmful

cholesterol by 10–15% in three weeks. A vital part of pro.activ’s success has been the

support of health professionals and other key opinion formers. Becel/Flora pro.activ

spreads and cooking products include plant sterols that reduce absorption of harmful

cholesterol. pro.activ has grown the company’s Healthy Heart business to over €1bn in

just two years. The same cholesterol-lowering ingredients are now being included

beyond spreads and cooking products and planned innovations include pro.activ yoghurt

and milk.

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Unilever is the world’s biggest ice cream business and its symbol in the ice cream is the

Heart. The Heart was launched in 1997 to unite Unilever’s ice cream businesses and

brands. In 2003, the company re-launched the Heart as a symbol of “the serious fun of

ice cream”. Recent brand innovations have appealed to a growing desire for good-for-

you, fresh and natural ice cream options and include Carte d’Or Fruit & Fresh, Solero

Smoover and Cornetto Soft.

Foodservice

Unilever Bestfoods (UBF) Foodsolutions works with customers including caterers,

restaurateurs and major hotel and fast-food chains to create food solutions that help

grow their business. Solutions include products that add the right seasoning, flavour or

texture, pre-prepared ingredients that save time in a busy kitchen and new ways of

serving food on a large scale at consistent quality. Recent foodservice innovations have

included the Knorr 100% Soup, a preparation and dispensing system for Lipton Brewed

Iced Tea and a new range of lower-fat Hellmann’s dressings, available through

specialised Hellmann’s dispensers, for a fast-food chain’s salad bar. UBF Foodsolutions

operates in 65 countries worldwide.


Unilever’s strategy is to focus research and development and marketing on their leading

brands, that is, those that are most in demand from consumers.

Leading brands account for over 90% of total business

The company’s Path to Growth strategy was designed to accelerate top-line growth and

further increase operating margins. The plan centred on a series of initiatives to focus on

fewer, stronger brands to accelerate growth. It was subsequently amended, following

the acquisition on Bestfoods, which was completed in October 2000. Path to Growth

commits Unilever to delivering (by 2004) annual top line growth of 5-6% and operating

margins in excess of 16% (before exceptional items and amortisation).

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Now in the final year of Path to Growth, the company has achieved faster growth in its

leading brands and progress with the integration of Bestfoods and its disposal

programme. The company’s leading brands now account for 93% of its total business

(up from 75% in 1999). The company’s portfolio has been reshaped and enhanced

through acquisitions and the sale of 99 businesses that did not have acceptable growth

or margin potential.

The cornerstone of the plan is the focus of product innovation and brand development

on a portfolio of around 400 leading brands, which will lead to less fragmentation of

resource and bigger hit innovations. By 2004 Unilever expected its leading brands to

represent 95% of the business (the figure reached 93% at the end of 2003). The increase

in brand power should reflect the contribution from acquisitions, the planned

acceleration in exit from the non-corporate businesses and the disposal or ‘harvesting’ of

tail brands. In addition to the Path to Growth restructuring, savings of €0.8 billion were

expected to be generated through the integration with Bestfoods.

Ultimately, Unilever expects to achieve greater share through a more focused portfolio

of brands in highly fragmented markets, backed by more effective innovations with

fewer projects, faster rollout and increased speed to market. It will innovate in the

fastest growth segments of the market and also grow its brands outside their current

geography and category structures into new and emerging markets. It will look beyond

narrow category definitions to adjacent segments for many of its brands.

In February 2004, Unilever announced that it is to remove its sales and margin targets

for 2004 (as defined in Path to Growth) and replace them with broad objectives to

increase cashflow and returns to shareholders in dividends and share buybacks over five

years. The shift in focus followed stock market criticism of the company for failing to

fulfil its promise of revenue growth.

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Looking beyond the Path to Growth

Speaking after the release of preliminary 2003 results, in February 2004, Chairman

Antony Burgmans hinted at plans for acquisitions to boost the market position of its 14

product categories with a particular focus on Asian markets. As part of its new

“Unilever in 2010” strategic plan, the company is setting aside around €2.0 billion per

year for acquisitions which would focus on its existing product groups, with no plans to

expand into categories such as mineral water or yoghurt.

Over the period of 2005 to 2010, Unilever is hoping for average revenue growth of

between 3.0%-5.0%, with a further 2.5 percentage points added to the operating

margin.

SWOT analysis


Unilever in the form of a SWOT analysis, highlighting the relative strengths,


Strength demonstrated by core brands

Unilever’s core strength is demonstrated by the power and global appeal of its main

brands. In 2002, the company owned eight foods brands with sales in excess of €1

billion. These brands belong to a diversified group of food categories, reducing the

company’s risk to down turns in any one sector. As the company’s portfolio has been

reshaped and enhanced through acquisitions and disposals its leading brands now

account for 93% of its total business (up from 75% in 1999).

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Figure 12.38: Unilever Bestfoods’ SWOT analysis

• Power and global appeal of brands. Eight foods brands with sales in excess of €1 billion

• Diversified group of food categories, reducing the company’s risk to down turns in any one sector

•Greater focus: the company has reduced the number of brands it owns

• Low-carb diet threat to sales of Slim Fast products

• Consumer healthy eating trends away from indulgent, full-fat and some processed foods

• Innovate in the fastest growth segments of the food industry

• Look beyond category definitions to adjacent segments for many of its brands

•The Knorr brand has potential in emerging markets in Latin America, Africa, the Middle East and Asia

• Though the company has made progress, a number of weaker and under-performing businesses remain in the company’s portfolio

Company Strengths


Company Weaknesses

• Power and global appeal of brands. Eight foods brands with sales in excess of €1 billion

• Diversified group of food categories, reducing the company’s risk to down turns in any one sector

•Greater focus: the company has reduced the number of brands it owns

• Low-carb diet threat to sales of Slim Fast products

• Consumer healthy eating trends away from indulgent, full-fat and some processed foods

• Innovate in the fastest growth segments of the food industry

• Look beyond category definitions to adjacent segments for many of its brands

•The Knorr brand has potential in emerging markets in Latin America, Africa, the Middle East and Asia

• Though the company has made progress, a number of weaker and under-performing businesses remain in the company’s portfolio

Company Strengths


Company Weaknesses


The company’s Path to Growth strategy continues to offer growth opportunities and

greater efficiencies. Further gains are envisaged throughout 2004, as the company

increases levels of outsourcing and sees advantages from its global procurement

programme.

Underperforming businesses remain

Though the company has made progress, a number of weaker and under-performing

businesses remain in the company’s portfolio. With over a year to go until Unilever

reaches the end of Path to Growth, the company is aware of the difficulties in certain

areas of its business and is committed to improving performances.

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Brand extensions and emerging markets

Though Knorr is Unilever’s key brand growth opportunities remain. The brand has

significant potential in emerging markets in Latin America, Africa, the Middle East and

Asia.

Through the realisation of the Path to Growth strategy, Unilever expects to innovate in

the fastest growth segments of the food industry and also grow its brands outside their

current geography and category structures into new and emerging markets. Increasingly,

it will look beyond category definitions to adjacent segments for many of its brands.

Low-carb diet threat to Slim Fast

Unilever reported disappointing Slim Fast sales in 2003, largely due to the success of

low-carbohydrate diets, which were particularly pronounced in the United States. This

comes just as recent innovation in the Slim Fast brand has been aimed at repositioning

the brand, away from the meal replacement category, towards products such as soups

and pastas. Together with Slim Fast ice cream, a variety of snack bars and websites

promoting diet advice, the brand is more closely aligning itself with competitors such as

Weight Watchers from Heinz.

In line with other food manufacturers, Unilever faces a threat to its sales from consumer

health trends, that may see moves away from indulgent, full-fat and some processed

foods, towards foods that are perceived to carry greater health and nutritional benefits.

It is up to Unilever to respond to these trends by designing new products that offer

consumers the choice, quality and range of alternatives they demand, in healthier

formats.

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Chapter 13

Industry Opinion Survey

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Chapter 13 Industry Opinion Survey

Summary

Over one-third (36%) of respondents believe that the global food leaders increased their dominance in 2003, by increasing their market share at the expense of their competitors.

Respondents believed that this growth was likely to be sourced to NPD and innovation.

Convenience issues had a strong influence on the strategies of the global food leaders in 2003. This was seen as the most important issue shaping the strategies of the leading companies, ahead of issues such as healthy eating, brand recognition, pleasure and indulgence.

Danone and Unilever stand out as being the two companies most responsive to new customer trends.

Among the leading global food companies, Cadbury-Schweppes and Masterfoods are perceived to be the least successful innovators.

When it comes to moving into new international markets, survey respondents perceive Unilever and Nestlé to be the most successful companies.

Hershey is perceived to be less successful than the other global leaders at communicating its brand messages, with almost 30% of respondents believing the company is ‘weak’ in this area.

Over 80% of respondents believe that the Asia-Pacific region offers the greatest growth opportunities for the global food leaders, with 42% predicting ‘high growth potential’ in the region’.

NPD, innovating and launching new products into developed markets is the strategy most likely to deliver growth in the short-term future.

Over one-quarter of respondents felt that Danone was well placed to deliver ‘very strong growth’ over the next three years.

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Introduction

This chapter presents the results of the Business Insights Global Food Leaders Industry

Opinion Survey, conducted in December 2003 with the help of more than 50 senior level

respondents from across the food industry; retailers, manufacturers and ingredients

companies from Europe and the United States.

The survey was designed to be strategic and forward-looking, focusing on the role of

the global food leaders in today’s food markets allowing insight into the thoughts and

predictions of their industry peers. The survey begins by assessing the performance in

2003 of the global food leaders against their peers in terms of financial performance,

merger and acquisition activity, changes in market shares, marketing activity and NPD

initiatives.

It then goes on to identify the competitive positioning of the global food leaders,

collectively at first, but then positioning the companies against themselves in terms of

reacting to customer trends, innovation, spotting growth opportunities and marketing

activity. The survey then looks at the opportunities for expansion into new markets

around the world and identifies which of the companies are best placed to exploit

growth in the coming years and how they will achieve it.

Therefore, this chapter is divided into four main sections:

Food leaders: 2003 performance;

Food leaders: competitive positioning;

Food leaders: geographical strategies;

Food leaders: the future.

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Food leaders: 2003 performance

In terms of sales growth, almost one-half of the respondents surveyed (43%) believed

that the global food leaders recorded above average growth in 2003, though their

performance was not expected to be particularly exceptional. Respondents were more

inclined to believe that the global food leaders had the ability to increase their 2003

profits over and above the industry average.

Product innovation drives growth in market share

Over one-third (36%) of respondents believe that the global food leaders increased their

dominance in 2003, by increasing their market share at the expense of their competitors.

Respondents believed that this growth was likely to be sourced to NPD and product

innovation, as over 70% of those surveyed pointed towards ‘above average’ levels of

innovation and new product launches by the global leaders.

Figure 13.39: Global food leaders: performance in 2003

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Growingrevenues

Increasingprofitability

Increasingmarket

dominance i.e.market share

Innovation i.e.the launch ofnew products

Establishingnew consumertrends i.e. new

packaging

Marketingbudgets andadvertising

spend

Merger andacquisition

activity

Very strong growth/activity above averageGrowth/activity above average but not exceptionalAverage market growth/activityGrowth/activity less than average but not stagnant or decliningVery low growth/stagnating market or activity

Source: Global Food Leaders Industry Opinion Survey Business Insights

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Marketing and advertising expenditure in the food industry were also driven by the

global food leaders in 2003. One-half of respondents believed that the growth in spend

of the global leaders was above the industry average.

Food leaders: competitive positioning

The survey asked, in the context of several other consumer trends and market

influences: how important have the three food megatrends of health, convenience and

indulgence been in shaping the marketing, product, NPD and branding strategies of the

global food leaders.

Convenience shapes strategy ahead of brand recognition and pleasure

Over 40% of respondents believe that convenience issues had a strong influence on the

strategies of the global food leaders in 2003. This was seen as the most important issue

shaping the strategies of the leading companies, ahead of issues such as healthy eating,

brand recognition, pleasure and indulgence.

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Figure 13.40: How important have the three food and drinks megatrends been in shaping the marketing, product, NPD and branding strategies of the

global food leaders?

0% 20% 40% 60% 80% 100%

Economic downturn

Convenience

Healthy eating

Pleasure (the importance of premium and indulgent products)

Brand recognition

Innovations and product advantages from packaging

Discounts/promotions/special offers

Threats posed by the growth of private labels

Green issues and environmental concerns

Very low influence Some influenceAverage influence Growth above average but not exceptionalVery strong influence


Whilst healthy eating was viewed as the second most important issue shaping corporate

strategies overall, a larger share of respondents regarded both brand recognition and

pleasure/indulgence as having a ‘strong influence’ rather than ‘healthy eating’. This

suggests that whilst convenience remains by far the most important consumer trend

facing food manufacturers, the second tier of trends is difficult to separate (branding,

pleasure and healthy eating) and are all of similar importance.

Whilst over one-fifth of respondents suggested that private labels are exerting a ‘strong

influence’ on the corporate strategies of the food leaders (a similar proportion to healthy

eating), almost 15% believe they only have a marginal influence.

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Danone and Unilever react more quickly to customer trends

The survey respondents believe that, among the global food leaders, Danone and

Unilever stand out as being the two companies most responsive to new customer trends.

At the same time, Cadbury-Schweppes and Masterfoods are perceived as being

relatively slower to react to changing customer trends in the food industry.

One in five respondents believe that Kraft is relatively slow to react to consumer trends.

Following trading difficulties, the company appointed Roger Deromedi as the Chief

Executive Officer in December 2003.

Figure 13.41: Rating the global food leaders: reacting to customer trends

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Nestlé

Cadbury-Schweppes

Danone

Kraft

Masterfoods (Mars Inc.)

Unilever Bestfoods

General Mills

Kelloggs

Heinz

Hersheys International

Very weak Weak Average performance Strong Very strong


In addition, Heinz has also made a number of changes in its U.S. business to make it a

more customer-focused operation. Two business units were created, Heinz US “Away

from Home” and Heinz US “Consumer Products”.

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Unilever perceived as the leading innovator

When it comes to innovation, the survey respondents believed that Unilever is by far the

strongest company in this area. Over 85% of respondents believe the company is either a

‘strong’ or ‘very strong’ innovator, with Danone, Nestlé and Heinz perceived as the

next best innovators.

Figure 13.42: Rating the global food leaders: innovation

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Nestlé

Cadbury-Schweppes

Danone

Kraft


Unilever Bestfoods

General Mills

Kelloggs

Heinz




Among the leading global food companies, Cadbury-Schweppes and Masterfoods are

perceived to be the least successful innovators.

Cadbury and Hershey could do better at spotting cross-category opportunities

In terms of the ability of a manufacturer to spot cross category expansion opportunities,

survey respondents believe Unilever, followed by Nestlé to be the most successful

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companies. Almost 90% of respondent believe that General Mills is ‘average’ at spotting

cross category opportunities, whilst over one-third believe that Cadbury-Schweppes and

Hershey are ‘weak’ or ‘very weak’ in this area.

Figure 13.43: Rating the global food leaders: identifying cross-category expansion opportunities

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Nestlé

Cadbury-Schweppes

Danone

Kraft


Unilever Bestfoods

General Mills

Kelloggs

Heinz




Hershey is perceived to be relatively weak at moving into new markets

When it comes to moving into new international markets, survey respondents once again

perceive Unilever and Nestlé to be the most successful companies. Over 40% of

respondents also believe that Hershey is ‘weak’ or ‘very weak’ at expanding across

international borders.

237

Figure 13.44: Rating the global food leaders: country coverage/moving into new countries

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Nestlé

Cadbury-Schweppes

Danone

Kraft


Unilever Bestfoods

General Mills

Kelloggs

Heinz


Very Weak Weak Average performance Strong Very strong


Nestlé leads the way in terms of marketing strength

In terms of marketing and communications, Nestlé is perceived to be ahead of all the

other leading food manufacturers; with over 70% of respondents believing the company

is either ‘strong’ or ‘very strong’ in this area. Hershey is perceived to be less successful

at communicating its brand messages, with almost 30% of respondents believing the

company is ‘weak’ in this area.

Cadbury-Schweppes, a company also perceived to be relatively ‘weak’ in this area

announced in February 2004 that its marketing expenditure in 2003 was £702 million, an

increase of 28% on 2002 levels. This represents marketing: net sales ratio of 10.9%,

with the increase being due to the acquisition of Adams, which already had a higher

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marketing to sales ratio. Prior to acquisitions, the company’s marketing to sales ratio

was 9.9%, with the year-on-year reduction reflecting a lower spend during periods of

unfavourable weather conditions in Americas Beverages and European Confectionery

sectors.

Figure 13.45: Rating the global food leaders: marketing and communications activity (website, advertising, promotions etc)

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Nestlé

Cadbury-Schweppes

Danone

Kraft


Unilever Bestfoods

General Mills

Kelloggs

Heinz




Food leaders: geographical strategies

Respondents to the industry opinion survey were asked which geographic regions would

offer the highest growth potential for the global food leaders over the next three years.

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Asia-Pacific offers the greatest growth potential

Over 80% of respondents believe that the Asia-Pacific region offers the greatest growth

opportunities for the global food leaders, with 42% predicting ‘high growth potential’ in

the region’. Whilst a similar proportion (over 80%) believe there is tremendous growth

potential in Eastern Europe, the share of respondents believing that the region offers

‘high growth potential’ (above ‘strong growth’) was less than for Asia-Pacific.

Figure 13.46: Which of the following geographic regions will offer the highest growth potential for your chose global food leaders over the next three

years?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Western Europe Eastern Europe North America Latin America Asia-Pacific Middle East andAfricaHigh growth potential

Strong growth Average growth compared to other regionsNo growthNegative growth/market contraction


Over 40% of respondents believe that North America and the Middle East both offer

‘no growth’ opportunities for the global food leaders over the next three years. One in

three respondents believe the same can be said for Western European markets.

240

Food leaders: the future

Looking to the future, respondents were asked to select the strategies they believe will

help the global food leaders grow most aggressively over the next three years.

NPD and innovation is the best way to deliver growth

Without question, NPD, innovating and launching new products into developed markets

is the strategy most likely to deliver growth in the short-term future. However, this was

followed closely by line extensions and new formats of launching current products in

developed markets and by extending current products into new geographical markets.

Figure 13.47: Which of the following companies are best placed to compete most effectively over the next three years?

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Nestlé

Cadbury-Schweppes

Danone

Kraft


Unilever Bestfoods

General Mills

Kelloggs

Heinz


Very low growth/stagnating market shares and/or revenuesGrowth less than averageAverage market growthGrowth above average but not exceptionalVery strong growth


241

Category expansion (i.e. moving from confectionery to frozen food) was deemed to be

the strategy least likely to deliver growth to the global leaders over the next three years,

with over one in five respondents believing this route is ‘not likely’ to deliver growth.

Finally, the survey respondents were asked to state which global food leaders are best

placed to compete most effectively over the next three years.

Danone is the company most likely to deliver growth

Over one-quarter of respondents felt that Danone was well placed to deliver ‘very

strong growth’ over the next three years. Whilst a similar proportion of respondents also

felt that Nestlé is in a similar position, over one-half of respondents (55%) believe that

Danone will deliver ‘above average but not exceptional’ growth whilst less than 20%

believe this of Nestlé.

Figure 13.48: Which strategies will help the global food leaders grow most aggressively over the next three years?

0% 20% 40% 60% 80% 100%

Extending current products into new geographical markets

NPD, innovating and launching new products into developedmarkets

Line extensions and new formats of launching currentproducts in developed markets

NPD, innovation and launching new products into less-developed markets

Category expansion i.e. moving from confectionery to frozenfood

Growth in new areas such as nutraceuticals or probiotics

Merger and acquisition activity in developed markets

Merger and acquisition activity in small, high growth potentialmarket

Very unlikely Not likely No opinion Likely Very likely


242

At the opposite end of the scale, 45% of respondents believe that Kellogg is set to

deliver ‘less than average’ growth over the next three years, with over one in three

respondents also believing this of Heinz and Hershey. Almost one in 10 respondents

stated they expect Hershey and General Mills to deliver ‘very low growth’ over the next

three years.

244

Chapter 14

Conclusions

245

Chapter 14 Conclusions

Summary

Whilst the concepts of convenience and premiumisation are long established, in recent months, the leading manufacturers have made a concerted effort to promote the health and nutritional benefits of their portfolios.

Although it has been a well-documented trend for several years now, there is little evidence that convenience will become less important for consumers in the near future.

The Asia-Pacific region offers the greatest growth opportunities for the global food leaders, whilst many also see tremendous growth potential in Eastern Europe.

Whilst being amongst the five largest confectionery markets, in terms of market growth, the UK, Japan and Russia have been amongst the 10 slowest growing markets over the last six years.

Among the world’s larger dairy markets that are also fast growing, China, Mexico and Brazil feature prominently. Whilst China is the world’s tenth largest dairy market, it is also the fourth fastest growing.

It seems unlikely that the level and size of acquisitions seen in the last five years will continue though many companies remain open to selective, ‘bolt-on’ acquisitions.

Categorising the market by consumer trend enables the manufacturer to create new strategies for increasing its market share without cannibalising the market for existing products.

Organic growth can exploit faster growing distribution channels such as convenience stores, mass merchandisers, drug stores, and vending machines, all of which may be growing faster than the traditional grocery channels.

NPD, innovating and launching new products into developed markets is the strategy most likely to deliver growth in the short-term future.

246

Introduction

This chapter presents the main findings of the report, with a forward-looking bias. It

begins by considering the opportunities for the global food leaders in the food industry,

highlighting the consumer trends, product categories and growth regions that will be

important to the leading companies in the near future.

The chapter then goes on to highlight key strategies that manufacturers are and will be

adopting in the food industry if they are to maintain, consolidate or even improve their

position as global food leaders.

The global food industry

To take advantage of the growth opportunities in the global food industry, food

manufacturers are aligning their product portfolios to more accurately meet the needs of

the modern consumer. These largely centre on the three consumer megatrends of

convenience, health and pleasure.

Whilst the concepts of convenience and premiumisation are long established, in recent

months, the leading manufacturers have made a concerted effort to promote the health

and nutritional benefits of their portfolios. Manufacturers are also extending product

ranges by fortifying products with health benefits. Just one example of this occurred

when Masterfoods entered the energy bar sector with Snickers Marathon. Snickers

Marathons are each fortified with 16 vitamins and minerals and contain around 10g of a

“special protein blend,” designed to provide a long-lasting energy boost.

Convenience remains most important

However, although it has been a well-documented trend for several years now, there is

little evidence that convenience will become less important for consumers in the near

future. Over 40% of respondents to the Global Food Industry Survey conducted in

247

December 2003 believe that convenience issues had a strong influence on the strategies

of the global food leaders throughout 2003. This was seen as the most important issue

shaping the strategies of the leading companies, ahead of issues such as healthy eating,

brand recognition, pleasure and indulgence.

Results from the survey also suggested that whilst convenience remains by far the most

important consumer trend facing food manufacturers, the second tier of ‘trends’ are

difficult to separate (branding, pleasure and healthy eating) and are all of similar

importance.

Asia-Pacific and Eastern Europe are top targets for expansion

The results of the Global Food Industry Survey suggest that the Asia-Pacific region

offers the greatest growth opportunities for global food leaders, whilst many also see

tremendous growth potential in Eastern Europe. Analysis of recent growth in the main

food markets around the world confirms this.

Whilst being the largest market for chilled food, in terms of market growth, Japan has

been of the slowest growing markets over the last six years. However, within the larger

chilled food markets, the greatest market opportunities for growth appear to be in the

Ukraine and France. Similar patterns emerge in confectionery. Whilst being amongst the

five largest markets, in terms of market growth, the UK, Japan and Russia have been

amongst the 10 slowest growing markets over the last six years. Within the larger

confectionery markets, the greatest market opportunities for growth appear to be in

China and Mexico.

Among the world’s larger dairy markets that are also fast growing, China, Mexico and

Brazil feature prominently. Whilst China is the world’s tenth largest dairy market, it is

also the fourth fastest growing. Finally, amongst the 10 largest savoury snack markets,

Russia, in eighth place, is also the world’s fastest growing market whilst Mexico, the

fourth largest market is also the fifth fastest growing market.

248

Strategies for success

The future development of the food industry is largely linked to the strength of brands,

and their ownership and control.

Focus on core brands and strengths

A number of the large food manufacturers have disposed of non-core assets in their

portfolios in order to focus on their core operations. Unilever is a prime example of such

a strategy, particularly following the 2000 acquisition of Bestfoods. Since the

announcement of the ‘Path to Growth’ strategy in February 2000, the company has sold

a total of 87 companies with sale proceeds of €6.3 billion. This has reduced the number

of brands that the company manages from 1,600 to around 400 leading brands and just

under 250 tail brands.

Heinz has also followed this strategy and disposed of certain businesses in recent years

in order to concentrate more fully on realising the full potential of its core brands. In

June 2002, Heinz disposed of a number of North American businesses and merged them

with Del Monte Foods Company in a move designed to make Heinz a faster-growing

company.

Growth through acquisition

Whilst a number of companies have disposed of assets, alternative strategies have seen

manufacturers undertake large-scale acquisitions to become a global food leader, or to

consolidate their position amongst the leaders.

A good example of a company that has grown rapidly through acquisitions is Cadbury-

Schweppes. More recently, Cadbury’s has been going through something of a transition

phase, with the integration of the Adams business well underway. However, since 1997,

the company has spent a total of £3.3 billion on acquisitions (not all in confectionery

markets) though it has also realised £1.4 billion from disposals.

249

Following the acquisition of Pillsbury in 2001, General Mills is now seeking greater

organic growth rather than boosting growth rates with further acquisitions. The March

2001 acquisition of Keebler Foods Company was by far the largest acquisition in

Kellogg’s history. The acquisition gave the company a more diversified product

portfolio will undoubtedly boost the company’s growth.

Perhaps the best example of growth through acquisition is that of Kraft (although the

company itself was acquired by Philip Morris – now named Altria – in 1988). By far the

biggest of its acquisitions was the 2000 acquisition of Nabisco Holdings, a leader in

cookies, crackers and snacks, for almost $15 billion.

Expansion and cross-category

As it seems unlikely that the level and size of acquisitions seen in the last five years will

continue (though many companies remain open to selective, ‘bolt-on’ acquisitions),

organic growth is set to be the main driver of growth for the global food leaders.

Categorising the food market by product type or category may not reveal many new

sales opportunities for manufacturers. However, categorising the market by consumer

trend enables the manufacturer to create new strategies for increasing its market share

without cannibalising the market for existing products.

Examples of such strategies include Hershey, which is looking to leverage its core

competencies in the broader snack market. Kellogg has also announced plans to expand

its reach beyond the cereal and snack food aisles with extensive licensing initiatives in

the toy, clothing, entertainment, publishing, and food categories.

In terms of the ability of a manufacturer to spot cross category expansion opportunities,

respondents to the Global Industry Survey believe Unilever, followed by Nestlé to be

the most successful companies, whilst over one-third believe that Cadbury-Schweppes

and Hershey are ‘weak’ or ‘very weak’ in this area.

250

NPD will be the main driver of growth

Over one-third of respondents to the Global Industry Survey believe that the food

leaders increased their dominance in 2003, by increasing their market share at the

expense of smaller manufacturers. Respondents believed that this growth was likely to

be sourced to NPD and product innovation, as over 70% of those surveyed pointed

towards ‘above average’ levels of innovation and new product launches by the global

leaders.

NPD, innovating and launching new products into developed markets is the strategy

most likely to deliver growth in the short-term future, particularly in products and

segments that are not easy to replicate via private label alternatives.

Among the global food leaders, Danone and Unilever stand out as being the two

companies most responsive to new customer trends. At the same time, Cadbury-

Schweppes and Masterfoods perceived as being relatively slower to react to changing

customer trends in the food industry. When it comes to innovation, Unilever is perceived

to be the strongest company in this area, with Danone, Nestlé and Heinz perceived as

the next best innovators.

252

Chapter 15

Appendix

253

Chapter 15 Appendix

Primary research methodology

As a key element of the primary research effort for this report, Business Insights carried

out a comprehensive survey in December 2003. Major companies across Europe and the

United States were surveyed to canvass their opinions on a number of issues relating to

the issues, trends and developments highlighted in this report. In addition, key industry

sources were surveyed using a combination of telephone interviews and questionnaires

by the author.

Terms and abbreviations used in this report

A list of the most commonly used terms and abbreviations used in the report and their

meanings are provided in the following table.

254

Table 15.66: Terms and abbreviations used in this report

Term Definition CAGR The compound annual growth rate (CAGR) is a way of measuring a

market’s annual growth over a period of several years. It is the constant percentage rate at which a market would have to grow, year on year, to reach its current value from the value in a base year. It is not the same as average growth but is a more representative measure of annual growth over a number of years.

Convenience This is a key trend driving the movement for nutrition ‘‘on-the-go’’. It is

caused by pressure on time and pertains to something that is useful, available and ready to use.

Foodservice Food channels such as takeaways, restaurants and catering. Fun Defined here as comprising visual, sensory, interactive and inspirational

elements. Functional and fortified The use of nutrients, vitamins, minerals, fibres and other ingredients to

enhance the health benefits of specific products. Guilt-free indulgence Products that offer the dual benefits of being low and light and claim to

be indulgent. Indulgence Products that are positioned as indulgent or luxurious through their

marketing or formulation. Low and light Refers to products that claim reduced, very low or zero levels of sugars

and fats than may be expected for the food type. Organic A term that is legally defined by EU Regulation 2092/91. It is used to

describe products that are grown without the use of synthetic chemicals in a farming system that avoids the use of artificial fertilisers, pesticides, growth regulators and livestock feed additives.

Planned impulse A consumer shopping pattern whereby products are purchased either at

the point of use or in the expectation of use at some appropriate but unknown juncture.

Private label Products that are exclusively manufactured for, distributed and marketed

by specific retailers. Super premium Refers to products that have a higher quality and exclusivity positioning

than premium goods characterised by a strong brand image and an exceptionally high price.

Treating Treating is a usually a personal and very individual activity. What one

consumer regards as a treat another may simply consider normal expenditure, so a fixed definition of what a treat consists of is difficult to provide. One view is that treating represents additional spend over and above one’s ‘normal’ expenditure.

Source: Author’s research Business Insights

256

Food segmentation table

The following table defines the market segmentations used in the analysis of food

markets throughout the report.

Table 15.67: Definitions of food segments used in this report

Market and segment Definition Bakery - Bread and rolls Includes industrial, artisanal and in-store bakery products. - Breakfast cereals Both ready-to-eat and hot cereals. - Cakes and pastries Includes industrial, artisanal and in-store products. - Morning goods Includes industrial, artisanal and in-store products. - Savoury biscuits Includes crackers, dry wafers and snack biscuits. - Sweet biscuits Defined to include artisanal, assortments, butter-based, chocolate, cookies, cream-filled, egg-based, plain, wafers and those baked in- store. Confectionery - Cereal bars Bars made from cereal products - Chocolate Products which contain either real chocolate or a chocolate compound containing substitute raw material ingredients such as cocoa butter extenders. - Gum A type of chewing gum that can be blown into large bubbles. - Sugar confectionery Sugar mass, which is processed to be non-grained or to be grained through aeration. Includes sugar-free varieties. Also known as bonbons in France. Dairy - Chilled desserts Industrially manufactured, ready-to-eat chilled desserts. - Concentrated milk Milk preserved and concentrated through the removal of water and additional processes. - Cream Chilled long life and frozen cream


257

Table 15.68: Definitions of food segments used in this report continued

Market and segment Definition - Cream Chilled long life and frozen cream - Fats and spreads Also known as spreadable fats or yellow fats. - Fromage frais desserts Fromage frais is also known as curd cheese or quark. This category only includes fromage frais packaged as a dessert. - Ice-cream Dairy ice cream and ice milk with fat from either animal or vegetable sources. Includes both full fat and low fat products. - Liquid milk Fresh pasteurised milk or long-life products. - Natural cheese A fresh or ripened dairy product obtained after coagulation and separation of milk, requiring refrigeration. - Powdered milk Not included is liquid coffee creamers. - Processed cheese Processed cheese is a blend of natural cheese and emulsifier which is heated to stop ripening. - Yoghurt Includes regular, bioactive, set and drinking formats. Snacks - Popcorn A variety of maize having hard pointed kernels that puffs up when heated. - Potato chips Potato chips or crisps are products produced directly from the cuts of potatoes. - Savoury snacks Includes ethnic snacks, extruded snacks, corn chips, tortilla chips and pretzels. - Snack nuts Covers all packaged processed nuts, by either being cooked in oil and salted or dry roasted. This includes only snack nuts and does not include nuts used for cooking.


258

Index

Adams, 16, 36, 48, 49, 50, 51, 52, 53, 55, 56, 58, 59, 60, 61, 62, 63, 65, 235, 246

Argentina, 31, 55, 74, 80, 91, 134, 154, 192

Asia-Pacific, 25, 30, 43, 48, 55, 56, 60, 74, 75, 152, 154, 155, 174, 193, 194, 212, 227, 237, 243, 245

Australia, 31, 45, 48, 50, 55, 56, 64, 91, 107, 131, 134, 135, 136, 138, 147, 154, 155, 170, 172, 174, 186, 193, 200, 214, 216

Austria, 31, 37, 77, 152, 157, 158, 176, 197, 215

bakery, 254

Belgium, 31, 59, 69, 77, 91, 107, 157, 158, 159, 176, 197, 215, 218

Bestfoods, 20, 27, 34, 35, 206, 207, 208, 209, 210, 213, 215, 220, 221, 223, 246

Brazil, 31, 39, 41, 42, 43, 55, 63, 74, 91, 149, 154, 186, 192, 214, 215, 216, 243, 245

Bulgaria, 31, 57, 76, 148, 149, 156, 175, 195

Cadbury-Schweppes, 16, 26, 28, 34, 36, 227, 232, 233, 234, 235, 246, 247, 248

Canada, 31, 45, 50, 51, 55, 63, 74, 91, 107, 119, 131, 138, 154, 161, 172, 192, 212, 216

Chile, 31, 55, 173, 192, 215

China, 30, 31, 40, 41, 42, 43, 45, 48, 52, 56, 61, 64, 75, 91, 102, 120, 131, 154, 155, 174, 193, 212, 243, 245

Colombia, 31, 43, 119, 137, 154, 192

confectionery, 16, 28, 30, 31, 34, 40, 41, 42, 48, 49, 50, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 65, 69, 70, 114, 115, 116, 118, 119, 120, 121, 122, 124, 126, 140, 148, 156, 170, 171, 173, 175, 178, 179, 180, 181, 184, 185, 190, 193, 195, 204, 205, 239, 243, 245, 246, 254

convenience, 19, 21, 32, 52, 65, 79, 83, 92, 94, 104, 109, 110, 122, 126, 130, 131, 132, 133, 142, 143, 146, 159, 162, 167, 170, 178, 196, 215, 218, 219, 230, 231, 243, 244, 245

Convenience, 252

Czech Republic, 31, 57, 76, 102, 156, 175, 195

dairy, 30, 31, 37, 42, 43, 44, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, 152, 161, 184, 185, 190, 191, 195, 204, 243, 245, 255

Danone, 17, 21, 26, 28, 34, 35, 37, 67, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, 191, 213, 227, 232, 233, 239, 248

Denmark, 31, 37, 38, 52, 59, 62, 77, 152, 158, 176, 197

drinks, 254

Eastern Europe, 25, 30, 43, 45, 57, 70, 75, 76, 149, 156, 163, 174, 175, 188, 195, 204, 216, 237, 245

Egypt, 31, 37, 52, 57, 102, 152, 158, 176, 190, 195, 196

ethnic, 33, 255

Europe, 228, 251

European, 30

Finland, 31, 59, 77, 158, 176, 190, 197

foodservice, 87, 88, 92, 95, 96, 97, 100, 101, 106, 108, 130, 132, 143, 160, 161, 178, 213, 220

France, 31, 38, 41, 43, 44, 45, 51, 58, 59, 61, 69, 77, 80, 91, 157, 158, 159, 170, 176, 197, 200, 209, 215, 216, 217, 245, 254

Frozen food, 26, 27, 35, 40, 42, 44, 46, 60, 64, 78, 82, 92, 96, 108, 111, 121, 125, 138,

259

142, 160, 166, 177, 180, 200, 201, 203, 216, 223

Fun, 252

Functional & fortified, 252

General Mills, 17, 26, 28, 34, 36, 85, 86, 87, 88, 89, 90, 91, 92, 93, 94, 95, 96, 97, 184, 185, 199, 234, 240, 247

Germany, 31, 37, 38, 40, 41, 42, 43, 44, 45, 69, 77, 147, 152, 157, 158, 170, 176, 186, 190, 197, 204, 214, 215, 216, 218, 219

Greece, 31, 52, 59, 120, 158, 176, 197, 215

Health, 252

Heinz, 18, 26, 28, 34, 36, 99, 100, 101, 102, 103, 104, 105, 106, 107, 108, 109, 110, 111, 213, 224, 232, 233, 240, 246, 248

Hershey, 18, 27, 28, 34, 50, 113, 114, 115, 116, 117, 118, 119, 120, 121, 122, 123, 124, 125, 126, 227, 233, 234, 235, 240, 247

Hong Kong, 31, 56, 75, 91, 120

Hungary, 31, 39, 57, 76, 91, 102, 148, 156, 175, 195

India, 31, 52, 56, 61, 102, 107, 131, 193, 212, 215

Indonesia, 31, 41, 43, 56, 102, 106, 154, 155, 194, 212

indulgent, 33, 204, 224, 252

Innovation, 243

Interactive, 252

Ireland, 31, 52, 59, 62, 77, 91, 138, 157, 158, 176, 177, 197, 215, 216

Israel, 31, 76, 176

Italy, 31, 37, 38, 41, 43, 44, 69, 77, 102, 107, 152, 157, 158, 159, 177, 196, 197, 214, 215, 217, 218

Japan, 30, 31, 38, 39, 40, 41, 42, 43, 44, 45, 46, 74, 75, 120, 131, 154, 155, 174, 187, 194, 243, 245

Keebler Foods, 34, 36, 131, 132, 133, 137, 247

Kellogg, 18, 19, 27, 28, 34, 36, 129, 130, 131, 132, 133, 134, 135, 136, 137, 138, 139, 140, 141, 142, 143, 240, 247

Kraft, 19, 27, 28, 34, 37, 61, 122, 145, 146, 147, 148, 149, 150, 151, 152, 153, 154, 155, 156, 157, 158, 159, 160, 161, 162, 163, 164, 165, 166, 167, 232, 247

Latin America, 30, 43, 62, 74, 88, 97, 134, 135, 136, 152, 161, 163, 187, 188, 208, 214, 215, 216, 217, 224

Malaysia, 31, 56, 154, 155, 174, 194, 200, 209

manufacturers, ii, 16, 24, 30, 31, 32, 33, 49, 65, 122, 173, 181, 205, 224, 228, 231, 235, 243, 244, 245, 246, 247, 248

Masterfoods, 19, 27, 28, 34, 169, 170, 171, 172, 173, 174, 175, 176, 177, 178, 179, 180, 181, 191, 204, 227, 232, 233, 244, 248

megatrends, 32, 33, 93, 122, 230, 231, 244

Mexico, 30, 31, 40, 41, 42, 43, 44, 45, 46, 51, 74, 80, 102, 119, 131, 134, 138, 148, 154, 192, 216, 243, 245

Morocco, 31, 57, 76, 149, 157, 176, 196

Nestlé, 20, 27, 28, 34, 36, 37, 68, 73, 83, 86, 87, 92, 97, 114, 120, 122, 183, 184, 185, 186, 187, 188, 189, 190, 191, 192, 193, 194, 195, 196, 197, 199, 200, 201, 202, 203, 204, 205, 213, 227, 233, 234, 235, 239, 247, 248

Netherlands, 31, 38, 59, 69, 77, 91, 102, 107, 157, 158, 177, 197, 214, 216, 218

Norway, 31, 158, 177, 190, 199

obesity, 30, 32, 163, 167

organic, 33, 35, 36, 49, 68, 70, 73, 86, 87, 91, 93, 97, 130, 139, 181, 184, 188, 204, 247

PepsiCo, 87, 92, 97

Philip Morris, 37, 148, 149, 213, 247

260

Philippines, 31, 43, 56, 102, 106, 120, 154, 155, 174, 194

Pillsbury, 17, 34, 36, 86, 87, 88, 90, 91, 92, 93, 94, 95, 97, 192, 247

Portugal, 31, 52, 59, 77, 91, 102, 157, 158, 177, 199

premium, 32, 33, 80, 84, 106, 110, 162, 218, 252

retailers, 252

Romania, 30, 31, 39, 41, 43, 45, 76, 148, 149, 156, 175, 195, 215

Russia, 30, 31, 38, 40, 41, 44, 45, 48, 52, 57, 75, 76, 79, 102, 120, 156, 175, 195, 200, 243, 245

Sauces and dressings, 227

Slovakia, 31, 57, 76, 148, 156, 175, 195

snacks, 18, 19, 31, 36, 37, 44, 45, 46, 58, 68, 69, 70, 80, 86, 88, 90, 91, 94, 100, 101, 105, 106, 114, 121, 130, 132, 134, 136, 139, 142, 146, 147, 149, 153, 156, 161, 162, 163, 167, 173, 219, 247, 255

South Africa, 31, 52, 57, 76, 91, 102, 120, 157, 175, 176, 195, 196, 215, 216

South Korea, 31, 102, 154, 155, 174, 194

Spain, 31, 38, 39, 43, 59, 69, 77, 78, 80, 84, 91, 102, 106, 148, 157, 159, 186, 199, 215, 216

Sweden, 31, 59, 78, 107, 159, 177, 190, 199

Switzerland, 31, 49, 59, 78

Taiwan, 31, 56, 120, 154, 155, 194

Thailand, 31, 56, 120, 137, 154, 155, 174, 194

Turkey, 31, 37, 59, 61, 68, 73, 78, 83, 157, 159, 191, 199, 204, 215, 216

UK, 19, 31, 36, 38, 40, 41, 42, 43, 44, 45, 46, 51, 52, 58, 59, 62, 63, 70, 78, 86, 87, 88, 103, 104, 106, 107, 109, 131, 135, 137, 138, 148, 157, 159, 170, 177, 178, 179, 181, 186, 187, 199, 213, 214, 215, 216, 217, 243, 245

Ukraine, 30, 31, 38, 41, 45, 57, 76, 156, 175, 195, 245

Unilever, 20, 21, 27, 28, 34, 35, 191, 206, 207, 208, 209, 210, 211, 212, 213, 214, 215, 216, 217, 218, 219, 220, 221, 222, 223, 224, 227, 232, 233, 234, 246, 247, 248

United States, 18, 38, 40, 41, 42, 44, 45, 46, 51, 62, 68, 73, 80, 87, 88, 91, 100, 101, 102, 106, 108, 109, 110, 114, 115, 120, 130, 132, 134, 136, 137, 138, 141, 143, 144, 147, 148, 153, 162, 170, 171, 172, 173, 178, 186, 191, 192, 209, 214, 216, 217, 219, 224, 251

US, 228

Venezuela, 31, 41, 55, 91, 107, 154, 174, 193

Vietnam, 31, 39, 41, 45, 56, 120, 174, 194

the top 10 global leaders in food

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