What Next for Mondelez’s Hot Drinks Following the JDE Deal?

Once coffee leaves the Mondelez family, other hot drinks such as chocolate-based flavoured powder drinks will be the main hot beverages left. Other hot drinks together with the powder concentrate brand Tang will form Mondelez’s major beverage business following the deal with DE Master Blenders to create Jacobs Douwe Egberts (JDE) and will account for an insignificant share of its global fmcg sales. In the days of Kraft, chocolate-based flavoured powder drinks appeared to be a minor area of its beverages business. Euromonitor International believes that there may be substantial cross-branding opportunities for the Cadbury brand, which may have encouraged Mondelez to retain its chocolate powder drinks. Mondelez is the world’s largest chocolate confectionery maker and the ingredients used in its chocolate powder drinks (cocoa) are similar to those used in its confectionery. Therefore, procurement-wise, it makes sense to keep cocoa-centric Cadbury in the family.

Cadbury a Strong Brand with Global Recognition

In the packaged food industry, the Cadbury brand’s retail sales amounted to US$7.4 billion in 2013, making it Mondelez’s single most important brand. In addition, its global coverage offers the opportunity to further leverage its brand equity when marketing new products.

In other hot drinks, malt-based drink Cadbury Bournvita and chocolate-based flavoured powder drink Cadbury Drinking Chocolate complement one another, underpinning Mondelez’s overall position in the category. Over 2012/2013, Cadbury Bournvita outpaced its key rivals Milo, Horlicks and Ovaltine globally. Category-wise, these products experienced relatively slow sales in developed markets, facing saturation and competition from other nutritious drinks. Going forward, Mondelez needs to revitalise its brands and develop new formats or concepts to maintain consumer interest. The development of pod formats of these drinks is perhaps one alternative route.

Nigeria is one of the world’s major flavoured powder drinks markets, with Cadbury Bournvita offered at a low price to generate brand loyalty. In Nigeria, 450g of Cadbury Bournvita costs around NGN750, which is around US$4.50. While this is around the same price as a 230g bar of Cadbury Dairy Milk, the flavoured powder drink is easier to store in high temperatures and lasts much longer, thus representing good value for money. Building brand loyalty among lower-priced products means that as the purchasing power of consumers in developing countries increases, Cadbury’s other products will benefit as sales of chocolate confectionery grow.

Chocolate-Based Flavoured Powder Drinks in Brazil

Euromonitor International predicts that chocolate-based flavoured powder drinks is likely to be the growth driver in other hot drinks in 2013-2018. Emerging economies will be the key growth markets, including Brazil, Mexico, Indonesia and Venezuela. Brazil was not a traditional core market for Kraft but this situation could change if the JDE deal is approved.

In Brazil, Nestlé (brand Nescau) and PepsiCo (Toddy) are the key players and the fact that the combined share of Nescau and Toddy is nearly 70% will make this market a real challenge for other potential entrants.

Presumably, JDE will leverage DE Master Blenders’ and Mondelez’s strengths, brands and distribution networks to expand in coffee and tea. However, chocolate-based flavoured powder drinks have specifically been omitted from the deal; thus, it is still too early to say if Mondelez will use DE Master Blenders’ existing network and facilities to develop its Cadbury chocolate powder drinks range in Brazil. Nevertheless, it would make perfect sense for Mondelez to license its chocolate powder drinks brands to JDE for a relatively easy entry. Armed with a wide portfolio of brands, JDE should be in a strong position when negotiating deals with retailers.

Mondelez has reported that emerging markets accounted for around 39% of its global revenues in 2013 and it intends to increase this share significantly. Given the category’s strong growth potential in the emerging markets, Mondelez has plenty of work to do in driving the Cadbury brand.