Chocolate and Cheese: The Way Forward for Mondelez International

It’s official. Some fourteen months after first making its intentions known, Kraft finally split into two separate businesses on 1 October 2012. The company formerly known as Kraft Foods Inc is no more, having spun off its North American Grocery unit as Kraft Foods Group. Meanwhile, the remaining business has formally changed its name to Mondelez International Inc, with a focus on snacks including biscuits, chocolate, gum and sugar confectionery.

Moving forward, the two new – and separately listed – companies will focus on their unique strengths and growth strategies, as per their distinct product portfolios. That being said, the food industry is under no illusions that Mondelez is where the real potential lies.

The formation of Mondelez follows logically upon Kraft’s acquisitions of Danone’s international biscuits business in 2007 and Cadbury Plc in January 2010. Both takeovers greatly increased the company’s presence in the dynamic and high margin world of global snacking, while also allowing it to move well beyond the sizable, but relatively staid, North American grocery market. They also gave Kraft a truly global footprint, not least in emerging markets across Asia Pacific, Latin America and the Middle East and Africa, all regions where Cadbury in particular already enjoyed an established consumer following with supply chain networks to match.

Just over a year after buying Cadbury, for example, Kraft introduced its iconic Oreo cookies to India during March 2011, albeit under the purple banner of Cadbury rather than the red and white colours of Nabisco. Given Cadbury’s pre-existing equity in India, the country-specific branding comes as no surprise. It also looks to be working relatively well, with Oreo carving out just over 1% of India’s sizable retail biscuits market within 18 months of its debut, on sales of more than US$40 million. While a fraction of domestic biscuit behemoths Parle and Brittania – both of which stand to chalk up retail value sales of more than US$1 billion in 2012 – Oreo has consolidated its position as the sixth biggest biscuit brand in India, with sales up 40% year-on-year from 2011.

Prior to acquiring Cadbury, Kraft had no meaningful presence in India. In 2012, the company’s combined retail value sales should push US$1 billion, a nominal increase of more than 60% since 2010. While the majority of sales –and growth – still derives from Cadbury’s legacy, Oreo forms a key part of Kraft/Mondelez’s wider strategy of using Cadbury’s historic local strength to properly crack India’s virginal packaged food market. It also provides a vital test of how Kraft can better play in other key emerging markets around the world, and make the most of recently acquired assets.

Wider geographic reach aside, what else can Mondelez do to consolidate its leadership position in global snacking? Meaningful innovation and new product development, alongside extensive marketing support, obviously factors large. Between them, Danone’s former biscuits business, Cadbury and Kraft have an undoubted wealth of experience and consumer insights on what makes for a tasty snack worldwide, which gives Mondelez a significant competitive advantage.

One of Kraft’s biggest product launches since the Cadbury acquisition has been the co-branding of Philadelphia cream cheese with Cadbury chocolate (co-branded with Milka across mainland Europe and the US). Philadelphia cream cheese with Cadbury/Milka unquestionably merges two extremely well-known packaged food brands into a single novel product that combines the spirit of snacking with a staple food item. It’s also proven enormously popular in markets including the UK and Germany since its 2011 debut, with sales smashing initial expectations and forcing rivals like Ferrero – with its signature Nutella chocolate spread – to sit up and take notice. And yet, despite all its undoubted strengths, one still has to wonder: Is chocolate flavoured cream cheese really the best they could do?

With the formation of Mondelez International now complete, the new company will need to be at the top of its game to maintain its leadership position in the global snacking arena. Complacency, not least in terms of product development, is not an option, especially as competition is properly heating up. PepsiCo continues to focus on the emotional resonance of snacking through novel flavours and marketing, to enormous global success. Since acquiring Pringles from Procter & Gamble, Kellogg has made its intentions fully known by expanding its Special K breakfast cereal and snack bars line to savoury snacks and biscuits. In confectionery, Hershey and Ferrero are moving boldly beyond the comfort zones of their respective home markets into unchartered territory in India and Latin America. Even Nestlé, with its focus on global nutrition, is taking a closer look at snacking alongside health and wellness.

Let the snacking games begin…