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October 24, 2012

Unlocking the Door: How Cadbury Acquisition Increased Kraft’s Global Footprint

CA2_136x136_DairyMilkKraft’s purchase of Cadbury entrenched the company not just in Western Europe, but in key emerging markets around the globe.

When Kraft Foods purchased Cadbury in 2010, many questioned the US$19.6 billion price tag for the United Kingdom based company, feeling it was an unnecessary move to secure a foothold in Cadbury’s key Western Europe markets. But the key component in this deal was not increased penetration and brand recognition in already mature markets – instead, it was to leverage the Cadbury name and distribution networks across multiple developing markets – footholds not just to expand already existing Cadbury share, but leverage those networks to bring on board Kraft’s already diverse portfolio.

Euromonitor Datagraphic

Source: Euromonitor International

Hot drinks can open the door for powder concentrates

While the Cadbury deal made Kraft (soon to be Mondelez) one of the world’s largest confection and packaged foods companies, both companies boast a strong hold in the beverage market as well. Cadbury’s Bournvita and Drinking Chocolate represent strong global brands in the flavoured powder drinks category – drinks that are key alternatives to coffee or tea for many consumers. Likewise, Kraft has a long history of success amongst powder concentrates in soft drinks, with Tang being the global leader. However, despite the success with powder concentrates, Kraft had been unable to penetrate certain developing markets, specifically India where distribution is often a key to success.

As the graphic below illustrates, however, Kraft’s acquisition placed them as category leaders for powdered hot drinks in several key developing markets. Specifically in India, the company acquired a brand already on the rise amongst hot drinks. By going from a relatively underrepresented global brand name to an established brand, Kraft can leverage existing distribution and retail relationships to bring its own products to the shelves.

Nigerian Growth Euromonitor

Source: Euromonitor International

Given the seasonality of flavoured powder hot drinks and powder soft drink concentrates, Kraft is now in a position to grow its Tang, Kool-Aid, and Crystal Light brands in markets where Cadbury Bournvita and Drinking Chocolate are already well established. This could be of particular interest in Nigeria where sales of flavoured powder hot drinks continues to rise due to consumers using the drinks as both hot and cold beverages. Kraft can leverage this trend to not only promote Bournvita, but also introduce Tang, Kool-Aid, and other powder concentrates into a market currently lacking Kraft products.

Due to the retail landscape of many developing markets, as well as a lack of on the ground expertise in those markets, Kraft is starting to show the true intent behind the Cadbury deal. Now, as the company moves forward in securing those relationships, it has begun to reap the benefits, not just in profits from their newly acquired brands, but in cross promoting those brands with its own stable.



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