New Kraft companies ‘well-positioned to outperform’ rivals, says Rosenfeld

By Caroline Scott-Thomas

- Last updated on GMT

Related tags: North american grocery, Kraft foods

Kraft Foods’ CEO Irene Rosenfeld defended the company’s decision to split into two separate entities during a presentation at the Barclay’s Back-to-School Consumer Conference in Boston on Wednesday, saying that both companies will have the scale to succeed.

Kraft Foods announced its intention to split in August, with one company focused on global snacks, and the other on the North American grocery market.

Rosenfeld gave differences in sales and distribution strategy as one example of how each company could benefit from the split. Its North American grocery brands – as repeat-purchase, center-store items – suited centralized distribution, she said, while Kraft’s global snack brands – as highly impulse-driven products – may benefit from a more labor-intensive sales and distribution network.

“What’s changed is that as a result of the Cadbury acquisition, we now have scale in both businesses,” ​she said. “…Simply put, we’ve now reached a point where North American grocery and global snacks would each benefit from standing on its own and focusing on its unique drivers of success. Both will be competing from a position of strength in their respective markets and both are well-positioned to outperform their relevant peer groups.”

She highlighted that the North American grocery business would have annual revenues of about $16bn and four billion-dollar brands – Kraft, Maxwell House, Oscar Mayer and Philadelphia – and added that even with “a new normal of slower consumption growth” ​and higher input costs, the company has continued to return strong results, partly by introducing price increases early and supporting those with increased advertising, Rosenfeld said.

“In the face of the substantial increases in input costs, we’re growing profit dollars through a combination of pricing and end-to-end cost management. In fact, despite difficult comparisons, including the loss of the Starbucks CPG business, we’ve grown profit dollars year over year,” ​she said.

As for Kraft Foods’ global snacks business, a stand-alone company would be worth $32bn a year, and have eight billion-dollar brands – Cadbury, LU, Milka, Jacobs, Nabisco, Tang, Oreo and Trident.

The company said it expects to derive more than 42 percent of its sales from developing markets, 36 percent from Western Europe and 22 percent from North America.

"I'm confident this is the best way to stage our businesses for long-term success, the best way for shareholders to value each business and the best way to ensure a bright future for our people," ​Rosenfeld said.

The company said it aims to launch the two companies by the end of 2012.

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