If "someone's in the kitchen with Dinah," it's Kraft Foods. The #1 US food company, #2 worldwide after Nestlé, makes and markets a slew of food products. A North America unit engages in snacks, beverages, cheese, convenient meals, and an array of packaged grocery items. Other units, Europe and Developing Markets offer many of the same goods plus regional favorites. Oscar Mayer meats, Tang beverage, cheeses Philadelphia and Kraft (the world's #1-selling cheese label), Milka and Cadbury candies, Trident gum, Maxwell House and Jacobs coffees, and Nabisco, Oreo, and LU biscuits generate at least $1 billion in annual revenue; some 80 brands hit $100 million. Evolving, Kraft plans to split into two companies in 2012.
Following a near lifetime of mergers and acquisitions, the food giant will separate its $35 billion in sales global snack business, which includes brands Oreo, Cadbury, and Trident, from its roughly $19 billion in sales North American grocery business, known for household brands like Velveeta, Kraft Macaroni & Cheese, and Oscar Mayer meats. The tax-free spinoff, argued for by activist investors, offers shareholders a choice between investing in a rapidly expanding snacks business or the slower-growth grocery business, which produces strong cash and profit margins.
The separation also paves the way for each business to adopt its own business strategy. Kraft's grocery unit is likely to add more brands that wring competitive cost savings in an effort to fend off encroaching nontraditional grocery retailers, such as Wal-Mart, Target, and dollar stores. (Wal-Mart is Kraft's largest customer, accounting for more than 10% of sales.) The snacks business, which includes Europe and developing markets, looks to continue to reach into new markets.
Kraft's hard-won battle for UK candy maker Cadbury in 2010 gave the snack business the heft to stand along. The purchase, valued at about $18.5 million, created a "global powerhouse in snacks, confections, and quick meals, with a large portfolio of leading brands around the world." Cadbury's top brands include Dairy Milk bars, Roses chocolates, Trident gum, Halls cough drops, and the ever-popular Creme Eggs. The union of the #1 US food company and the 200-plus-year-old UK confectioner bumped Kraft up into the top spot of candymakers by revenue, unseating longtime leader Mars. The takeover also made Kraft the #2 US chewing gum maker by revenue (just behind Wrigley) and gave Kraft access to developing overseas markets, such as Brazil, India, Mexico, Russia, South Africa, and China, where Cadbury brands have a solid presence.
Kraft's takeover of Cadbury followed the sale of its frozen-pizza business in the US and Canada to Nestlé in early 2010. The $3.7 billion deal included the DiGiorno, Tombstone, California Pizza Kitchen, Jack's, and Delissio brands, making Nestlé the world's largest maker of frozen pizza. Kraft, in turn, raised approximately $1.6 billion from the sale.
Meanwhile, Kraft has not only reshaped its portfolio but raised prices to mitigate higher costs and buoy revenues and profits. The company posted $3.5 billion in net income in 2011, down about 14% from 2010, on more than $54 billion in sales, marking a 10% year-over-year top line increase. Cadbury was the primary growth driver, adding nearly $7 million in net revenues in 2011; Kraft also benefited from increased overall product sales volumes. Results, however, were offset by the impact of a decline in the beverage segment of Kraft Foods North America coupled with divestitures and Starbucks' move to end a deal under which Kraft distributes Starbucks coffee to grocery stores.