The Top 10 Global Leaders in Food

CONSUMER
The Top 10 Global Leaders In Food
Increasing market share, revenues and NPD success By Mark OBornick
Mark OBornick
Mark OBornick is a consultant, specialising in strategic research and consulting projects across the food, drink and packaging industries. Mark spent over eight years at Datamonitor in a variety of research, consulting and management roles before leaving in 2001. His experience at Datamonitor primarily focused on strategic analysis of the European and global packaging, retail and FMCG industries. This included a strategic focus on change and innovation, particularly within the context of Datamonitors published range of reports and client-defined consultancy projects. Mark now works successfully on a freelance basis for a number of manufacturers, retailers and specialist research and consulting companies. He has a degree in economics from the London School of Economics. He can be contacted by email at: mark@obornick.freeserve.co.uk
Copyright 2004 Business Insights Ltd This Management Report is published by Business Insights Ltd. All rights reserved. Reproduction or redistribution of this Management Report in any form for any purpose is expressly prohibited without the prior consent of Business Insights Ltd. The views expressed in this Management Report are those of the publisher, not of Business Insights. Business Insights Ltd accepts no liability for the accuracy or completeness of the information, advice or comment contained in this Management Report nor for any actions taken in reliance thereon. While information, advice or comment is believed to be correct at the time of publication, no responsibility can be accepted by Business Insights Ltd for its completeness or accuracy. Printed and bound in Great Britain by MBA Group Limited, MBA House, Garman Road, London N17 0HW. www.mba-group.com
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Table of Contents
The Top 10 Global Leaders in Food
Increasing market share, revenues and NPD success
Executive Summary
Introduction Market Dynamics Cadbury-Schweppes Danone General Mills Heinz Hershey Kellogg Kraft Masterfoods Nestl Unilever Bestfoods Industry opinion survey Conclusions
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16 16 16 17 17 18 18 18 19 19 20 20 21 21
Chapter 1
Introduction
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24 24 25
The aim of this report Chapter structure Selecting the Global Food Leaders
Chapter 2
Summary
Market Dynamics and Emerging Market Analysis
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30
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Introduction Methodology behind the analysis of global food markets Trends in global food markets Consumer lifestyle drivers Industry drivers blur category definitions Company positioning: global food leaders Disposing of non-core assets to provide greater focus Growth through acquisition A case by case approach Market positioning: chilled food Market share versus growth in global chilled food markets Market positioning: confectionery Market share versus growth in global confectionery markets Market positioning: dairy products Market share versus growth in global dairy markets Market positioning: savoury snacks Market share versus growth in global savoury snacks markets
30 31 32 32 33 33 35 36 37 38 40 40 42 42 44 44 46
Chapter 3
Summary
Cadbury Schweppes
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48 49 49 50 50 52 55 55 55 55 57 57 58 59 59 60 61 62 63 63 63 65 65
About Cadbury Schweppes History Recent performance Performance in 2003 Financial performance in 2003 Market positioning Expanding the portfolio in 2003 The Americas Asia-Pacific Eastern Europe The Middle East and Africa Western Europe Global confectionery brands Product examples Strategies for growth Acquisitions and disposals play a key role NPD and brand repositioning SWOT analysis A trusted brand that has diversified its portfolio Action to remedy production and organisational inefficiency Access to higher growth categories Threat to indulgence from healthier alternatives
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Chapter 4
Summary About Danone History
Danone
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68 69 69 70 71 71 73 73 74 74 75 76 77 79 79 80 80 81 82 82 82 84 84 85
Recent performance Performance in 2003 Financial performance 2003 Market positioning Dominant positions in every region The Americas Asia-Pacific Eastern Europe Middle East and Africa Western Europe Leading brands at Danone Product examples Strategies for growth A focus on high growth segments that match consumer needs Success in NPD Online purchasing accounts for one-quarter of purchases SWOT analysis Leadership brings competitive advantages Over reliance on regions, brands and categories Expanding into emerging markets Growth of private labels and legal action in Spain
Chapter 5
Summary About General Mills History
General Mills
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87 88 88 89 89 91 91 94 94 94 96 96 97 98
Recent performance A good performance in 2003 despite problems in bakery Market positioning A portfolio of international brands Strategies for growth Innovation and international expansion will drive sales NPD targets consumer megatrends in 2003 SWOT analysis Strong brands across several categories Weaker markets and higher commodity costs Joint ventures and international expansion
Threats
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Chapter 6
Summary About Heinz History
Heinz
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101 102 102 103 104 104 107 107 107 109 109 110 111 111
Recent performance Greater focus boosts performance in 2003 Financial performance Foodservice Market positioning Global brand reach Strategies for growth A focused portfolio NPD targets changing consumer requirements SWOT analysis Strong brands and a focused approach
Chapter 7
Summary About Hershey History
Hershey
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115 116 116 117 117 117 119 119 120 120 122 122 123 123 123 124 125 126 127 127
Recent performance Performance in 2003 Financial performance Market positioning Higher margins in confectionery The Americas Outside the Americas Product examples Strategies for growth Hersheys customers and competitors Private label no concern NPD tracks consumer megatrends in 2003 SWOT analysis Strengths Weaknesses Opportunities Threats
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Chapter 8
Summary About Kellogg History
Kellogg
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131 132 132 133 134 136 137 137 138 139 139 141 142 142 143 143 144
Recent performance Performance in 2003 Financial performance Market positioning Meeting consumer needs in cereals, snacks and health foods Natural appeal Strategies for growth Three fundamental targets NPD focuses on helping modern, busy consumers SWOT analysis Strengths Weaknesses Opportunities Threats
Chapter 9
Summary About Kraft History
Kraft
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147 148 148 150 150 151 153 154 154 154 155 157 157 158 160 161 162 162 163 163 163 163 vii
Recent performance Performance in 2003 Financial performance Acquisitions and sales Market positioning Coverage across five global product sectors The Americas Asia-Pacific Eastern Europe Middle East and Africa Western Europe Product examples Foodservice Strategies for growth New structure for 2004 Brand strategies drive performance Fast-growing sectors Health Distribution channels
Advantages of global category leadership Initiatives respond to health concerns SWOT analysis Scale and leadership brings advantages Difficulty launching new brands Opportunities Threats
164 164 165 166 167 168 168
Chapter 10
Summary About Masterfoods History Recent performance Performance in 2003
Masterfoods
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171 172 172 173 173 174 174 174 175 175 177 178 179 180 180 180 181 181 182 183 183
Market positioning Household names in confectionery, pet food, snacks, rice and vending The Americas Asia-Pacific Eastern Europe Middle East and Africa Western Europe Product examples Foodservice Strategies for growth NPD plays a vital role in growth SWOT analysis Brand names carry cross-category High dependency on chocolate Further potential for brand extensions Mature markets and health-wise consumers
Chapter 11
Summary About Nestl History
Nestl
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186 187 187 189 190 190 193 193
Recent performance Performance in 2003 Financial performance Market positioning Factories or operations in almost every country in the world
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The Americas Asia-Pacific Eastern Europe Middle East and Africa Western Europe Product examples Foodservice Strategies for growth Driving growth and improving margins The three major projects SWOT analysis A global perspective Successful brand extensions Health implications for indulgent products
194 195 197 197 198 201 202 203 203 204 204 205 206 206
Chapter 12
Summary
Unilever Bestfoods
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209 210 210 211 212 212 213 215 215 216 216 217 218 219 219 219 220 220 221 222 222 222 224 224 224 225 226 226
About Unilever Bestfoods History Sales and acquisitions Recent performance Leading brand growth revised downwards in 2003 Financial performance Total shareholder return positioning Board changes announced in February 2004 Market positioning From soups and dressings, to frozen food and ice cream Product examples Greater brand focus on brands with strong potential Brands can be local and also spread across categories NPD plays a key role Oils, fats and spreads Frozen foods Knorr the number one brand Hellmanns Foodservice Strategies for growth Leading brands account for over 90% of total business Looking beyond the Path to Growth SWOT analysis Strength demonstrated by core brands Underperforming businesses remain Brand extensions and emerging markets Low-carb diet threat to Slim Fast
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Chapter 13
Summary Introduction
Industry Opinion Survey
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229 230 231 231 232 232 234 235 235 236 237 238 239 240 240 241
Food leaders: 2003 performance Product innovation drives growth in market share Food leaders: competitive positioning Convenience shapes strategy ahead of brand recognition and pleasure Danone and Unilever react more quickly to customer trends Unilever perceived as the leading innovator Cadbury and Hershey could do better at spotting cross-category opportunities Hershey is perceived to be relatively weak at moving into new markets Nestl leads the way in terms of marketing strength Food leaders: geographical strategies Asia-Pacific offers the greatest growth potential Food leaders: the future NPD and innovation is the best way to deliver growth Danone is the company most likely to deliver growth
Chapter 14
Summary Introduction
Conclusions
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245 246 246 246 247 248 248 248 249 250
The global food industry Convenience remains most important Asia-Pacific and Eastern Europe are top targets for expansion Strategies for success Focus on core brands and strengths Growth through acquisition Expansion and cross-category NPD will be the main driver of growth
Chapter 15
Appendix
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253 253 256 258
Primary research methodology Terms and abbreviations used in this report Food segmentation table Index
List of Figures
Figure 1.1: Figure 1.2: Figure 2.3: Figure 2.4: Figure 2.5: Figure 2.6: Figure 2.7: Figure 3.8: Selecting the global food leaders 26 Selecting the global food leaders 27 Global food leaders positioning 35 Market share versus growth in global chilled food markets 40 Market share versus growth in global confectionery markets 42 Market share versus growth in global dairy markets 44 Market share versus growth in global savoury snacks markets 46 Cadbury Schweppes financial performance 20002003; turnover and operating profit 53 Cadbury Schweppes confectionery performance 20002003; Americas and Europe turnover and operating profit comparison 54 A selection of brands from Cadbury Schweppes 60 Cadbury Schweppes SWOT analysis 64 Danone financial performance 20002003; turnover and operating profit 72 A selection of brands from Danone 79 Danone SWOT analysis 83 General Mills financial performance 20012004; turnover and net earnings 90 A selection of brands from General Mills 93 General Mills SWOT analysis 97 Heinz financial performance 20012004; turnover and operating profit comparison 105 A selection of brands from Heinz 109 Heinz SWOT analysis 112 Hershey financial performance 20002003; turnover and net income 118 A selection of brands from Hershey 122 Hershey SWOT analysis 126 Kelloggs financial performance 20002003; turnover and operating profit 136 A selection of products from Kellogg 139 Kellogg SWOT analysis 143 Kraft financial performance 20002003; turnover and operating income 151 A selection of brands from Kraft 161 Kraft SWOT analysis 167 A selection of brands from Masterfoods 179 Masterfoods SWOT analysis 182 Nestl financial performance 20002003; turnover and operating income 191 A selection of brands from Nestl 202 Self-service snacking facility from Nestl FoodServices 203 Nestl SWOT analysis 205 Unilever financial performance 20002003; turnover and operating profit 213 A selection of brands from Unilever 218 Unilever Bestfoods SWOT analysis 225 Global food leaders: performance in 2003 231 How important have the three food and drinks megatrends been in shaping the marketing, product, NPD and branding strategies of the global food leaders? 233 Rating the global food leaders: reacting to customer trends 234 Rating the global food leaders: innovation 235 Rating the global food leaders: identifying cross-category expansion opportunities 236 Rating the global food leaders: country coverage/moving into new countries 237
Figure 3.9: Figure 3.10: Figure 3.11: Figure 4.12: Figure 4.13: Figure 4.14: Figure 5.15: Figure 5.16: Figure 5.17: Figure 6.18: Figure 6.19: Figure 6.20: Figure 7.21: Figure 7.22: Figure 7.23: Figure 8.24: Figure 8.25: Figure 8.26: Figure 9.27: Figure 9.28: Figure 9.29: Figure 10.30: Figure 10.31: Figure 11.32: Figure 11.33: Figure 11.34: Figure 11.35: Figure 12.36: Figure 12.37: Figure 12.38: Figure 13.39: Figure 13.40: Figure 13.41: Figure 13.42: Figure 13.43: Figure 13.44:
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Figure 13.45: Figure 13.46: Figure 13.47: Figure 13.48:
Rating the global food leaders: marketing and communications activity (website, advertising, promotions etc) 238 Which of the following geographic regions will offer the highest growth potential for your chose global food leaders over the next three years? 239 Which of the following companies are best placed to compete most effectively over the next three years? 240 Which strategies will help the global food leaders grow most aggressively over the next three years? 241
List of Tables
Table 2.1: Table 2.2: Table 2.3: Table 2.4: Table 2.5: Table 2.6: Table 2.7: Table 2.8: Table 2.9: Table 2.10: Table 3.11: Table 3.12: Table 3.13: Table 3.14: Table 3.15: Table 3.16: Table 3.17: Table 4.18: Table 4.19: Table 4.20: Table 4.21: Table 4.22: Table 4.23: Table 4.24: Table 4.25: Table 5.26: Table 5.27: Table 5.28: Table 6.29: Table 6.30: Table 6.31: Table 7.32: Table 7.33: Table 7.34: Table 8.35: Table 8.36: Table 8.37: Country coverage of global food markets Ranking of global food leaders by food sales, 2003 Top 10 ranking by size of global chilled food markets, 2003 Top five ranking by growth of global chilled food markets, 2003 Top 10 ranking by size of global confectionery markets, 2003 Top five ranking by growth of global confectionery markets, 2003 Top 10 ranking by size of global dairy markets, 2003 Top five ranking by growth of global dairy markets, 2003 Top 10 ranking by size of global savoury snacks markets, 2003 Top five ranking by growth of global savoury snacks markets, 2003 Cadbury Schweppes financial performance 20002003 Cadbury Schweppes confectionery performance 20002003 Cadbury Schweppes market shares in the Americas, 2002 Cadbury Schweppes market shares in Asia-Pacific, 2002 Cadbury Schweppes market shares in Eastern Europe, 2002 Cadbury Schweppes market shares in the Middle East and Africa, 2002 Cadbury Schweppes Market Shares in Western Europe, 2002 Danone financial performance 20002003 Danone food business performance 20002003 Danone market shares in the Americas, 2002 Danone market shares in Asia-Pacific, 2002 Danone market shares in Eastern Europe, 2002 Danone market shares in the Middle East and Africa, 2002 Danone market shares in Western Europe, 2002 Danone market shares in Western Europe, 2002 continued General Mills financial performance 20012004 General Mills performance by division 20022004 General Mills market shares, 2002 Heinz financial performance 20012004 Heinz divisional performance 20012004 Heinz market shares, 2002 Hershey financial performance 20002003 Hershey market shares in the Americas, 2002 Hershey market shares outside the Americas, 2002 Kelloggs financial performance 20002003 Kelloggs divisional performance 20002003 Kellogg market shares, 2002 xii 31 34 38 39 41 41 43 43 45 45 52 54 55 56 57 57 59 71 72 74 75 76 77 78 79 90 91 92 104 106 108 117 120 121 136 137 138
Table 9.38: Table 9.39: Table 9.40: Table 9.41: Table 9.42: Table 9.43: Table 9.44: Table 9.45: Table 9.46: Table 10.47: Table 10.48: Table 10.49: Table 10.50: Table 10.51: Table 10.52: Table 11.53: Table 11.54: Table 11.55: Table 11.56: Table 11.57: Table 11.58: Table 11.59: Table 11.60: Table 11.61: Table 11.62: Table 12.63: Table 12.64: Table 12.65: Table 15.66: Table 15.67: Table 15.68:
Kraft financial performance 20002003 Kraft divisional performance 20002003 Kraft divisional performance 20002003 continued Kraft market shares in the Americas, 2002 Kraft market shares in Asia-Pacific, 2002 Kraft market shares in Eastern Europe, 2002 Kraft market shares in the Middle East and Africa, 2002 Kraft market shares in Western Europe, 2002 Kraft market shares in Western Europe, 2002 Masterfoods market shares in the Americas, 2002 Masterfoods market shares in Asia-Pacific, 2002 Masterfoods market shares in Eastern Europe, 2002 Masterfoods market shares in the Middle East and Africa, 2002 Masterfoods market shares in Western Europe, 2002 Masterfoods market shares in Western Europe, 2002 continued Nestl financial performance 20002003 Nestl Divisional Performance 20002003 Nestl market shares in the Americas, 2002 Nestl market shares in the Americas, 2002 continued Nestl market shares in Asia-Pacific, 2002 Nestl market shares in Asia-Pacific, 2002 continued Nestl market shares in Eastern Europe, 2002 Nestl market shares in the Middle East and Africa, 2002 Nestl market shares in Western Europe, 2002 Nestl market shares in Western Europe, 2002 Unilever financial performance 20002003 Unilever food divisional performance 20002003 Unilever market shares, 2002 Terms and abbreviations used in this report Definitions of food segments used in this report Definitions of food segments used in this report continued
151 152 153 155 156 157 158 159 160 175 175 177 178 178 179 190 192 194 195 195 196 197 198 199 201 213 214 217 254 256 257
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14
Executive Summary
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Executive Summary
Introduction
This chapter presents a summary of some of the core findings of this report. Each section refers to a chapter of the report, in which greater explanation and analysis of the issues is available.
Market Dynamics
Increasingly, leading food manufacturers are aligning their product portfolios to those that fit closely with the needs of the modern consumer. Categorising the market by consumer trend enables manufacturers to create new strategies for increasing its market share. Whilst a number of the large food manufacturers have been disposing of assets in their portfolios to concentrate on core operations, others have made significant acquisitions.
Cadbury-Schweppes
In the last 20 years, the company has strengthened its portfolio through almost 50 acquisitions. In March 2003, the company completed the acquisition of Adams from Pfizer for $4.2 billion. In confectionery, the company has reduced its reliance on chocolate to build a portfolio of confectionery products encompassing chocolate, sugar, medicated confectionery and chewing gum.
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In October 2003, the company set out its four-year strategic and operational agenda at the heart of which lie the Fuel for Growth cost reduction and Smart Variety growth initiatives.
Danone
Danone operates a portfolio of major international brands yet around 70% of its sales come from brands that are local market leaders and four brands represent almost 60% of the companys sales. In addition to a greater focus on its three core business segments, the Groups strategy extends to geographical targets. Although around 31% of sales are in emerging markets, the Group aims to increase this share to 40%. Growth strategies in emerging markets link high-profile brands with wide-ranging distribution for sales close to consumers.
General Mills
In the year to May 2003, General Mills net sales grew 32% to $10.5 billion. Over 30 of the companys U.S. consumer brands generate annual retail sales in excess of $100 million. General Mills is looking to capture a growing share of away-from home food sales, whilst international expansion is also an important target for the company. The acquisition of Pillsbury has enhanced the companys strategies. Its mix of retail categories offers further opportunities for product and marketing innovation, especially with the expansion of distribution networks.
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Heinz
According to Heinz, its brands hold number one and number two market positions in more than 50 countries. The Heinz brand is worth $2.5 billion and Heinzs top-15 brands account for two-thirds of the companys annual sales. Heinzs Brand Growth Strategy is based on four imperatives designed to drive profitable growth: remove the clutter, squeeze out costs, measure and recognise performance. Heinz admits that its biggest growth opportunity is its biggest brand - Heinz Ketchup. The company believes that it has a 30% share of the worlds ketchup market, and has set a target of a global market share of 50%.
Hershey
Hershey has announced a number of initiatives in its value enhancing strategy, including the introduction of new products and various initiatives to streamline its supply chain. Wal-Mart Stores, Inc. and subsidiaries is the corporations largest customer and represented about 17% of sales in 2002. Hershey is looking to leverage its core competencies in the broader snack market. It believes that targeted adjacent segments offer growth opportunities, as consumers are likely to select well-known brands in a broader array of snacks.
Kellogg
The acquisition of Keebler in 2001 has helped Kellogg to achieve greater scale in the United States, including a stronger presence in traditional supermarkets and in nontraditional channels.
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Kellogg has announced plans to expand its reach beyond the cereal and snack food aisles with extensive licensing initiatives in the toy, clothing, entertainment, publishing, and food categories. A key operating principle for Kellogg is to achieve greater value for the consumer, rather than promoting greater volume sales through discounting.
Kraft
Kraft is the largest branded food and beverage company in North America and the second largest in the world. Krafts brand strategy focuses on fast-growing sectors such as snacks, beverages and convenient meals. These offer the best growth potential and account for the majority of the companys revenues (around 66% in 2002). Kraft is seeking to exploit faster growing distribution channels such as convenience stores, mass merchandisers, drug stores, and vending machines, all of which it believes are growing faster than the traditional grocery channel.
Masterfoods
Mars operates in over 100 countries. The company operates its three core businesses - snackfood, petcare and main meal food - under the Masterfoods name in most parts of the world. As a privately owned corporation, Masterfood believes it enjoys greater flexibility and autonomy. Serving convenience and impulse markets, the companys first bite-sized line was introduced in 2003. In the UK, the company also announced that Mars and Snickers bars have had their recipe changed amid health fears over a fatty ingredient.
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Nestl
Nestl believes it is the undisputed leader in the food industry, with more than 470 factories around the world and sales of more than CHF 81 billion/51 billion. Nestls four-pillar strategy is based on operational performance, product innovation and renovation, product availability and consumer communication. One of Nestls key strategies is to grow its existing products through innovation and renovation while maintaining a balance in geographic activities and product lines.
Unilever Bestfoods
In 2002, the company generated foods sales of 27 billion and owned eight food brands with sales in excess of 1 billion. The foods business spans several categories including savoury and dressings, spreads and cooking products, health and wellness, ice cream and frozen foods. The company is seeking to extend brands across product categories, particularly those that feature high levels of consumer trust. An example of this is the Bertollis food brand that has grown beyond olive oil into pasta sauces. The companys Path to Growth strategy was designed to accelerate growth with a series of initiatives to focus on fewer, stronger brands. Since February 2000, the company has sold a total of 87 companies with sale proceeds of 6.3 billion. The company has reduced the number of brands it manages from 1,600 to some 400 leading brands and just under 250 tail brands.
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Industry opinion survey

Convenience issues had a strong influence on the strategies of the global food leaders in 2003. This was seen as the most important issue shaping the strategies of the leading companies. Danone and Unilever stand out as being the two companies most responsive to new customer trends. NPD - innovating and launching new products into developed markets is the strategy most likely to deliver growth in the short-term future.
Conclusions
Although it has been a well-documented trend for several years now, there is little evidence that convenience will become less important for consumers in the near future. It seems unlikely that the level and size of acquisitions seen in the last five years will continue although many companies remain open to selective, bolt-on acquisitions. Organic growth can exploit faster growing distribution channels such as convenience stores, mass merchandisers, drug stores, and vending machines, all of which maybe growing faster than the traditional grocery channel.
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Chapter 1
Introduction
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Chapter 1
Introduction
The aim of this report

This report identifies the key issues, trends and developments that influence the worlds leading food manufacturers. As many players are disposing of assets to provide a greater focus on their core operations, the report will assess market dynamics, highlight changing consumer trends and analyse recent important developments together with the performance of the market leaders.
From new product development to merger and acquisition policies, the aim of the report is to get behind the companys strategies, their strengths and weaknesses and to put these into context of the global food markets in which they operate.
Chapter structure
Market Dynamics - Chapter 2 analyses the latest trends in global food markets, from an analysis of corporate performance to the growth and development of both mature and emerging food markets; Company Analysis - Chapter 3 to Chapter 12. Each chapter analyses the strategies, performance and market positioning of each of the 10 global food leaders. In addition to a brief introduction to the company, the chapter goes on to analyse the companys recent financial performance, providing a breakdown of results by food division where these are available. Key market share information on a country-bycountry basis is provided, supported by recent news about key merger and acquisition activity. The chapter concludes with analysis of the companys key growth strategies and a SWOT analysis provides a concise summary.
The chapter addresses key issues within five main areas: About the company; recent performance;
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market positioning; strategies for growth; SWOT analysis. Industry Opinion Survey - Chapter 13 provides detailed analysis of over 50 industry survey responses; Conclusions - Chapter 14 provides a concise summary of the key conclusions of the report and identifies the major developments that will shape the future performance of the global food leaders; Appendix - Chapter 15 provides a glossary of terms used throughout this report and an index of key terms.
The company market share information has, where possible, been segmented by geography and split into five main markets: the Americas, Asia-Pacific, Eastern Europe, the Middle East and Africa and Western Europe. The information is not intended to be used as a definitive list of all of the countries that the company operates in. Rather, it highlights that market share information research and collected for this report.
Selecting the Global Food Leaders Ultimately, selecting a series of companies deemed to be the leaders of the global food industry is a matter of opinion, though a number of selection criteria can be used to filter down a list of potential candidates. These include financial size, recent financial performance, market and category coverage, country and regional coverage and perceived strength of brands.
The following ratings of each company that was ultimately selected for inclusion in the report are based on a mixture of author research and the opinions and choices of those industry executives that were gathered in the Global Food Industry Survey undertaken by Business Insights in December 2003.
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Figure 1.1: Selecting the global food leaders Key to Selection Ratings
Very Weak
Average
Very Strong
Cadbury-Schweppes
Financial Size
2003 Performance
Category Coverage
Country Coverage
Brand Portfolio
Danone
Financial Size
2003 Performance
Category Coverage
Country Coverage
Brand Portfolio
General Mills
Financial Size
2003 Performance
Category Coverage
Country Coverage
Brand Portfolio
Heinz
Financial Size
2003 Performance
Category Coverage
Country Coverage
Brand Portfolio
Source: Author research/Global Food Industry Survey
Business Insights
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Figure 1.2: Selecting the global food leaders Hershey
Financial Size
2003 Performance
Category Coverage
Country Coverage
Brand Portfolio
Kellogg
Financial Size
2003 Performance
Category Coverage
Country Coverage
Brand Portfolio
Kraft
Financial Size
2003 Performance
Category Coverage
Country Coverage
Brand Portfolio
Masterfoods
Financial Size
2003 Performance
Category Coverage
Country Coverage
Brand Portfolio
Nestl
Financial Size
2003 Performance
Category Coverage
Country Coverage
Brand Portfolio
Unilever Bestfoods
Financial Size
2003 Performance
Category Coverage
Country Coverage
Brand Portfolio
Source: Author research/Global Food Industry Survey
Business Insights
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From the previous figures, Cadbury-Schweppes scores relatively low in terms of financial size (food sales only) but higher in terms of its brand portfolio, together with its country coverage. Strong category coverage is limited to confectionery, giving the company an average rating under this criteria. Danone was perceived to have rated consistently high across all of the criteria, as was General Mills. Heinzs strong brand portfolio (it maintains to be number one or two in over 50 countries) rated highly, though its sales put it behind Danone and General Mills. Hershey is perceived as a relatively smaller global food leader. Though it exports to over 80 countries, international sales account for less than 5% of total sales.
Kellogg has strong country coverage, but in much the same way as CadburySchweppes, its expertise is limited to a relatively few number of categories. Kraft rated highly across several of the categories, though its 2003 performance (in terms of sales growth) rated as average for the companies selected. Masterfoods has a selection of strong brands; limited to relatively few categories, whilst Nestl rated highly in all areas, apart from its 2003 performance. Finally, Unilever also scored highly, but was held back by disappointing sales growth in 2003.
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Chapter 2
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Chapter 2
Summary
Increasingly, leading food manufacturers are aligning their product portfolios to those that fit closely with the needs of the modern consumer. In particular, the prevalence of medical conditions such as obesity in many Western markets will boost consumer demand for healthier food products. Categorising the market by consumer trend enables manufacturers to create new strategies for increasing its market share. Whilst a number of the large food manufacturers have been disposing of assets in their portfolios to concentrate on core operations, others have made significant acquisitions. Though it is the largest market for chilled food, in terms of market growth, Japan has been of the slowest growing markets over the last six years. Within the larger confectionery markets, the greatest market opportunities for growth appear to be in China and Mexico. Asia-Pacific, Eastern Europe and Latin America dominate rankings of the fastest growing dairy markets, accounting for nine of the top 10 fastest growth markets. Though starting from a particularly small base, analysis indicates that Eastern Europe will provide the best growth opportunities for savoury snack markets, with Russia, the Ukraine and Romania being the three fastest growing markets.
Introduction
This chapter places the global leaders in the manufacture of food products in context. It begins by looking at the methodologies used in the research, before going on to highlight the latest consumer trends in a selection of global food markets that are together valued at almost $500 billion.
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The chapter then goes on to quantify the positioning of both the leading food manufacturers analysed in this report and also several food markets in which they operate. Food markets are not placed in the context of their size, but the speed with which they are demonstrating growth.
Methodology behind the analysis of global food markets To assist in establishing the companies considered to be global food leaders, four key markets were analysed. These were chilled food, confectionery, dairy and savoury snacks. In each of these markets, the top 10 global countries in terms of markets size were identified, along with the 10 fastest growing markets. The following table illustrates the breadth of 52 countries covered within this report.
Table 2.1: Country coverage of global food markets

Argentina Australia Austria Belgium Brazil Bulgaria Canada Chile China Colombia Czech Republic Denmark Egypt
Source: Datamonitor
Finland France Germany Greece Hong Kong Hungary India Indonesia Ireland Israel Italy Japan Malaysia
Mexico Morocco Netherlands New Zealand Norway Philippines Poland Portugal Romania Russia Saudi Arabia Singapore Slovakia
South Africa South Korea Spain Sweden Switzerland Taiwan Thailand Turkey UK Ukraine USA Venezuela Vietnam
Business Insights
Unfortunately, due to a lack of available data, the chilled food markets in India, Mexico and Morocco are not covered in this report, together with the market for cheese in China (one segment from the Chinese dairy market).
Despite this, the total value of the combined markets covered within this analysis was $405,787.54 million in 1998, which rose to $487,544.96 million in 2003, representing growth of 20.1%.
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Trends in global food markets

Consumer lifestyles have changed significantly over the last 20 years, resulting in both changes in the type of food and drinks products that consumers now purchase and changes in the way that food manufacturers meet these needs.
Consumer lifestyle drivers Increasingly, leading food manufacturers are aligning their product portfolios to those that fit closely with the needs of the modern consumer and which continue to meet the demands set by three major consumer trends - convenience, health and pleasure. With premium and convenient products grabbing the attention of manufacturers in recent years, the latest developments see a concerted effort on behalf of the manufacturers (perhaps with the threat of litigation at the back of their minds) to promote the health and nutritional benefits of their portfolios.
Detailed analysis of the three consumer megatrends enables food manufacturers to develop product variations that will better suit the needs of consumers. In turn, these developments will engender consumer loyalty, differentiate consumers towards high margin opportunities, and help them gain greater market share in their core markets.
Recent decades have seen the development of a convenience-oriented society, driven by changes in family structure, more working mothers, longer working hours, and increased labour mobility. Though it has been a well-documented trend for several years now, there is little evidence that convenience will become less important for consumers in the near future.
Increasing prevalence of medical conditions such as obesity and an ageing population in many markets will fuel consumer demand for healthier food products. As consumers have become gradually more aware of the ingredients and content of the foods they eat, so manufacturers have become aware of a possible threat of litigation as consumers seek to hold food manufacturers responsible for a failure to disclose product ingredients
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(which may result in future health problems), in much the same way that tobacco companies have been subject to legal action. In attempt to portray themselves as nutritionally friendly the leading manufacturers are launching a number of initiatives to raise the profile of healthy eating. Additionally, a number of high profile food scares have resulted in a greater popularity of natural and organic products in many Western markets.
Despite the prevalence of high pressure lifestyles and the increasing popularity of healthy foods, the demand for exciting and enjoyable food has not decreased, with continuing and more widespread appeal of novel and fun, indulgent and premium, and ethnic and exotic meal solutions.
Industry drivers blur category definitions The consumer megatrends that have been highlighted above represent an important opportunity for the food industry to create closely targeted, higher margin products that fulfil the needs of modern consumers.
However, from a manufacturers perspective, the development of products, which, in particular, offer genuine longer-term health benefits, provides a key opportunity for engendering consumer loyalty.
Categorising the food market by product type or category may not reveal many new sales opportunities for manufacturers. However, categorising the market by consumer trend enables the manufacturer to create new strategies for increasing its market share without cannibalising the market for existing products.
Company positioning: global food leaders In recent years a number of the large food manufacturers highlighted in the following table have been disposing of non-core assets in their portfolios, whilst others have made
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significant acquisitions. The companies with the largest growth rates in sales have seen their results enhanced by acquisitions.
Table 2.2: Ranking of global food leaders by food sales, 2003

Sales $m Nestl (6) Unilever Bestfoods (7) Kraft (8) Masterfoods (5) General Mills (3) Danone (2) Kellogg Heinz (3) Cadbury-Schweppes (1) Hershey (4) 2001 35,615 29,515 29,234 n/a 7,949 11,207 7,548 7,614 3,117 4,137 2002 36,053 28,238 29,723 14,000 10,506 10,360 8,304 8,236 3,190 4,120 Interim 03 16,603 n/a 15,200 n/a 5,578 4,987 4,395 3,986 n/a 1,803 Growth 01-02 1.2% -4.3% 0.1% n/a 32.2% -7.6% 10.0% 8.2% 2.3% -0.4% 2003 n/a 33,056 31,010 n/a n/a 11,956 8,812 n/a 5,301 4,173
Notes: Latest two year financial analysis. Where relevant all currencies converted to $ with ex. rate at 30/12/02; (1) American and European confectionery sales only in 2001 and 2002. Separate data not available for other regions. 2003 data defined as Americas confectionery and total EMEA region. In 2002, EMEA sales were over 200 million greater than just European confectionery sales; (2) Fresh Dairy Products, Biscuits and Cereal and Other food sales only; (3) Classified as 2002 and 2003 and interim 2004 data in company accounts; (4) Net sales; (5) Estimate; (6) Milk products, nutrition & ice cream - Prepared dishes & cooking aids and Chocolate, confectionery & biscuits sales only; (7) Includes some beverages sales in the following divisions: Savoury & Dressings, Spreads and Cooking, Health, Wellness & Beverages and Ice Cream & Frozen Foods; (8) Includes some beverage sales in the Beverages, Desserts and Cereals division.
Source: Author analysis Business Insights
General Mills results were boosted by the acquisition of Pillsbury in 2001, whilst Kelloggs net sales increased with the acquisition of Keebler Foods. On a comparable basis, adjusting for the Keebler acquisition and a small disposal, net sales growth was 4%.
Unilever Bestfoods decrease in sales was attributable to a series of disposals. In January 2001, the company sold its dry soup and sauces businesses in Europe (with sales of 435 million). In February 2001, the company sold the Bestfoods Baking Company and later in the year it also disposed of a number of North American brands and related assets, including its seafood businesses.
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Figure 2.3: Global food leaders positioning
$ Change in Food Sales '01-'02
$ Sales Change
2,200
Food Sales Greater growth

General Mills
1,200
Kraft
Nestl
Kellogg
200 -10.00%
Hershey
Heinz Cadbury
0.00% -Schweppes
10.00%
20.00%
30.00%
40.00%
-800
Danone
Unilever Bestfoods
-1,800
Growth in Food Sales '01-'02 (% )

Business Insights
Source: Author analysis of company accounts
In 2002, changes to the structure of Danone combined with negative exchange rate effects, resulted in a decline in sales of 6%. However, if considered on a like-for-like basis, organic sales growth of 6% was achieved.
Disposing of non-core assets to provide greater focus Perhaps the best example of a company disposing of assets to focus on its core operations is Unilever, particularly following the 2000 acquisition of Bestfoods. Since the announcement of the Path to Growth strategy in February 2000, the company has sold a total of 87 companies with sale proceeds of 6.3 billion (some of which were also being divested as a result of undertakings given to the European Commission in connection with the acquisition of Bestfoods for around 26 billion, which was completed in October 2000). This has reduced the number of brands that the company manages from 1,600 to around 400 leading brands and just under 250 tail brands.
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Heinz is a prime example of a large multi-national food manufacturer that has disposed of certain businesses in recent years in order to concentrate more fully on realising the full potential of its core brands. In June 2002, Heinz disposed of a number of North American businesses and merged them with Del Monte Foods Company in a move designed to make Heinz a faster-growing company. The businesses, which together generated approximately $1.8 billion in annual sales (or 20% of annual revenues), included North American pet food and pet snacks, U.S. tuna, U.S. private label soups and U.S. baby foods.
Growth through acquisition A good example of a company that has grown rapidly through acquisitions is CadburySchweppes. More recently, Cadburys has been going through something of a transition phase, with the integration of the Adams business well underway.
Following the acquisition of Pillsbury in 2001, General Mills is seeking greater organic growth. Rather than boosting growth rates with further acquisitions, the company is seeking to utilise product innovation, channel expansion and international expansion to build the companys brands and increase revenues.
A further example of a company willing to grow significantly through acquisition is Kellogg. The March 2001 acquisition of Keebler Foods Company was by far the largest acquisition in Kelloggs history. The new, more diversified product portfolio will undoubtedly boost the companys growth. The company believes that it now manufactures products that rank first or second in U.S. sales across seven major food categories.
Nestl is another food manufacturer that has consolidated growth through acquisition. Since 1996, this has been demonstrated by the purchase of the Italian mineral water concern San Pellegrino (1997), the acquisition of Spillers Petfoods of the UK (1998), and Ralston Purina (2002). In the same year, the company made two major acquisitions in North America. Nestl announced that its U.S. ice cream business was to be merged
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into Dreyers, and it also acquired Chef America, a U.S.-based hand-held frozen food product business. However, the company has also shown that it will dispose of non-core assets, with the decision to divest the Findus brand in 1999, in order to concentrate on higher added-value frozen food products and the sale of its dairy business in Turkey to Danone.
A case by case approach Falling somewhere between the two strategies are companies such as Danone. The sale of Galbanis cheese business at the beginning of 2002 continued the Groups strategy towards a more focused business, and meant that nearly all Group sales were in the three core businesses - fresh dairy, beverages, and biscuits and cereal. However, whilst continuing to divest itself of non-core activities (in June 2003, Danone agreed to sell its remaining 44% stake in BSN Glasspack, a glass packaging company) it is also seeking to make strategic acquisitions. For example, in December 2003, Danone announced that had acquired Nestls dairy business in Turkey in a move that will double its sales in Turkey.
Perhaps the best example of growth through acquisition is that of Kraft (though the company itself was acquired by Philip Morris now named Altria in 1988). By far the biggest of these was the 2000 acquisition of Nabisco Holdings, a leader in cookies, crackers and snacks, for almost $15 billion. 2003, however, was a busy year for the company as it both acquired and disposed of a number of assets.
In March 2003, Kraft acquired a leading producer of biscuits and snack cakes in Egypt and in September 2003; Kraft announced the acquisition of the Back to Nature brand cereal and granola business from Organic Milling. In April, Kraft sold its retail rice business in Germany, Austria and Denmark to Ebro Puleva and in September, Kraft announced plans to sell its Invernizzi branded cheese business in Italy to Groupe Lactalis.
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Market positioning: chilled food The following table provides a ranking of the 10 largest countries in the global chilled foods market, taken from the selection of 52 countries whose data is covered in this report, as described in the earlier research methodology section.
In terms of markets size, Japan leads the market followed by the United States and Russia. It is interesting to note, however, that whilst being the largest market for chilled food, in terms of market growth, Japan has been of the slowest growing markets over the last six years. Within the larger chilled food markets, the greatest market opportunities for growth appear to be in the Ukraine and France.
Table 2.3: Top 10 ranking by size of global chilled food markets, 2003
Country Japan US Russia UK Italy France Ukraine Netherlands Germany Denmark
Source: Author analysis of Datamonitor research
Rank Growth 98-03 47 17 15 14 37 10 9 26 42 40
Rank Value Size 03 1 2 3 4 5 6 7 8 9 10

Business Insights
Whilst six-year growth rates in markets such as France and the Ukraine have approached 50% (in value terms), the chilled food market in Japan actually decreased in value by 4.8% over the 19982003 period.
Spain is the worlds third fastest growing chilled food market and also the 14th largest market in terms of size by value.
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Table 2.4: Top five ranking by growth of global chilled food markets, 2003
Country Romania Vietnam Spain Hungary Brazil
Rank Growth 98-03 1 2 3 4 5
Rank Value Size 03 29 49 14 18 27

Business Insights
Romanian and Vietnam markets have both grown from small bases in recent years, whilst the Spanish market increased in value by 87.3% over the 19982003, to reach a value of $1,792.64 million.
The following figure plots market share of selected countries in the global chilled food market against market growth (in value terms), with the size of each bubble referring to the size of the market. Though it dominates chilled food markets the market in Japan is declining in size.
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Market share versus growth in global chilled food markets Figure 2.4: Market share versus growth in global chilled food markets
250.0% Market Growth 1998-2003

R ania om
Faster grow ing m arkets
M arket share G reater m arket size
200.0%
150.0%
Vietnam 5.9
100.0%
B razil Spain H ungary France R ussia U S U K D ark enm Italy
50.0%
U kraine N etherlands
Japan
0.0% G any erm 0.0% 5.0% -50.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
M arket Share 2003

Business Insights
Market positioning: confectionery In terms of markets size, the United States leads the market from the Germany and the UK. It is interesting to note, however, that whilst being amongst the five largest markets for confectionery, in terms of market growth, the UK, Japan and Russia have been amongst the 10 slowest growing markets over the last six years. Within the larger confectionery markets, the greatest market opportunities for growth appear to be in China and Mexico.
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Table 2.5: Top 10 ranking by size of global confectionery markets, 2003

Country US Germany UK Japan Russia China France Italy Brazil Mexico
Rank Growth 98-03 38 34 50 43 41 9 33 44 21 7
Rank Value Size 03 1 2 3 4 5 6 7 8 9 10

Business Insights
Over the 19982003 period, the Mexican and Chinese confectionery markets grew at rates of 59.0% and 50.0% respectively. The largest market, the United States, grew by 12.8% over the same period.
The Ukraine and Indonesia are the worlds fastest growing confectionery markets. In size terms, they are ranked as the 23rd and 26th largest markets respectively.
Table 2.6: Top five ranking by growth of global confectionery markets, 2003
Country Ukraine Indonesia Romania Vietnam Venezuela
Rank Growth 98-03 1 2 3 4 5
Rank Value Size 03 23 26 50 37 46

Business Insights
Growth rates in excess of 100% over the 19982003 period were recorded by both the Ukraine and Indonesia. From significantly larger bases, both China and Mexico recorded growth in excess of 50%.
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The United States dominates global confectionery markets, with Germany, Japan and the UK forming a cluster of markets of a similar size behind it. Together, these four markets account for 49.6% of the market.
Market share versus growth in global confectionery markets Figure 2.5: Market share versus growth in global confectionery markets
160.0% Market Growth 1998-2003 140.0% 120.0%

Indonesia 0.9%
Faster growing markets
Market share Greater market size
100.0% 80.0% 60.0%

Mexico Romania Vietnam Venezuela
40.0%
Brazil
China France Russia US G ermany Japan UK
20.0%
Italy
0.0% 0.0% -20.0%
5.0%
10.0%
15.0% 20.0% M arket Share 2003
25.0%
30.0%
Business Insights
Market positioning: dairy products Global dairy markets are dominated by the United States, Japan and leading Western European countries. Among the worlds larger dairy markets that are also fast growing, China, Mexico and Brazil feature prominently. Whilst China is the worlds 10th largest dairy market, it is also the fourth fastest growing.
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Table 2.7: Top 10 ranking by size of global dairy markets, 2003

Country US Japan Italy France Germany UK Mexico Brazil Spain China
Rank Growth 98-03 28 50 41 33 38 44 9 10 23 4
Rank Value Size 03 1 2 3 4 5 6 7 8 9 10

Business Insights
Although it is the worlds second largest dairy market, growth in Japan reached just 3.1% over the 19982003 period as the market reached a value of $17,427.70 million.
Whilst Romania and Indonesia are the fastest growing dairy markets, growth has been achieved from a relatively small base. Colombia, the third fastest growing market, is the 14th largest market overall.
Table 2.8: Top five ranking by growth of global dairy markets, 2003
Country Romania Indonesia Colombia China Philippines
Rank Growth 98-03 1 2 3 4 5
Rank Value Size 03 47 36 14 10 43

Business Insights
Asia-Pacific, Eastern Europe and Latin America dominate rankings of the fastest growing dairy markets, accounting for nine of the top 10 fastest growth markets. The exception in the top 10 is the Egyptian market, which grew by 61.4% over the 1998 2003 period.
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The United States dominates the global dairy industry, accounting for a 23.7% share of the market. Together, the United States, Japan, Italy, France, Germany and the UK accounted for 54.2% of the market in 2003.
Market share versus growth in global dairy markets Figure 2.6: Market share versus growth in global dairy markets
250.0% Market Growth 1998-2003
Faster growing markets

Romania
Market share Greater market size
200.0%
150.0%
100.0%
Indonesia Philippines
Colombia Mexico China Spain Brazil France Italy UK Japan US
50.0%
0.0% 0.0% -50.0%
5.0%
Germany
10.0%
15.0% Market Share 2003
20.0%
25.0%
30.0%
Business Insights
Market positioning: savoury snacks Amongst the 10 largest savoury snack markets, Russia, in eighth place, is also the worlds fastest growing market whilst Mexico, the fourth largest market is also the fifth fastest growing market.
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Table 2.9: Top 10 ranking by size of global savoury snacks markets, 2003
Country US Japan UK Mexico Germany China Canada Russia Australia France
Rank Growth 98-03 14 48 44 5 41 19 21 1 24 37
Rank Value Size 03 1 2 3 4 5 6 7 8 9 10

Business Insights
The market for savoury snacks in the United States reached $23,425.52 million in 2003, up by 31.5% from 1998. Both the Japanese and the UK markets decreased in value over the 19982003 period, though the UK market saw some growth return in 2002.
While starting from a particularly small base, analysis indicates that Eastern Europe will provide the best growth opportunities for savoury snack markets, with Russia, the Ukraine and Romania being the three fastest growing markets over the 19982003 period.
Table 2.10: Top five ranking by growth of global savoury snacks markets, 2003
Country Russia Ukraine Romania Vietnam Mexico
Rank Growth 98-03 1 2 3 4 5
Rank Value Size 03 8 28 51 45 4

Business Insights
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The savoury snacks market in Mexico grew by 80.3% over the 19982003 period, to reach $3,597.86 million.
The United States dominates the savoury snacks industry, accounting for a 42.7% share of the market. Together, the United States, Japan, UK and Mexico accounted for 70.7% of the market in 2003.
Market share versus growth in global savoury snacks markets Figure 2.7: Market share versus growth in global savoury snacks markets
400.0% Ukraine Market Growth 1998-2003 350.0% 300.0% 250.0% 200.0% Romania 150.0% 100.0% Vietnam 50.0%
Australia C anada C hina K U Japan M exico
Faster grow ing m arkets
M arket share G reater m arket
U S
0.0% G any erm 0.0% -50.0% France -100.0%
10.0%
20.0%
30.0%
40.0%
50.0%
M arket Share2003
Business Insights
46
Chapter 3
Cadbury Schweppes
47
Chapter 3
Summary
Cadbury Schweppes
With a history stretching back over 200 years, Cadbury Schweppes employs over 55,000 people and sells products in over 200 countries. In the last 20 years, the company has strengthened its portfolio through almost 50 acquisitions. In March 2003, the company completed the acquisition of Adams from Pfizer for $4.2 billion. As a result of the acquisition, the company believes it has leadership positions in sugar and functional confectionery and the number two position in gum while gaining access to major new markets. As a result of the acquisition, the company believes it is the only company to span the three major confectionery categories - chocolate, sweets and gum. In confectionery, the company has reduced its reliance on chocolate to build a portfolio of confectionery products encompassing chocolate, sugar, medicated confectionery and chewing gum. The companys confectionery brands are sold across the world. Its key brands include: Cadbury Dairy Milk, Trebor Bassett, Maynards, Hollywood, STIMOROL, Halls, Dentyne and Trident. 2003 was a year of transition for Cadbury Schweppes as the company sought to consolidate Adams, manage changes to distribution arrangements and put in place organisational changes. A reduction in operating profit in Asia-Pacific in the first half of 2003 was due to shortfalls in the businesses in Australia and China. The performance of the confectionery business in Russia improved in 2003 under the guidance of a new management team. In October 2003, the company set out its four-year strategic and operational agenda at the heart of which lie the Fuel for Growth cost reduction and Smart Variety growth initiatives.
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About Cadbury Schweppes

Cadbury Schweppes is one of the biggest international beverage and confectionery companies in the world. With a history stretching back over 200 years, Cadbury Schweppes employs over 55,000 people and sells products in over 200 countries.
Since the start of the 1980s, the company has strengthened its beverage and confectionery portfolio through almost 50 acquisitions. The company believes that the recent purchase of Adams makes it the leader in the global confectionery market and the only company to span all three categories - chocolate, sweets and gum.
History The companys heritage starts back in 1783 when Jacob Schweppe perfected his process for manufacturing carbonated mineral water in Geneva, Switzerland. And in 1823 John Cadbury opened in Birmingham selling cocoa and chocolate. The two household names merged in 1969 to form Cadbury Schweppes plc. Since then, the company has grown throughout the world by a programme of organic and acquisition led growth.
In 1824, John Cadbury, the son of Richard Cadbury, opened a shop at 93 Bull Street, then a fashionable part of Birmingham. Apart from selling tea and coffee, John Cadbury sold hops, mustard and a new sideline - cocoa and drinking chocolate, which he prepared himself using a mortar and pestle. By 1842, John Cadbury was selling 16 sorts of drinking chocolate and eleven cocoas and in 1847, John Cadbury encouraged his brother Benjamin into partnership and the family business becomes Cadbury Brothers of Birmingham.
In 1854, the Cadbury Brothers received their first Royal Warrant as manufacturers of cocoa and chocolate to Queen Victoria. In 1879, the Cadbury Brothers moved their manufacturing operations to establish the ground-breaking Bournville factory and village, about four miles south of Birmingham. In 1897, Cadbury manufactured its first
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milk chocolate and in 1899 Cadbury Brothers was incorporated as a limited company. At that stage, the Bournville factory had 2,600 employees.
In the mid-1980s the company took the strategic decision to concentrate on its core international brands of beverages and confectionery and exit the general foods and hygiene sector with the sale of non-core brands such as Typhoo Tea, Kenco Coffee and Jeyes. Since that time, the company has strengthened its portfolio of key brands through the purchase of Motts (1982), Canada Dry (1986), Trebor (1989), Bassett (1989), Dr Pepper and Seven Up (1995) and Hawaiian Punch (1999). In 1988, the manufacture of Cadbury confectionery brands was licensed in the US to Hershey.
In 2002 Cadbury Schweppes acquired Dandy, the Danish chewing gum company and, at the end of the year, announced the proposed $4.2 billion acquisition of Adams, which was completed in March 2003.
Recent performance
2003 was designed to be a year of transition for Cadbury Schweppes as the company sought to consolidate Adams, manage changes to 7 UPs distribution arrangements (in a depressed US beverage market) and put in place the organisational changes announced in February.
Performance in 2003 At the release of preliminary full-year 2003 results, in February 2004, the company announced a resilient performance set against the backdrop of difficult trading conditions in a number of key markets. The companys performance improved as the year progressed. Despite the hot summer, Cadbury Trebor Bassett delivered record sales, profit and market share following a good Christmas and confectionery and beverage operations in Australia recovered strongly in the second half of the year.
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The company reported 2003 sales at 6.4 billion, up by 22% from 2002. Acquisitions, net of disposals, contributed 20% to revenue growth. The most significant contributors to growth from acquisitions were Adams (mainly in the Americas), Dandy and Kent in the EMEA region and Apollinaris & Schweppes in Europe Beverages. Like-for-like base business sales grew 2%. Underlying operating profit excluding associates (operating profit before goodwill/intangibles amortisation and exceptional items) increased by 7%, with the base business declining by 1% and the full-year impact of acquisitions contributing 11%. Overall profits before tax fell by 32% to reach 564 million.
The transition of Adams into Cadbury Schweppes and delivery of the integration benefits were in line with the acquisition plan. In the second half of 2003, the company saw gum share trends improve in a number of key markets, notably the United States and Canada. However, an underlying operating profit decline in Americas Confectionery (before acquisitions) reflected a difficult first half of 2003 for Canadian operations. Second half profits improved significantly as the business focused on the more profitable elements of its portfolio. The Americas Confectionery businesses overall performed in line with expectations, driven by new product development and brand relaunches, notably Dentyne Fire in the United States and Trident White in Canada. Adams Mexico maintained strong sales and profit momentum throughout the year and Halls delivered strong results in nearly all markets.
In Europe, margins, particularly during the second half of the year, were negatively impacted by higher costs relating to the major relaunch of Cadbury Dairy Milk in the UK and raw material inflation. Cadbury Trebor Bassett maintained strong momentum and generated record sales, underlying operating profits and market share. The successful re-launch of the Cadbury Dairy Milk chocolate range in the UK increased its sales by 13%, whilst Maynards and Trebor performed strongly and the Adams' business produced better than expected results driven by the Halls brand. In France, Cadbury has stated that it regained leadership in chewing gum, reflecting the focus on the Hollywood brand and a range of successful sugar-free launches.
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The Adams businesses in the region were integrated rapidly with full business consolidation taking place in the UK, Ireland, Poland, Greece, Portugal, Lebanon and South Africa. The Spanish business integration is expected to be fully complete by the end of the first quarter. Adams products are being sold into new outlets and markets via convenience store distribution networks in the UK, Ireland, Russia, Denmark and Nigeria.
Elsewhere, businesses in Africa delivered strong profit performances led by South Africa and Egypt, whilst the Russian business was restructured in the first half with the integration of Dandy.
A fall in underlying operating profits in Asia reflected a number of adverse factors. These included trade de-stocking, the impact of raw material price increases on the Australian confectionery business and disruption following a difficult IT implementation at the end of 2002. The business in China had another difficult year recording losses of 6 million, a modest reduction on the losses incurred in 2002. In India, the business had a strong year until the fourth quarter when it was hit by the escalation of a minor instore infestation problem. In the second half of 2003, business in Asia recovered somewhat. In Australian confectionery, the company extended its market leadership position with record second half sales, reflecting strong performances from core chocolate brands and new product development.
Financial performance in 2003 Table 3.11: Cadbury Schweppes financial performance 20002003
m Turnover Operating Profit (1) 2000 4,118 612 2001 4,960 758 2002 5,298 979 2003 6,441 1,052 (2)
Note: (1) From continuing operations; (2) Underlying Group Operating Profit presented in preliminary results release on 18th February 2004.
Source: Company accounts Business Insights
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Figure 3.8: Cadbury Schweppes financial performance 20002003; turnover and operating profit
m
7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2000
Source: Company accounts
Turnover Operating Profit
2001
2002
2003
Business Insights
In September 2003, Cadbury Schweppes announced that it had completed its first bond issue in the U.S. market, raising $2.0 billion. The proceeds are to be used to replace some of the financing arrangements put in place in December 2002 to fund the $4.2 billion acquisition of Adams confectionery business. The company expects restructuring charges of around 200 million and capital spend of around 300 million for 2003. These include the impact of the Fuel for Growth initiative, which is designed to reduce supply chain, commercial and administrative costs.
In February 2004, the company announced that it expects to deliver a 2004 financial performance within its target range of 3-5% net base sales value growth. The following table illustrates the performance of the Americas and European confectionery divisions of Cadbury Schweppes over a three-year period.
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Table 3.12: Cadbury Schweppes confectionery performance 20002003

m Americas Confectionery Turnover Operating Profit (1) European Confectionery Turnover Operating Profit (1) 2000 2001 2002 Interim 2003
305 44
312 44
252 20
275 16
1,362 200
1,445 212
1,546 247
n/a n/a
Note: (1) From continuing operations

Figure 3.9: Cadbury Schweppes confectionery performance 20002003; Americas and Europe turnover and operating profit comparison
m 1800 1600 1400 1200 1000 800 600 400 200 0 2000
Turnover Americas Operating Profit Americas Turnover Europe Operating Profit Europe
2001
2002
Business Insights
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Market positioning
Expanding the portfolio in 2003 The Americas After several difficult years, the Canadian confectionery business is being reorganised both to focus on a smaller range of more profitable branded products and to reduce direct and indirect costs, which are uncompetitive. A combination of lower branded volumes and stock reduction led to a reduction in profits at these operations.
In October 2003, the company announced that its Brazilian subsidiary, Cadbury Adams, was to consolidate its chewing gum production and packaging in Brazil, from manufacturing plants in Avenida do Estado, So Paulo and Cumbica, Guarulhos to its manufacturing plant in Bauru. The transition will be completed by July 2004 and should result in a higher level of efficiency in production, logistics and distribution for the business and will also support plans to focus on innovation and aggressive growth.
Table 3.13: Cadbury Schweppes market shares in the Americas, 2002

Country Argentina Argentina Argentina Argentina Argentina Canada Canada Canada Canada Chile Venezuela Market Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Category Chocolate Gum Gum Sugar Sugar Chocolate Gum Sugar Sugar Chocolate Chocolate Company Value% Cadbury Stani SAIC Cadbury Stani SAIC Adams SA Cadbury Stani SAIC Adams SA Cadbury Trebor Allan Inc Adams Brands Ltd Cadbury Trebor Allan Inc Adams Brands Ltd Cadbury Stani SAIC Cadbury Stani SAIC 1.15 45.68 12.49 11.97 14.84 15.49 51.13 6.10 12.59 0.32 0.87
Business Insights
Asia-Pacific A reduction in underlying operating profit in Asia-Pacific in the first half of 2003 was due to shortfalls in the Food & Beverage and Confectionery businesses in Australia and
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to a lesser extent the confectionery business in China. The confectionery business was affected by the combination of reduced consumer demand following significant price increases early in the year and de-stocking by the trade. Confectionery sales in China and neighbouring markets were also affected by the impact of SARS on consumer demand.
Table 3.14: Cadbury Schweppes market shares in Asia-Pacific, 2002

Country Australia Australia Australia Australia China China Hong Kong Hong Kong Hong Kong India India India India Indonesia Indonesia Malaysia Malaysia Malaysia New Zealand New Zealand New Zealand New Zealand New Zealand Philippines Singapore Singapore Singapore Taiwan Thailand Thailand Thailand Thailand Vietnam Vietnam Market Confectionery Confectionery Dairy Dairy Confectionery Confectionery Confectionery Dairy Dairy Confectionery Confectionery Dairy Dairy Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Dairy Dairy Confectionery Confectionery Dairy Dairy Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Category Company Value% 51.63 16.07 0.10 0.10 13.94 1.45 24.79 1.10 1.00 65.12 9.80 2.80 2.70 20.27 4.05 26.44 2.10 5.10 64.32 1.60 35.08 0.70 0.50 14.89 16.49 0.30 0.20 0.32 7.55 44.95 22.46 1.77 8.62 3.02
Chocolate Cadbury Schweppes Australia Ltd Sugar Cadbury Schweppes Australia Ltd Milk Cadbury Schweppes Australia Ltd Overall Cadbury Schweppes Australia Ltd Chocolate Cadbury Food Co Beijing Sugar Cadbury Food Co Beijing Chocolate Cadbury Four Seas HK Ltd Milk Cadbury Four Seas HK Ltd Overall Cadbury Four Seas HK Ltd Chocolate Cadbury India Ltd Sugar Cadbury India Ltd Milk Cadbury India Ltd Overall Cadbury India Ltd Chocolate Cadbury Indonesia PT Sugar Cadbury Indonesia PT Chocolate Cadbury Confectionery (M) Sdn Bhd Gum Cadbury Confectionery (M) Sdn Bhd Sugar Cadbury Confectionery (M) Sdn Bhd Chocolate Cadbury Confectionery Ltd Gum Cadbury Confectionery Ltd Sugar Cadbury Confectionery Ltd Milk Cadbury Confectionery Ltd Overall Cadbury Confectionery Ltd Chocolate Cadbury Schweppes Plc Chocolate Cadbury Singapore Pte Ltd Milk Cadbury Singapore Pte Ltd Overall Cadbury Singapore Pte Ltd Chocolate Cadbury Confectionery Tasmania Chocolate Cadbury Schweppes Plc Gum Adams (Thailand) Ltd Sugar Adams (Thailand) Ltd Sugar Cadbury Schweppes Plc Chocolate Cadbury Schweppes Plc Sugar Cadbury Schweppes Plc
Business Insights
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Eastern Europe The performance of the companys confectionery business in Russia improved in 2003 under the guidance of a new management team.
Table 3.15: Cadbury Schweppes market shares in Eastern Europe, 2002

Country Bulgaria Czech Republic Czech Republic Hungary Hungary Poland Poland Poland Russia Slovakia Ukraine Ukraine Market Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Category Chocolate Chocolate Gum Chocolate Sugar Chocolate Gum Sugar Chocolate Gum Chocolate Chocolate Company Value% Cadbury Schweppes Plc Cadbury Schweppes Plc Cadbury Schweppes Plc Cadbury Hungary Cadbury Hungary Cadbury Wedel Sp zoo Cadbury Wedel Sp zoo Cadbury Wedel Sp zoo Cadbury OOO Cadbury Schweppes Plc Cadbury Schweppes Plc Cadbury OOO 0.15 0.50 1.10 1.07 0.65 22.91 0.70 3.45 4.10 2.12 0.62 0.30
Business Insights
The Middle East and Africa The company holds a dominant share of the Egyptian confectionery market and also accounts for over one-third of both the South African chocolate confectionery and gum markets.
Table 3.16: Cadbury Schweppes market shares in the Middle East and Africa, 2002
Country Egypt Egypt Egypt Egypt Egypt Morocco Saudi Arabia Saudi Arabia Saudi Arabia South Africa South Africa South Africa Market Confectionery Confectionery Confectionery Dairy Dairy Confectionery Confectionery Confectionery Dairy Confectionery Confectionery Confectionery Category Company Value% 36.38 31.01 22.26 1.00 0.20 2.07 9.22 4.40 0.10 39.66 36.41 3.45
Chocolate Cadbury Schweppes Plc Gum Cadbury Schweppes Plc Sugar Cadbury Schweppes Plc Milk Cadbury Egypt Overall Cadbury Egypt Sugar Cadbury Schweppes Plc Chocolate Cadbury Schweppes Plc Sugar Cadbury Schweppes Plc Milk Cadburys Ltd Chocolate Cadbury Schweppes S. Africa (Pty) Ltd Gum Cadbury Schweppes S. Africa (Pty) Ltd Sugar Cadbury Schweppes S. Africa (Pty) Ltd
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Business Insights
Western Europe In France, where the confectionery market has been weak, the companys gum market share benefited from new product launches toward the end of 2002 and early 2003. In addition to the shares listed below, Cadbury also takes 14th place in the UK Savoury snacks market.
Cadbury Schweppes main UK operating business, Cadbury Trebor Bassett announced proposals in October 2003, to close two factories - the former Adams plant in Radcliffe, Greater Manchester and the Trebor plant at Brimmington Road, Chesterfield. Production will cease by the end of 2004, with both sites closing in March 2005. Production will transfer from the Radcliffe plant, which makes Halls Mentholyptus and Soothers, to the Americas as more than 80% of the current plants output is exported, mainly to that region. Production from the Chesterfield plant will be switched to other factories, including Sheffield, in the UK.
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Table 3.17: Cadbury Schweppes Market Shares in Western Europe, 2002

Country Belgium Denmark Finland France France France France France Greece Greece Greece Ireland Ireland Ireland Ireland Ireland Netherlands Netherlands Portugal Portugal Portugal Portugal Portugal Portugal Spain Spain Spain Spain Sweden Switzerland Turkey UK UK UK UK UK Market Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Dairy Dairy Confectionery Confectionery Dairy Confectionery Confectionery Confectionery Dairy Dairy Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Dairy Dairy Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Savoury Snacks Category Gum Sugar Sugar Chocolate Gum Sugar Milk Overall Chocolate Gum Milk Chocolate Gum Sugar Milk Overall Chocolate Sugar Chocolate Gum Gum Sugar Milk Overall Chocolate Gum Sugar Sugar Sugar Gum Chocolate Chocolate Gum Sugar Sugar Overall Company Value% Cadbury Schweppes Plc Cadbury Nederland BV Cadbury Schweppes Plc Cadbury France SA Cadbury France SA Cadbury France SA Cadbury France SA Cadbury France SA Cadbury Schweppes Plc Cadbury Schweppes Plc Cadbury Schweppes Plc Cadbury Schweppes Ireland Ltd Adams Confectionery Adams Confectionery Cadbury Schweppes Ireland Ltd Cadbury Schweppes Ireland Ltd Cadbury Nederland BV Cadbury Nederland BV Cadbury Schweppes Prd. de Conf Cadbury Schweppes - Prd. de Conf Adams SA Cadbury Schweppes - Prd. de Conf Cadbury Schweppes - Prd. de Conf Cadbury Schweppes - Prd. de Conf Cadbury Dulciora SA Adams Spain SA Adams Spain SA Cadbury Dulciora SA Cadbury Schweppes Plc Cadbury Schweppes Plc Cadbury Schweppes Plc Cadbury Trebor Bassett Ltd Adams Confectionery Cadbury Trebor Bassett Ltd Adams Confectionery Cadbury Trebor Bassett Ltd 2.52 3.55 0.30 5.05 48.35 18.97 1.60 0.30 1.27 6.97 0.30 42.53 0.60 0.17 0.20 0.80 0.27 2.42 15.52 1.10 56.12 0.17 0.50 0.20 5.37 34.21 4.70 5.20 0.62 2.65 0.22 28.06 3.00 24.34 4.97 0.70
Business Insights
Global confectionery brands Product examples The companys confectionery brands are sold across the world. Its key chocolate confectionery brands include: Cadbury Dairy Milk, TimeOut, Flake, Dream, Crunchie, Twirl, Caramel, Creme Egg, Roses, Miniature Heroes, Wedel and Poulain.
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Sugar confectionery brands include Choclairs, Trebor, Bassetts, Maynards, Pascall, La Pie Qui Chante, Mantecol, Swedish Fish, Sour Patch Kids and Allan; and Miss, Elegan, Jelibon under the Kent umbrella.
Gum brands include Hollywood, STIMOROL, V6, Dirol, Beldent, Bazooka, Sportlife, and Kents Relax. The Adams acquisition brought four key confectionery brands to the company: Halls, the worlds leading sugar confectionery brand, Dentyne and Trident chewing gum, and the Bubbas range of bubblegum.
Figure 3.10: A selection of brands from Cadbury Schweppes
Source: http://www.cadburyschweppes.com/EN/Brands/About/Confectionery
Business Insights
Strategies for growth

In February 2003, the company introduced a new organisational structure to clarify accountability and enable swifter decision-making. As a result, the company has five geographical regions supported by five business functions (Americas Beverages; Americas Confectionery; European Beverages; Europe, Middle East and Africa Confectionery and Asia-Pacific). A new international leadership team of 10 key executives now report directly to the CEO, Todd Stitzer.
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Over the last seven years, Cadbury Schweppes strategy has been to build a series of regionally robust and sustainable businesses in its core categories of confectionery and beverages. In confectionery, the company has reduced its reliance on chocolate to build a portfolio of confectionery products encompassing chocolate, sugar, medicated confectionery and chewing gum. The acquisition of Adams has taken the company into higher growth categories with greater potential to cross-sell different products in a variety of markets.
In October 2003, the company set out its four-year strategic and operational agenda at the heart of which lie the Fuel for Growth cost reduction and Smart Variety growth initiatives. Although these will bring cost increases, most notably in raw materials, insurance, employee benefits and depreciation, these are expected to be more than offset by sales growth and margin increases. In February 2004, the company announced that commercial and back office savings arising from the integration of Adams and confectionery supply chain optimisation in Europe had kick-started Fuel for Growth activities. The company stated that it expects gross cost benefits of 75 million from the Fuel for Growth cost reduction initiative in 2004, including Adams cost synergies.
Acquisitions and disposals play a key role Since 1997, the company has spent a total of 3.3 billion on acquisitions (not all in confectionery markets) and realised 1.4 billion from disposals, the difference largely funded from cash flow.
In 2000, Kraft Foods chewing gum and confectionery business was purchased in France including the brands Hollywood, Kiss Cool, Krema and Malabar. The company also acquired Wuxi-Leaf Confectionery, a manufacturer of sugar free and low sugar gum in China. In 2001, the company added to its Argentinean confectionery business with the acquisition of the Mantecol brand. In 2002, the company acquired 43% of Cadbury India, taking its holding to 94%. The year also saw the acquisition of a 51% interest (which has since increased to 65%) in Kent, Turkeys leading sugar confectionery
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manufacturer. Also in 2002, Dandys branded chewing gum business in Denmark, with the STIMOROL, V6 and Dirol brands, was acquired.
In March 2003, the company completed the acquisition of Adams from Pfizer for $4.2 billion (2.7 billion). As a result of the acquisition, the company believes it has leadership positions in sugar and functional confectionery and the number two position in gum while gaining access to major new markets, particularly Latin America. Four power brands represent over 70% of Adams sales: Halls medicated confectionery; Trident sugarfree gum; Dentyne Ice chewing gum; Bubbas bubblegum range.
Following the acquisition, Cadbury Schweppes and Adams confectionery businesses in the Americas were integrated into a new unit, Americas Confectionery. Elsewhere, Adams operations report into Cadbury Schweppes Europe, Middle East & Africa and Asia Pacific regions.
NPD and brand repositioning Over the last two years a number of new products, aiming to keep the company at the forefront of confectionery developments, have been launched. In 2002, Sour Patch Kids was repositioned in the United States, with the brand getting a new look, new packaging and new flavour names. Also in 2002, Halls Fruit Breezers was launched as the first non-mentholated product. In 2003, Shotgum, Halls first gum product was launched in the UK and Ireland. Also in 2003, Trident White launched 3Sku (spearmint).
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SWOT analysis
The following section provides a brief appraisal of the performance and strategy of Cadbury Schweppes food businesses in the form of a SWOT analysis, highlighting the relative strengths, weaknesses, opportunities and threats faced by the company.
A trusted brand that has diversified its portfolio Cadbury Schweppes is one of the biggest international beverage and confectionery companies in the world that together with a history stretching back over 200 years, earns the company and its brands a significant amount of trust and loyalty from consumers.
A series of acquisitions over the last 20 years has repositioned the companys confectionery portfolio so that it is no longer reliant on chocolate products. A diversified and well-balanced portfolio now includes leading brands across the chocolate, sugar, medicated confectionery and chewing gum segments. The acquisition of Adams, in particular, gives the company a more global presence and better prospects for growth.
Action to remedy production and organisational inefficiency Perhaps as a consequence of the large number of acquisitions that the company made in recent years, a number of production and organisational inefficiencies manifested themselves.
In fairness to the company, these are now being addressed, with recently announced changes in changes in Brazil and the UK in particular. In Canada, the confectionery business is being reorganised both to focus on a smaller range of more profitable branded products and to reduce direct and indirect costs, which are uncompetitive. The company has also introduced a new organisational structure to clarify accountability and enable swifter decision-making.
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Industry analysts have also questioned the companys long-term benefits from operating a drinks business, particularly in fiercely competitive U.S. markets, along side a global confectionery business.
Figure 3.11: Cadbury Schweppes SWOT analysis

Company Strengths Strong brands earn a significant amount of trust and loyalty from consumers A well balanced portfolio now includes leading brands across the chocolate, sugar, medicated confectionery and chewing gum segments Company Opportunities Integration of Adams brings greater potential to cross-sell different products in a variety of markets Distribution channels in confectionery markets offer margin growth Company Weaknesses
Production and organisational inefficiencies must be addressed Weaker performance in Asian markets in 2003 Analysts question whether a drinks business fits well with global confectionery operations?
Company Threats
Will changing consumer tastes, which favour healthy, sugar-free alternatives, limit growth in traditional markets? Must continue to innovate and support brands with high quality marketing to maintain awareness and consumer loyalty
Source: Author research and analysis
Business Insights
Though further outside the immediate control of the company, markets in Asia have also suffered decreasing operating profits, particularly in Australia and China, as a combination of reduced consumer demand following significant price increases, destocking by the trade and the impact of SARS.
As the company strives to deliver the benefits of the Fuel for Growth initiative, it anticipates cost increases during 2004, most notably in raw materials, insurance, employee benefits and depreciation. Unfortunately for the company this is inevitable in the short-term if it is to ensure more profitable longer-term growth.
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Access to higher growth categories The greatest source of future growth for the company is likely to be from the full integration and growth potential of the Adams business. As a result of the acquisition, the company now believes it has leadership positions in sugar and functional confectionery and the number two position in gum while gaining access to major new markets. The acquisition of Adams has taken the company into higher growth categories with greater potential to cross-sell different products in a variety of markets, particularly as chocolate confectionery markets become increasingly mature.
The expansion of distribution channels in confectionery also offers Cadbury Schweppes an opportunity to boost sales. Whilst supermarkets are increasing their share of the confectionery market, value growth has not accompanied volume growth as prices have lowered. However, an increase in sales via the impulse market, at convenience stores where overall margins are greater, will see value growth in the market.
Threat to indulgence from healthier alternatives Whilst the company has introduced a number of new products over the last two years, aiming to keep the company at the forefront of confectionery developments, it cannot rest easy. In addition to innovation, the company must support its products with high quality marketing if it is to maintain brand awareness and loyalty amongst consumers that are becoming increasingly fickle.
Consumers, increasingly aware of the health implications of indulging themselves on confectionery, will start to look to products they see as being healthier or a sugar-free alternative. While the acquisition of Adams in the gum sector, where such products have long been accepted, reduces Cadburys reliance on chocolate markets, it is only recently that chocolate manufacturers have introduced such alternatives and the company cannot afford to be left behind by such initiatives.
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Chapter 4
Danone
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Chapter 4
Summary
Danone
Danone operates with three core businesses (fresh dairy products; beverages; cereal biscuits and snacks). The company operates a portfolio of major international brands yet around 70% of its sales come from brands that are local market leaders. Four brands represent almost 60% of the companys sales. These are Danone (in fresh dairy products), LU (cereal biscuits and crackers) and Evian and Volvic (in the bottled water market). At the start of 2003, the company set out its targets for the year, including an increase in like-for-like sales of between 5% and 7%. At the interim stage, Danone announced a 7.2% rise in sales, largely driven by the fresh dairy products and beverages sectors. In December 2003, Danone announced that it had acquired Nestls dairy business in Turkey, in a move that will double its sales in Turkey and strengthen its leading position in fresh dairy products. In January 2004, Danone increased its shareholding in Stonyfield Farm from 40% to 80%. Stonyfield Farm is the largest organic yoghurt producer in the United States. The sale of Galbanis cheese business at the beginning of 2002 continued the Groups strategy towards a more focused business, and meant that nearly all Group sales were in the three core businesses. In addition to a greater focus on its three core business segments, the Groups strategy extends to geographical targets. Although around 31% of sales are in emerging markets, the Group aims to increase this share to 40%. Growth strategies in emerging markets link high-profile brands with wide-ranging distribution for sales close to consumers. Leading positions in local markets enables the Group to build long-term relationships with major retailers. One of the most successful NPD launches of recent years was the Actimel brand, a drinkable yoghurt, developed to meet the latest trends in snacking.
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About Danone
Danone operates with three core businesses (fresh dairy products; beverages; cereal biscuits and snacks). The company claims to be the global leader in the fresh dairy products and bottled water markets and number two in cereal biscuits and snack crackers. The company operates a portfolio of major international brands yet around 70% of its sales come from brands that are local market leaders.
History Danone has its origins in glass packaging. Two glass companies, the Souchon-Neuvesel glassworks and Glaces de Boussois, merged in 1966. Boussois-Souchon-Neuvesel, which later became BSN, had an annual turnover of one billion francs. In 1969, BSN took control of Evian (which, in addition to Badoit, owned the brand names Jacquemaire and Fali), Kronenbourg and the European Breweries Company in 1970. BSN wanted to start making the contents for its containers and the acquisitions meant that BSN became the leading French manufacturer of beer, mineral waters and baby food. In 1973, BSN and Gervais Danone merged to create the biggest food group in France. Pasta, ready meals, fresh packaged foods and drinks became the Groups main product lines. By 1979, its estimated turnover was 16.5 billion francs.
In 1981, the Group exited the plate glass sector, selling off Boussois. Since then, the Group has focused predominantly on food. BSN Gervais Danone decided at the start of the 1980s to expand and particularly because of the low concentration of supermarket and hypermarket chains, Italy and Spain were identified as key areas of growth. Through a series of takeovers, partnerships and joint ventures, BSN Gervais Danone acquired a large number of local companies in its traditional areas of business as well as new ones (confectionery, sauces and condiments). In 1986, BSN Gervais Danone acquired General Biscuit, a group with a network of companies in Germany, Belgium, France, the Netherlands and Italy. The takeover marked its entry into the biscuit industry. In 1989 BSN Gervais Danone added to its portfolio of biscuit brands, acquiring Nabiscos
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European subsidiaries: Belin in France, Jacobs in the UK and Saiwa in Italy. Within less than 20 years, the Groups turnover had risen to 48.7 billion francs.
In 1993, following expansion into Eastern Europe, BSN Gervais Danone created a specialised export division. The strategy was to determine which brands had international potential. In June 1994, the Group dropped BSN from its name and adopted Danone, the name of its leading brand, which was produced in 30 countries and accounted for about one-quarter of its turnover. By 1996, Group turnover had reached 83.9 billion francs. In May 1997, the company announced a new strategy to focus on three main market sectors: fresh dairy products, cereal biscuits & snacks and beverages. The new strategy led to the sell-off of the Groups grocery and confectionery brands. In 1999, the Group sold its Container business and withdrew from brewing activities, followed by the sale of Galbani (a leader of the Italian cheese market and a major player in the cured meat market) in 2002. In 2003, the Group employed over 100,000 people in more than 120 countries.
Recent performance
In 2002, changes to the structure of the company, combined with negative exchange rate effects, resulted in a decline in sales of 6%. Structural changes principally concerned the sale of Galbani and to a lesser extent, changes at the bottled U.S. spring water business as a result of a partnership agreement with The Coca Cola Company. Additionally, acquisitions during the year, of which the main two were Frucor and Shape, offset the disposals to only a very limited extent. On a like-for-like basis, organic sales growth of 6% was recorded in 2002, derived from a 3.8% rise in volume and a 2.2% rise in value.
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Performance in 2003 At the start of 2003, the company set out its targets for the year. Among them was an increase in like-for-like sales of between 5% and 7% and an increase in the operating margin by 20 to 40 basis points.
At the interim stage, Danone announced a 7.2% rise in sales, largely driven by the fresh dairy products and beverages sectors. The company reported that European sales rose steadily, while business in Asia remained firm despite the SARS epidemic, in the second quarter. Operating margin increases reflected growth in sales volumes plus the recent disposal of business with profitability below the Group average.
Announcing its preliminary full-year 2003 results, in February 2004, Danone announced overall consolidated net sales of 13,131 million, decreasing by 3.1%. However, at constant exchange rates and on a like-for-like basis, net sales increased by 7.2%. Poor performances in the companys biscuit division led to speculation that the company may seek a buyer for this part of the business. The overall 2003 performance was also impacted by delays and cost rises to the companys efficiency programme, Themis, although Danone has raised its expectations of the potential cost savings through this programme.
Financial performance 2003 Table 4.18: Danone financial performance 20002003

m Turnover Operating Profit
2000 14,287 1,550
2001 14,470 1,609
2002 13,555 1,590
2003 13,131 1,604

Business Insights
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Figure 4.12: Danone financial performance 20002003; turnover and operating profit
Euro m
16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Turnover Operating Profit
2000
2001
2002
2003
Business Insights
Table 4.19 illustrates the performance of the fresh dairy products, biscuits and cereals and other food segments. Operating profit in the biscuits and cereals division dropped by over 11% in 2003, as sales in the division fell by almost 5%.
Table 4.19: Danone food business performance 20002003

m Fresh Dairy Products Turnover Operating Profit Biscuits and Cereal Turnover Operating Profit Other Food Turnover Operating Profit
2000
2001
2002
2003
6,530 712
6,945 790
6,276 802
6,185 845
3,255 282
3,371 316
3,232 317
3,071 280
378 49
375 60
356 61
318 57
Business Insights
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In June 2003, Danone agreed to sell its remaining 44% stake in BSN Glasspack (a glass packaging company) to Glasspack Participations, a holding company financed by investment funds advised by CVC Capital Partners.
In December 2003, Danone announced that it had acquired Nestls dairy business in Turkey (subject to the approval of the Turkish antitrust authorities), in a move that will double its sales in Turkey and strengthen its leading position in fresh dairy products. The deal also includes the UHT milk business of Nestl. Danone will own the local Mis trademark and Nestl branded products will be gradually integrated in Danones brand portfolio including Danone, Tikvesli and Birtat.
At the same time, it was announced that Danone has assumed control of its Turkish operations through the acquisition of the 50% shareholding held up to now by the Turkish group Sabanci. Danone and Sabanci had been partners in this joint venture since 1997, developing leading positions in the fresh dairy products and water markets (bottles under Hayat and Akmina brands and jugs under Flora brand).
In January 2004, Danone announced that it had increased its shareholding in Stonyfield Farm, acquired in October 2001, from 40% to 80%. With sales around $140 million in 2003, Danone believes that Stonyfield Farm is the largest organic yoghurt producer in the United States, growing annually, on average, over 20% on the last decade. It believes that Stonyfield Farm belongs in the top four brands in the U.S. yoghurt market.
Market positioning
Dominant positions in every region In the United States, Danone claims to be a leading producer of fresh dairy foods. In addition, the Group claims to be the market leader in the Canadian bottled-water market, and rank second in bottled water in North America. The company claims that Evian is the premier brand of still bottled water in the United States.
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The Americas In Latin America, Danone entered the fresh dairy market in Brazil in 1970 and in Mexico in 1973. The Group claims to have leadership positions in these markets and also in Argentina. The Group has also become a leading producer of cereal biscuits and snack foods in South America (leading the Argentine and Brazilian markets), with the Bagleys and Danone brands.
Table 4.20: Danone market shares in the Americas, 2002

Country Argentina Argentina Argentina Brazil Brazil Brazil Brazil Canada Canada Mexico Mexico US US Market Dairy Dairy Dairy Dairy Dairy Dairy Dairy Dairy Dairy Dairy Dairy Dairy Dairy Category Milk Overall Yoghurt Cheese Milk Overall Yoghurt Overall Yoghurt Overall Yoghurt Overall Yoghurt Company Value% Danone Argentina Danone Argentina Danone Argentina Danone Ltda Danone Ltda Danone Ltda Danone Ltda Danone Inc Danone Inc Danone de Mxico SA de CV Danone de Mxico SA de CV Stonyfield Farm Stonyfield Farm 1.00 6.40 57.70 1.30 2.57 6.30 30.60 3.70 34.50 3.20 23.90 0.20 3.10
Business Insights
Asia-Pacific Danones development in Asia-Pacific began in 1980, with a joint venture to manufacture and market fresh dairy products in Japan. The company now claims to be the leading producer of bottled water and biscuits in the region. This position is based on penetration in a limited number of key countries and strong local brands.
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Table 4.21: Danone market shares in Asia-Pacific, 2002

Country China China Hong Kong Hong Kong Japan Japan Singapore Singapore Singapore Market Dairy Dairy Dairy Dairy Dairy Dairy Dairy Dairy Savoury Snacks Category Overall Yoghurt Overall Yoghurt Overall Yoghurt Overall Yoghurt Overall Company Value% Shanghai Danone Yoghurt Co Ltd Shanghai Danone Yoghurt Co Ltd Danone, Groupe Danone, Groupe Calpis Ajinomoto Danone Co Ltd Calpis Ajinomoto Danone Co Ltd Danone, Groupe Danone, Groupe Danone Marketing (S) Pte Ltd 0.50 7.30 1.10 20.80 0.70 3.60 0.20 2.90 11.30
Business Insights
Eastern Europe Danone did not expand into Central and Eastern Europe until the 1990s, where, according to the company, it quickly reached the rank of leader in fresh dairy products, with the Danone brand, and in cereal biscuits and snack foods under the Opavia and Bolshevik labels.
In January 2004, Danone announced that via its Russian subsidiary, Bolshevik, it is to acquire Chupa Chups soft cake business in Russia (Chok and Rolls company). Danone believes that with sales around $20 million in 2003, under the Tornado brand, the Chok and Rolls company is the joint leader of the swiss rolls segment in Russia. Danone has been present in the biscuits market in Russia since 1994, through the acquisition of Bolshevik, with sales over $60 million in 2003.
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Table 4.22: Danone market shares in Eastern Europe, 2002

Country Market Category Milk Overall Yoghurt Cheese Milk Overall Yoghurt Overall Yoghurt Overall Yoghurt Overall Yoghurt Overall Yoghurt Overall Yoghurt Overall Overall Yoghurt Company Value% Danone Serdika AD Danone Serdika AD Danone Serdika AD Danone as Danone as Danone as Danone as Danone Kft Danone Kft Danone Polska Sp zoo Danone Polska Sp zoo Danone Romania SRL Danone Romania SRL Danone Volga ZAO Danone Volga ZAO Danone as Danone as Danone as Danone, Groupe Danone, Groupe 5.00 8.70 36.90 0.90 6.10 10.80 37.20 7.00 34.20 5.20 33.30 3.60 19.70 0.50 9.70 2.60 13.30 4.20 1.00 3.20
Bulgaria Dairy Bulgaria Dairy Bulgaria Dairy Czech Republic Dairy Czech Republic Dairy Czech Republic Dairy Czech Republic Dairy Hungary Dairy Hungary Dairy Poland Dairy Poland Dairy Romania Dairy Romania Dairy Russia Dairy Russia Dairy Slovakia Dairy Slovakia Dairy Slovakia Savoury Snacks Ukraine Dairy Ukraine Dairy
Business Insights
Middle East and Africa Recent acquisitions in Morocco and Tunisia have extended the companys previously limited presence on the African continent. Despite this, the company claims to be the market leader in the fresh dairy products segment in South Africa and holds strong positions in Saudi Arabia, Morocco, Tunisia, Algeria and Israel.
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Table 4.23: Danone market shares in the Middle East and Africa, 2002
Country Morocco Morocco Saudi Arabia Saudi Arabia Saudi Arabia Saudi Arabia South Africa South Africa South Africa South Africa Market Dairy Dairy Dairy Dairy Dairy Savoury Snacks Dairy Dairy Dairy Dairy Category Overall Yoghurt Milk Overall Yoghurt Overall Cheese Milk Overall Yoghurt Company Value% Danone, Groupe Danone, Groupe Al Safi Danone Al Safi Danone Al Safi Danone Danone, Groupe Danone Clover (Pty) Ltd Danone Clover (Pty) Ltd Danone Clover (Pty) Ltd Danone Clover (Pty) Ltd 5.90 74.70 16.70 15.70 34.00 0.10 10.80 29.20 27.40 54.50
Business Insights
Western Europe Western Europe represents about 70% of the Groups sales. According to company literature, its is ranked number one in fresh dairy products, number one in cereal biscuits and snack foods and number two in bottled water. The companys main brands in Western Europe are Danone, Lu, Jacobs, Bldina, Evian and Chateau deau.
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Table 4.24: Danone market shares in Western Europe, 2002

Country Austria Austria Austria Belgium Belgium Belgium Belgium Belgium Denmark Denmark Finland Finland France France France France Germany Germany Germany Ireland Ireland Ireland Italy Italy Italy Italy Italy Netherlands Netherlands Netherlands Portugal Portugal Portugal Spain Spain Market Dairy Dairy Dairy Dairy Dairy Dairy Confectionery Savoury Snacks Dairy Dairy Dairy Dairy Dairy Dairy Dairy Savoury Snacks Dairy Dairy Dairy Dairy Dairy Dairy Confectionery Dairy Dairy Dairy Savoury Snacks Dairy Dairy Dairy Dairy Dairy Dairy Dairy Dairy Category Company Value% 8.30 7.10 8.00 5.50 9.80 22.20 2.50 1.90 0.80 7.70 0.70 6.40 6.90 13.20 38.80 3.80 2.50 3.80 8.10 1.00 2.20 10.70 0.22 1.30 3.00 27.00 3.90 0.60 1.80 1.50 0.30 5.20 20.80 1.20 0.80
Milk Danone GesmbH Austria Overall Danone GesmbH Austria Yoghurt Danone GesmbH Austria Milk Danone NV/SA Overall Danone NV/SA Yoghurt Danone NV/SA ChocolateLU Benelux/General Biscuits Belgi SA OverallLU Benelux/General Biscuits Belgi SA Overall Danone A/S Yoghurt Danone A/S Overall Danone Finland Oy Yoghurt Danone Finland Oy Milk Danone France SA Overall Danone France SA Yoghurt Danone France SA Overall LU SA Milk Danone GmbH Overall Danone GmbH Yoghurt Danone GmbH Milk Danone Ireland Ltd Overall Danone Ireland Ltd Yoghurt Danone Ireland Ltd Chocolate Saiwa SpA Milk Danone SpA Overall Danone SpA Yoghurt Danone SpA Overall Saiwa SpA Milk Danone Nederland BV Overall Danone Nederland BV Yoghurt Danone Nederland BV Milk Danone Portugal SA Overall Danone Portugal SA Yoghurt Danone Portugal SA Cheese Danone SA Milk Danone SA
Business Insights
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Table 4.25: Danone market shares in Western Europe, 2002 continued

Country Spain Spain Sweden Sweden Switzerland Turkey Turkey Turkey Turkey UK UK UK Market Dairy Dairy Dairy Dairy Dairy Dairy Dairy Dairy Dairy Dairy Dairy Dairy Category Overall Yoghurt Overall Yoghurt Overall Overall Overall Yoghurt Yoghurt Milk Overall Yoghurt Company Value% Danone SA Danone SA Danone, Groupe Danone, Groupe Danone, Groupe Danone SA Danonesa Gida San ve Ticaret AS Danone SA Danonesa Gida San ve Ticaret AS Danone Ltd Danone Ltd Danone Ltd 19.50 56.00 0.10 0.80 0.20 5.90 1.50 11.60 2.20 1.00 0.50 0.60
Business Insights
Leading brands at Danone Four brands represent more than 50% of the companys sales, which the company have dominant positions in worldwide markets. These are: Danone: the leading brand worldwide for fresh dairy products; LU: the worlds second largest cereal biscuit and snack crackers brand; Evian and Volvic - two of the four biggest bottled water brands worldwide.
Product examples Figure 4.13: A selection of brands from Danone
Source: http://www.danonegroup.com/brands/index_brands.html
Business Insights
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A focus on high growth segments that match consumer needs Danone follows a strategy of profitable growth, which is centred, on innovation and, despite its global nature, close ties to consumers.
The sale of Galbanis cheese business at the beginning of 2002 continued the Groups strategy towards a more focused business, and meant that nearly all Group sales were in the three core businesses - fresh dairy, beverages, and biscuits and cereal. The Group believes that growth rates in these segments are among the highest in the food industry and that the momentum reflects a close match with trends in consumer tastes, particularly with products associated with health, wellbeing and convenience. Poor performances in the biscuit division in 2003 led to speculation in early 2004 that a buyer may be sought for the division. However, this followed increased investment in the division by Danone in January 2004, when it acquired Chupa Chups soft cake business in Russia.
In addition to a greater focus on its three core business segments, the Groups strategy extends to geographical targets. Although around 31% of sales are in emerging markets, the Group aims to increase this share to 40%, which will enable it to benefit from the growth potential of developing economies and also the steady demand of more mature markets. The international expansion strategy has focused on a limited number of countries, selected for their growth potential.
Growth strategies in emerging markets link high-profile brands with efficient, wideranging distribution for sales close to consumers. Leading positions in local markets has enabled the company to build long-term agreements with major retailers, providing added competitive advantage in addition to that achieved in terms of its marketing expertise, industrial efficiency, breadth of product ranges and targeted R&D.
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With almost 60% of Group sales recorded from four brands (Danone, Evian, LU and Wahaha) and 97% sourced to the Groups three main segments, the Group is able to optimise its marketing expenditure which, in turn, provides a key advantage in the strategy of profitable growth centred on innovation and close links to consumers. This is being consolidated with the extension and promotion of tag brands such as Taillefine/Vitalinea for low-fat products and Prince for childrens snacks.
Success in NPD A focus for Danone in recent months has been the introduction of premium products into their portfolios. The company sees this as a means of differentiating its products from less expensive, private label alternatives.
Danones worldwide R&D centre, Danone Vitapole, serves all three of the Groups core businesses. Operational since September 2002, Danone Vitapole undertakes work on research, development, quality control and food safety. Based in Palaiseau, France, the company employs an R&D community of over 1,000 staff, including 600 researchers and engineers to develop the Groups products and processes. Exchanges of research between divisions have generated insights with the potential for short and medium-term development, with applications in each business line for deployment in multiple markets.
Recent successes have included Actimel, a drinkable yoghurt, developed to meet the latest trends in snacking. The sales of Actimel, a product present in 15 countries, grew at an annual rate of more than 40% in 2000. Powered by strong growth in traditional European markets, Actimel was launched in Mexico, Poland and Argentina. Similar drinkable yoghurts have become a key element in the growth of the Groups fresh dairy products business: Drinkable Bio in Spain, Danimals Drinkable in the United States, Danonino in Mexico and Drinkable Petit Gervais in a number of other countries.
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Online purchasing accounts for one-quarter of purchases Danone is an active user of CPGmarket.com, an online marketplace for consumer packaged goods that the company co-founded in 2001. Danone has used the site for over 1,000 projects covering raw materials, packaging and services, in more than 160 markets. In 2002, Internet transactions accounted for over 25% of volumes purchased by Danone worldwide and 35% of the total for Western Europe. Over 40 Danone subsidiaries in 20 countries use CPGmarket.com and overall, buyers have used it to negotiate contracts totalling over 1.5 billion.
Also in 2001, Danone launched THEMIS, a programme promoting dissemination of best practices throughout the Group. THEMIS simplifies and harmonises operating processes across all business functions, from sales to production. Improved sales forecasts and planning is optimising the flow of finished products and raw materials, thus reducing inventories and the risk of building up stocks of products that have passed their expiry date. After successful testing at four pilot sites, Group-wide deployment of THEMIS began in mid-2002. Although the costs of the programme increased in 2003, the level of potential cost-savings was also upgraded. By 2004, some 30 companies around the world will have completed implementation.
SWOT analysis
The following section provides a brief appraisal of the performance and strategy of Danone in the form of a SWOT analysis, highlighting the relative strengths, weaknesses, opportunities and threats faced by the company.
Leadership brings competitive advantages Danone claims to be the global leader in the fresh dairy products and bottled water markets and number two in cereal biscuits and snack crackers. With size and leadership comes the ability to negotiate strong distribution agreements with supermarket chains. This provides added competitive advantage in addition to that achieved in terms of its marketing expertise, industrial efficiency, breadth of product ranges and targeted R&D.
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The sale of non-core businesses means that Danone is a more focused business and nearly all Group sales are in three core businesses, fresh dairy, beverages, and biscuits and cereal, where it has most expertise.
Despite the fact that the company is a global leader, it remains close to the ground and tailors its expertise to meet the needs of local markets. Around 70% of sales come from brands that are local market leaders.
With almost 60% of Group sales recorded from four brands (Danone, Evian, LU and Wahaha) and 97% sourced to the Groups three main segments, Danone is able to optimise its marketing expenditure which, in turn, provides a key advantage in the strategy of profitable growth centred on innovation and close links to consumers.
Figure 4.14: Danone SWOT analysis

Company Strengths
Leadership allows the company to negotiate strong agreements with retailers The sale of non-core businesses means that Danone is now a more focused business Danone is able to optimise its marketing expenditure which, provides a key advantage
Company Weaknesses
Despite the fact that the company realises the majority of its sales from local market leaders, Western European markets account for about 70% of the Group's sales Similarly, Danone is heavily reliant on the sales of its four major brands and the performance of three core categories
Company Opportunities
The acquisition of Nestls dairy business in Turkey will double its sales in Turkey and strengthen its leading position in fresh dairy products Danone believes that growth rates in its three core segments are among the highest in the food industry The company has ambitious targets for sales growth in emerging markets
Company Threats
A focus for Danone in recent months has been the introduction of premium products to counter threats from less expensive, private label alternatives In Spain, Danone faced the threat of legal action for alleged abuse of its market dominance
Source: Author research
Business Insights
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Over reliance on regions, brands and categories Despite the fact that the company realises the majority of its sales from local market leaders, Western European markets account for about 70% of the Groups sales. This is a particularly high proportion for a global company. Whilst it is as susceptible as other companies to regional factors that influence a market, these may have a greater impact upon Danone due to its reliance in the region.
Similarly, whilst its four major brands is a strength of the company, which together represent almost 60% of the companys sales, any disruption to one of these, be it product- or category-related, could have far-reaching consequences on the companys performance. This was seen to some extent with the poor performances in 2003 of the companys biscuit and cereals division.
Continuing the theme, following regional and product concentration, the sale of Galbanis cheese business at the beginning of 2002 meant that nearly all Group sales were in the three core businesses, fresh dairy, beverages, and biscuits and cereal, leaving the company heavily reliant upon the performance of these categories.
Expanding into emerging markets In December 2003, Danone announced that it had acquired Nestls dairy business in Turkey in a move that will double its Turkish sales and strengthen its leading position in fresh dairy products. The deal also includes the UHT milk business of Nestl.
Though nearly all Group sales are in the three core businesses, the company believes that growth rates in these segments are among the highest in the food industry and that the momentum reflects a close match with trends in consumer tastes, particularly with products associated with health, wellbeing and convenience.
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In addition to a greater focus on its three core business segments, the Danones strategy extends to geographical targets. Although around 31% of sales are in emerging markets, the Group aims to increase this share to 40%.
Growth of private labels and legal action in Spain In Spain, the company faced the threat of legal action from Mller in the premium yoghurt market. In March, Danone launched two new yoghurt lines, Maxifruit and Duetto, taking a similar position to Mllers own premium line of yoghurts, Capa and Duo. Mller reacted by accusing Danone of abusing its dominance of the market in launching the products, suggesting that it may have prevented the introduction of Mllers own products into the retail network, especially in chains that are already heavily dependent on Danones existing range of dairy products. Danone has denied any sort of misconduct.
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Chapter 5
General Mills
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Chapter 5
Summary
General Mills
General Mills is a global manufacturer of consumer foods products with more than 100 U.S. consumer brands, over 30 of which generate annual retail sales in excess of $100 million. In 2001, General Mills acquired Pillsbury, maker of refrigerated dough products, baked goods, pizzas, snacks, soups and Mexican foods, for $10.5 billion from Diageo of the UK. In the year to May 2003, General Mills net sales grew 32% to $10.5 billion, reflecting an incremental five months of Pillsbury results. On a comparable basis sales grew 6%. The companys major businesses include Big G cereals, with consumer brands such as Cheerios, Wheaties and Lucky Charms; convenient dinner options including the Betty Crocker, Old El Paso Mexican and Green Giant vegetables brands; bakery and dough products from Pillsbury; a range of snack brands and Yoplait, a market leader in the US with products such as Yoplait Original, Yoplait Light, Colombo, Trix yoghurt, Yumsters, and Go-GURT. Within General Mills International Division, the portfolio of brands includes Hagen-Dazs, Pillsbury, Betty Crocker, Green Giant and Old El Paso Mexican foods. Cereal Partners Worldwide is a joint venture with Nestl that builds cereal brands in international markets. In 2004 General Mills has set out to focus on four strategies that have already proved successful in the past. The strategies are: product innovation, channel expansion, international expansion and margin expansion. General Mills is looking to capture a growing share of away-from home food sales, whilst international expansion is also an important target for the company. The addition of Pillsbury has enhanced these strategies and the companys mix of retail categories offers further opportunities for product and marketing innovation, especially with the expansion of distribution networks of the leading brands into fast-growing retail channels, including natural and organic stores.
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About General Mills

General Mills is a leading global manufacturer of consumer foods products. Its global brand portfolio includes Betty Crocker, Pillsbury, Green Giant, Haagen-Dazs, Old El Paso and Bugles. It also has more than 100 U.S. consumer brands, more than 30 of which generate annual retail sales in excess of $100 million.
General Mills is also a leader in the bakeries and foodservice business as a major supplier of baking and other food products to the foodservice and commercial baking industries. Additionally, the company markets organic food products under the brands Cascadian Farm and Muir Glen, and refrigerated entres under the Lloyds brand. The company employs 28,000 people worldwide, operates in more than 30 markets around the world and exports to more than 90 countries.
History The company has its roots in the late nineteenth century when, in 1866, Cadwallader Washburn built a flourmill on the banks of the Mississippi River in Minneapolis, United States. In 1869, Charles Pillsbury acquired Minneapolis Flour Mills. In 1928, General Mills was founded through the merger of several milling companies. In 1966, General Mills introduced Bugles, one of the companys first snack products and in 1967 Pillsbury acquired Burger King.
In 1977, General Mills launched Yoplait yoghurt in America. In 1979, Pillsbury acquired Green Giant and followed this with the acquisition of Hagen-Dazs in 1983. In 1989, Pillsbury was acquired by Grand Metropolitan plc in the UK (which later merged with Guinness to form Diageo).
In the early 1990s, General Mills formed two important strategic joint ventures: Cereal Partners Worldwide, with Nestl, and Snack Ventures Europe, with PepsiCo. In May 1995, the company completed its concentration on consumer packaged foods with the spin-off to shareholders of the General Mills Restaurants Division as a separate public
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company, Darden Restaurants, Inc. In 2001, General Mills acquired Pillsbury, manufacturer of refrigerated dough products, baked goods, pizzas, snacks, soups and Mexican foods, for $10.5 billion from Diageo of the UK.
Recent performance
A good performance in 2003 despite problems in bakery In the companys fiscal year to May 2003, General Mills net sales grew 32% to $10.5 billion, reflecting both a strong performance of existing operations plus an incremental five months of Pillsbury results. On a comparable basis (as if the company had owned Pillsbury for all 12 months of both 2002 and 2003) sales grew 6%. The companys profit margin expanded as it captured cost synergies from the Pillsbury acquisition and net earnings doubled to $917 million.
In the United States, net sales for the retail operations increased by 25% to exceed $7.4 billion, and operating profits grew 66% to $1.8 billion pre-tax. On a comparable basis, unit volumes increased 4%, led by gains from Big G cereals, Yoplait yoghurt, Betty Crocker dinner mixes and Progresso ready-to-serve soups.
The bakeries and foodservice division had a difficult year in 2003. Though sales increased by 42%, operating profits and comparable unit volume were static, reflecting a downturn in U.S. foodservice markets. In addition, price increases that were implemented to offset higher commodity costs took longer than planned to realise.
For the companys international business results, net sales for the wholly owned international businesses grew 67% to reach $1.3 billion. In addition, the companys proportionate share of international joint venture revenues increased to more than $990 million. Comparable unit volumes increased by 2%, as gains were recorded in every geographic region but Latin America, where volumes fell 20% due to difficult macroeconomic conditions.
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Table 5.26: General Mills financial performance 20012004

US$ m Turnover Net Earnings 2001 5,450 665 2002 7,949 458 2003 10,506 917 Interim 2003 Interim 2004 (1) 5,315 452 5,578 535
Note: (1) 26 weeks ending November 23rd, 2003.

Figure 5.15:
General Mills financial performance 20012004; turnover and net earnings
$m 12,000 10,000 8,000 6,000 4,000 2,000 0 2001 2002 2003 Interim 2003 Interim 2004
Business Insights
Turnover Net Earnings
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Table 5.27 illustrates the performance of the various divisions of General Mills in 20022003.
Table 5.27: General Mills performance by division 20022004

Net Sales, US$ m Big G Cereals Meals Pillsbury USA Snacking Products Yoghurts/Organic/Other Total US Retail Bakeries and Foodservice International 2002 1,866 1,144 793 722 815 5,907 1,264 778 2003 1,998 1,702 1,438 788 932 7,407 1,799 1,300 Interim 2004 (1)
3,926 899 753
Note: (1) 26 weeks ending November 23rd, 2003.

Market positioning
A portfolio of international brands The companys major businesses include Big G cereals, a leader in the U.S. ready-to-eat cereal category, with consumer brands such as Cheerios, Wheaties and Lucky Charms. The meals division manufactures convenient dinner options under a number of brands including Helper casseroles, Betty Crocker potato mixes, Old El Paso Mexican foods, Progresso soups, Green Giant vegetables and meal starters, and Lloyds refrigerated entres.
According to General Mills, Pillsbury is the market leader in the refrigerated dough category. Other products from the Pillsbury division include Pillsbury Home Baked Classics, Pillsbury frozen waffles, and Totinos frozen pizza and snacks.
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Table 5.28: General Mills market shares, 2002

Country Argentina Australia Belgium Brazil Canada China Ireland France Hong Kong Hungary Netherlands Netherlands New Zealand Portugal South Africa Spain US US US US US Venezuela Market Chilled Food Chilled Food Savoury Snacks Chilled Food Confectionery Savoury Snacks Savoury Snacks Savoury Snacks Savoury Snacks Savoury Snacks Savoury Snacks Savoury Snacks Chilled Food Savoury Snacks Savoury Snacks Savoury Snacks Chilled Food Savoury Snacks Dairy Confectionery Dairy Chilled Food Category Overall Overall Overall Overall Sugar Overall Overall Overall Overall Overall Overall Overall Overall Overall Overall Overall Overall Overall Overall Sugar Yoghurt Overall Company Value% Pillsbury Argentina SA Pillsbury Australia Pty Ltd Smiths Food Group BV Pillsbury Brasil Ltda General Mills Canada Inc General Mills (China) Co Ltd Pillsbury Ireland Ltd General Mills France SAS General Mills Inc SVE Hungary Kft Smiths Food Group BV Smiths Food Group BV Pillsbury Australia Pty Ltd Pillsbury Ibrica SA Pillsbury SA (Pty) Ltd Snack Ventures SA General Mills Inc General Mills Inc General Mills Inc General Mills Inc General Mills Inc Pillsbury de Venezuela CA 5.78 13.51 22.30 5.68 6.62 1.00 0.70 0.50 0.20 15.90 33.40 33.40 4.13 2.40 0.40 40.30 0.58 2.80 2.10 4.55 31.80 3.54
Business Insights
The companys baking products division produces a wide range of baking solutions including Betty Crocker dessert mixes, Bisquick baking mixes, Betty Crocker cakes and frostings, and Gold Medal flour.
General Mills snacks division manufactures brands such as Fruit Roll-Ups fruit snacks, Chex Mix snack mix, Pop Secret microwave popcorn and Nature Valley granola bars.
The company believes that Yoplait is a market leader in the United States with products such as Yoplait Original, Yoplait Light, Colombo, Trix yoghurt, Yumsters, and GoGURT. Health Ventures businesses include Small Planet Foods and organic food
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brands, Cascadian Farm and Muir Glen, as well as 8th Continent, a soy products joint venture with DuPont.
General Mills bakeries and foodservice division markets unbaked, part-baked and fully baked dough products and mixes to foodservice operators, and retail and wholesale bakeries. Many branded products are also sold through non-grocery outlets such as school cafeterias, restaurants and convenience stores.
Within General Mills International Division, the portfolio of brands includes HagenDazs ice cream, Pillsbury dough-based products, Betty Crocker desserts and mixes, Green Giant vegetables and Old El Paso Mexican foods. Cereal Partners Worldwide (CPW), a joint venture with Nestl, builds cereal brands in international markets around the world, whilst Snack Ventures Europe (SVE), a joint venture with PepsiCo is a leading snack manufacturer in Europe.
Figure 5.16: A selection of brands from General Mills
Source: http://www.generalmills.com/corporate/businesses/
Business Insights
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Innovation and international expansion will drive sales In the latter half of 2003 and into 2004 General Mills has set out to focus on four strategies that have already proved successful in the past: Product innovation, which drives unit volume and market share gains; channel expansion, to ensure that the companys products are available as widely as possible; international expansion, to build the companys brands in fast-growing markets around the world; margin expansion, to grow earnings faster than sales.
The addition of Pillsbury has enhanced these strategies and the companys mix of retail categories offers further opportunities for product and marketing innovation, especially with the expansion of distribution networks of the leading brands into fast-growing retail channels, including natural and organic stores. In addition, General Mills is looking to capture a growing share of away-from home food sales. International expansion is an important target for the company and it will look to drive sales growth through both its wholly owned operations and joint ventures. From a financial perspective, the company expects to achieve margin expansion through a continuous focus on productivity savings.
NPD targets consumer megatrends in 2003 In February 2003, General Mills introduced Berry Burst Cheerios. The two new products - Berry Burst Cheerios Strawberry and Berry Burst Cheerios Triple Berry (strawberries, blueberries and raspberries) provides the taste and experience of fresh fruit through the process of freeze-drying. Freeze-drying maintains a food products original appearance, texture and nutrition. When milk is added to the cereal, the fruit re-
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hydrates. With health-conscious consumers in mind, a serving (30 grams) of Berry Burst Cheerios contributes 110 calories and provides 70% of the recommended daily allowance for folic acid and 60% of the recommended daily allowance for iron. Additionally, Berry Burst Cheerios offers consumers the same cholesterol-lowering properties as original Cheerios. In January 2004, the company extended the range of Berry Burst Cheerios with Strawberry Banana Berry Burst Cheerios, a variety featuring a combination of real bananas, strawberries and Cheerios.
Also in February 2003, General Mills launched five new snacking products. The new products in fruit snacks, microwave popcorn and grain snacks were introduced under the Betty Crocker, Pop Secret and Nature Valley brands. Sesame Workshop, the nonprofit educational organisation and producers of Sesame Street, and Betty Crocker combined to introduce Sesame Street Elmo Fruit Snacks. The innovative packaging of Elmo Fruit Snacks encourages kids to eat and learn. Three different themed packages, which include a mix of 12 different inner snack pouches have learning themes and educational games for families to enjoy together. These learning activities are featured on both the outside and inside of the outer packages and on the individual snack pouches.
In June 2003, General Mills launched Oatmeal Crisp Fruit n Cereal Bars, the latest addition to their bars line-up that includes Nature Valley and Milk n Cereal Bars. Meeting the convenience requirements of snacking consumers, the bars were launched in three flavours - Strawberry, Apple Cinnamon, and Blueberry. Appealing to healthconscious consumers, the bars contain 12 vitamins and minerals and have only 150 calories and two grams of fat per bar.
In September 2003, Pillsbury launched three new products, Soft White Dinner Rolls, Crusty Sourdough Dinner Rolls and Extra Large Easy Split Biscuits, to extend the companys line of freezer-to-oven biscuits, dinner rolls and sweet rolls. Like the other Pillsbury Home Baked Classics items, the new dinner rolls and biscuits transfer straight from the freezer to the oven, with no thawing or proofing required. They offer
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convenient portion control with a re-sealable bag and individually frozen items, so families can bake just the number they need, then store the rest of the bag for later.
In October 2003, Pillsbury extended their range of Pillsbury Waffle Sticks with Dippin Cups and additions to the Pillsbury Toaster Strudel pastries line. Pillsbury Mini Pancakes with Dippin Cups build on the success of their original frozen breakfast dipping product. Mini Pancakes with Dippin Cups are 3-inch diameter pancakes that come with individual syrup cups for dipping. Both the pancakes and syrup cups are microwavable, and easy for kids to prepare. Consumers can choose from two flavours, Buttermilk and Blueberry. Additionally, two new flavours of Pillsbury Waffle Sticks with Dippin Cups, Chocolate Chip and Cinnamon, were launched as well as additional flavours of Pillsbury Toaster Strudel pastries.
SWOT analysis
The following section provides a brief appraisal of the performance and strategy of General Mills in the form of a SWOT analysis, highlighting the relative strengths, weaknesses, opportunities and threats faced by the company.
Strong brands across several categories General Mills operates more than 100 U.S. consumer brands, more than 30 of which generate annual retail sales in excess of $100 million. The acquisition of Pillsbury extended the portfolio so that General Mills is also a leader in the bakeries and foodservice business as a major supplier of baking and other food products to the foodservice and commercial baking industries.
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Figure 5.17: General Mills SWOT analysis

Company Strengths
General Mills operates more than 100 US consumer brands, more than 30 of which generate annual retail sales in excess of $100 million The acquisition of Pillsbury extended the portfolio
Company Weaknesses
Higher supply-chain costs due in large part to higher prices on key commodities The Bakeries and Foodservice division had a difficult year in 2003 reflecting a downturn in US foodservice markets
The continued integration of Pillsbury will enhance the companys growth strategies General Mills is looking to capture a growing share of away-from home food sales, whilst international expansion is an important target
Company Threats
The threat of higher commodity costs. Overall trends that see foodservice taking an increasing share of out-ofhome food sales pose a threat to future sales.
Business Insights
Weaker markets and higher commodity costs Although the company achieved growth in unit volume, sales and earnings through the first half of the companys 2004 fiscal year (the six months to November 23, 2003), volume trends weakened in the second quarter. Supply-chain costs are expected to be higher than planned, due in large part to higher prices on key commodities such as wheat, oil, eggs and vanilla.
The bakeries and foodservice division had a difficult year in 2003. Operating profits and comparable unit volume were static, reflecting a downturn in U.S. foodservice markets. In addition, price increases that were implemented to offset higher commodity costs took longer than planned to realise.
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For the companys international business results, comparable unit volumes decreased in Latin America, where volumes fell 20% due to difficult macroeconomic conditions.
Joint ventures and international expansion The company is willing to take on joint ventures to realise growth potential in markets where it has insufficient expertise such as Cereal Partners Worldwide, with Nestl and Snack Ventures Europe, with PepsiCo.
The continued integration of Pillsbury will enhance the companys growth strategies and the companys mix of retail categories and offers further opportunities for product and marketing innovation, especially with the expansion of distribution networks of the leading brands into fast-growing retail channels, including natural and organic stores.
In addition, General Mills is looking to capture a growing share of away-from home food sales, whilst international expansion is an important target for the company and it will look to drive sales growth through both its wholly owned operations and joint ventures.
Threats General Mills as well as many other companies have had to face up to the threat of higher commodity costs. In 2003, price increases that were implemented to offset higher commodity costs took longer than planned to realise, to the detriment of the companys performance.
In addition, although out-of home foodservice markets have suffered from slower rates of growth in recent years, overall trends that see foodservice taking an increasing share of out-of-home food sales do pose a threat to future sales.
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Chapter 6
Heinz
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Chapter 6
Summary
Heinz
According to Heinz, its brands hold number one and number two market positions in more than 50 countries. The Heinz brand is worth $2.5 billion and Heinzs top15 brands account for two-thirds of the companys annual sales. The companys operations may be segmented into three main areas: ketchup, condiments and sauces; meals and snacks; baby foods. In June 2002, Heinz disposed of a number of North American businesses and merged them with Del Monte Foods Company in a move designed to make Heinz a more focused, predictable and faster-growing company. The businesses together generated approximately $1.8 billion in annual sales. In January 2003, the company announced that it was to make a number of changes to its U.S. business structure as part of the companys transformation of its North America operations into a more effective, efficient and customer-focused operation. Heinzs Brand Growth Strategy is based on four imperatives designed to drive profitable growth; remove the clutter; squeeze out costs; and measure and recognise performance. Heinz admits that its biggest growth opportunity is its biggest brand - Heinz Ketchup. The company believes that it has a 30% share of the worlds ketchup market, and has set a target of a global market share of 50%. The company plans to achieve this through growing shares in developed markets, building foodservice tabletop ketchup outside the United States and driving usage in emerging markets. In July 2003, Heinz announced that Farleys First and Second Milk are now enhanced with nucleotides. Nucleotides are nutrients found naturally in breast milk that help develop a babys immune system. In October 2003, Heinz announced that it would launch low carbohydrate ketchup. Heinz One Carb Ketchup is designed for consumers who wish to moderate their carbohydrate intake.
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About Heinz
Based in the United States, Heinz is a global food company. According to the company, its brands hold number one and number two market positions in more than 50 countries. The Heinz brand is worth $2.5 billion and Heinzs top-15 brands account for two-thirds of the companys annual sales and 60% of sales are derived from outside of the United States. The company is also a supplier of branded products to customers in both the retail grocery and foodservice channels.
In June 2002, Heinz disposed of a number of North American businesses and merged them with Del Monte Foods Company in a move designed to make Heinz a more focused, predictable and faster-growing company. The businesses, which together generated approximately $1.8 billion in annual sales (or 20% of annual revenues), included North American pet food and pet snacks, U.S. tuna, U.S. private label soups and U.S. baby foods.
History In 1869, the first Heinz product was horseradish, which was sold in a clear glass bottle. After horseradish came pickles, sauerkraut and vinegar. These were delivered by horsedrawn wagons to grocers in and around Pittsburgh, Pennsylvania. After bankruptcy in 1875, Henry Heinz restarted production with the help of his family and the company launched a new tomato ketchup product. Red and green pepper sauces soon followed, then cider vinegar and apple butter, chilli sauce, mincemeat, mustard, tomato soup, olives, pickled onions, pickled cauliflower, baked beans and sweet pickles.
In 1886, Heinz visited England and persuaded Fortnum & Mason to accept all seven of his products for distribution. By 1896, the first overseas office had opened near the Tower of London and this was joined in 1905 by a factory in Peckham and in 1919 by a site in Harlesden that soon became the second English plant of Heinz. In the same year Henry Heinz died of pneumonia at the age of 75. He was succeeded by his son, Howard. Through the Howard Heinz era, as in that of his father, all growth was internal with all
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overseas ventures being built from scratch. This continued to be the policy for most of the tenure of H. J. Heinz II, who became president in 1941. The first exception was the acquisition of a food processor in the Netherlands in 1958, and soon the exception became the rule. In the next few years, companies were acquired in Italy, Portugal, Mexico, and several in the United States.
Under R. Burt Gookin, who became president in 1966, the pace of acquisitions and growth quickened. By 1972, Heinz had reached the billion-dollar mark in sales. Dr. OReilly became president and CEO in 1979, launching an era in which Heinz became a leader in the nutrition and wellness revolution. Company production bases were launched in Spain, Portugal and New Zealand and penetrated markets in South Africa, Russia, the Czech Republic, Hungary, South Korea, China, India, Egypt, Botswana and Zimbabwe.
William R. Johnson took over as President in 1996, CEO in 1998 and Chairman in 2000. The companys international growth strategy continued with the acquisition of companies in The Netherlands, Indonesia, Philippines, Singapore and Costa Rica. In 2002, the company disposed of a number of businesses in a merger with Del Monte that was designed to make Heinz a more focused company able to invest more effectively in its strongest brands.
Recent performance
In 2003, Heinz performance was on target with its own forecast range and arguably became a stronger global food company following the spin-off of a number of businesses to Del Monte (at the end of 2002). The company reduced its net debt by $1.3 billion and generated operating free cash flow of $752 million.
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Greater focus boosts performance in 2003 In 2003 (year ending April 30, 2003), Heinz reported net income for the year of $566.3 million, compared with $833.9 million, in the previous fiscal year. Sales grew by 8.2% to $8.24 billion, driven by favourable exchange translation rates and acquisitions but were partially offset by a 2.0% decline in volume. During 2003, the company recognised charges of $162.4 million after tax, relating to the Heinz/Del Monte transaction, to reduce overheads of the remaining core businesses, exiting a UK pizza business and the loss on the sale of Omstead Foods, a Canadian-based frozen fish and vegetable business.
Financial performance Table 6.29: Heinz financial performance 20012004

US$ m Turnover Operating Profit 2001 6,988 989 2002 7,614 1,300 2003 8,236 1,759 Interim 2003 3,938 627 Interim 2004 3,986 698
Business Insights
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Figure 6.18: Heinz financial performance 20012004; turnover and operating profit comparison
$m 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0
2001 2002 2003 Interim 2003 Interim 2004
Business Insights
In November 2003, Heinz reported results for the second quarter ended October 29, and announced net income of $191.5 million. The company was particularly pleased with its margin performance in Asia Pacific, where the operating income margins increased. Heinz Europes sales increased $60.5 million, driven by higher volumes for John West and Petit Navire seafood, Heinz Salad Cream and convenience meals. Overall volume in Europe increased, led by good performances in the UK and Western Europe. European volume gains were partially offset by decreases in baby food and frozen food products, and disposals reduced sales 2.3%, primarily related to the sale of the UK frozen pizza business and the Northern European bakery business. Table 6.30 illustrates the performance of the separate divisions over a three and a half year period.
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Table 6.30: Heinz divisional performance 20012004

US$ m 2001 2002 2003 Interim 2003 Interim 2004
Heinz North America Turnover 2,087 Operating Profit 492 U.S. Frozen Turnover Operating Profit Europe Turnover Operating Profit Asia/Pacific Turnover Operating Profit Other Turnover Operating Profit
2,217 477
2,273 383
n/a n/a
n/a n/a
957 84
1,171 245
1,156 200
n/a n/a
n/a n/a
2,583 389
2,834 542
3,148 554
1,388 274
1,510 316
1,041 96
981 82
1,151 118
507 46
625 78
320 49
410 55
508 90
387 53
176 20
In January 2003, Heinz reorganised its U.S. businesses as follows: North America Consumer Products Turnover Operating Profit U.S. Foodservice Turnover Operating Profit
1,006 225
973 233
650 97
703 107
Business Insights
In January 2003, the company announced that it was to make a number of changes to its U.S. business structure as part of the companys transformation of its North America operations into a more effective, efficient and customer-focused operation. Two business units were created, Heinz US Away from Home (focused on Heinzs restaurant and on-the-go eating businesses) and Heinz US Consumer Products (retail businesses in ketchup, condiments & sauces and frozen meals & snacks). The two units will have full responsibility for all related business functions, including marketing, sales, finance and the supply chain.
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Foodservice In June 2003, Heinz announced that its Foodservice Division had acquired Seattle-based Truesoups, a manufacturer and marketer of frozen, premium, ready-to-heat-and-serve soups for casual dining restaurants and foodservice distributors. Truesoups specialises in making fresh-ingredient soups for well-known and rapidly growing fast-casual dining chains. Heinzs Foodservice Division represents approximately 40% of Heinz North Americas sales.
Market positioning
Global brand reach The companys operations may be segmented into three main areas: ketchup, condiments and sauces; meals and snacks; baby foods.
The Heinz brand is synonymous with ketchup. Each year, Heinz sells 650 million bottles of ketchup and 11 billion packets of ketchup and dressings each year. The companys ketchup, condiments and sauces sales are worth almost $2.5 billion across in 140 countries. The companys range of condiments include Salad Cream in the UK; the Orlando range in Spain; Banquette in Costa Rica; UFC banana ketchup in the Philippines and ABC soy sauce in Indonesia. In the United States, the company manufactures Jack Daniels and Yoshidas grilling sauces, the Heinz 57 Sauce and the range of Classico pasta sauces.
In the meals and snacks segment, the companys operations are split between frozen foods and soups, beans and pasta. Frozen foods represent more than $2 billion in sales. Ore-Ida is a branded potato processor that manufactures Funky Fries. Bagel Bites and Hot Bites feature in the after-school snacks market, whilst the company also produces Boston Market HomeStyle frozen meals and side dishes. In the UK, the company serves health conscious consumers with Weight Watchers from Heinz and also produces Jane Asher desserts and Linda McCartney meat-free products.
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Table 6.31: Heinz market shares, 2002

Country Australia Australia Belgium Belgium India India New Zealand Sweden Sweden Market Savoury Snacks Chilled Food Dairy Dairy Dairy Dairy Chilled Food Dairy Dairy Category Overall Overall Overall Yoghurt Milk Overall Overall Overall Yoghurt Company Value% Heinz Co Australia Ltd, HJ Heinz Watties of Australia Heinz Co, HJ Heinz Co, HJ Heinz India Pvt Ltd Heinz India Pvt Ltd Heinz-Wattie Foods Ltd Svenska Heinz AB Svenska Heinz AB 0.20 0.47 0.20 2.50 2.70 2.60 5.29 0.10 0.80
Business Insights
Heinz is a leader in the soup category in Europe and, according to the company, holds the number one position in the UK market. In the beans and pastas sector, recent acquisitions in Europe have been Honig dry soup in the Netherlands along with HAK vegetables and KDR spreads and sprinkles, a traditional Dutch topping for breakfast toast. The baby food market is worth nearly $1 billion to Heinz. According to the company, it is a leader in Italy, Canada, Venezuela, and Australia. In the UK and India, Heinz has the Farleys and Farex brands.
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Figure 6.19: A selection of brands from Heinz
Source: http://www.heinz.com/jsp/world.jsp
Business Insights

A focused portfolio The companys biggest growth opportunity is its biggest brand - Heinz Ketchup with a 30% share of the worlds ketchup market, and a set target of a global market share of 50%. The company plans to achieve this through growing shares in developed markets, building foodservice tabletop ketchup outside the United States and driving usage in emerging markets.
Heinzs Brand Growth Strategy is based on four imperatives designed to drive profitable growth; remove the clutter; squeeze out costs; and measure and recognise performance. As a result of the decision to dispose of businesses in a merger with Del Monte in 2002, Heinz created a simpler, more focused portfolio, which concentrates on higher-margin,
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higher-growth businesses. Following the transaction, the company announced that it planned to strengthen its portfolio with significantly increased marketing investment in the coming years.
NPD targets changing consumer requirements In the UK in November 2003, Heinz and Fisher Price, a leading toy brand, teamed up to offer consumers the chance to claim items from the new Fisher Price innovative and interactive range of toys, Peek-a-Blocks, by collecting tokens through an on-pack promotion. The Fisher Price Peek-a-Blocks range consists of six blocks, a giraffe, a truck and a wagon, all of which are interactive and encourage learning. Heinz ran a token collection scheme for the free Peek-a-Blocks toys across the Heinz Farleys standard cereals range. The promotion was also used to support recent re-branding at Heinz and was used to build consumers loyalty and a family association to the brand.
Also in the UK, in October 2003, Heinz launched Mums Own jarred savoury recipes, based on real mums homemade dishes. Heinz undertook extensive further research in order to better understand mums needs and the result was 17 contemporary dishes created by 17 consumer mothers. The products aim to meet the needs of new parents and young families, such as recipe choice, nutritional balance, quality and convenience and was supported via press advertising, sampling, direct mail and consumer and trade PR.
In the United States, Ore-Ida launched three Extra Crispy versions of its most popular products - Golden Crinkles, Fast Fries and Tater Tots, in January 2004. The Extra Crispy product line is set to be the first of several significant innovations over the next 12-18 months that will address consumer demands for greater convenience and healthy eating alternatives.
In October 2003, Heinz announced that it would launch a low carbohydrate ketchup product. Heinz One Carb Ketchup is designed for consumers who wish to moderate their carbohydrate intake without having to compromise on taste. The new ketchup will
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contain one gram of carbohydrates per serving and along with Heinzs No Salt Added Ketchup and Organic Ketchup, provides consumers with a variety of products to support healthier/dieting lifestyle needs. In addition, Classico, the companys premium pasta sauces brand has introduced a new line of products in the meat-based sector under the Classico Homestyle Meat Selections range and include Classic Beef with Onions and Garlic and Hearty Steak with Burgundy Wine Sauce.
In July, Heinz announced that Farleys First and Second Milk are enhanced with nucleotides. Nucleotides are nutrients found naturally in breast milk. Nucleotides play a vital role in developing babies immune systems and have been proven to help babies fight off common tummy bugs and upsets by promoting the growth of good bacteria in the gut. Nucleotides also play an important role in promoting babies healthy growth. Farleys has included nucleotides, at similar levels as found in breast milk, to Farleys First and Second Milk. Both of these products also contain a full range of vitamins, minerals, LCPs (long chain lipids), energy and protein, whilst Farleys Follow-On Milk, which is suitable from the age of six months, is fortified with iron. To meet consumers convenience requirements, Farleys is also extending its offering in the ready-to-use format range by introducing a new 250ml carton, in addition to its existing 500ml pack.
SWOT analysis
The following section provides a brief appraisal of the performance and strategy of Heinz in the form of a SWOT analysis, highlighting the relative strengths, weaknesses, opportunities and threats faced by the company.
Strong brands and a focused approach According to the company, its brands hold number one and number two market positions in more than 50 countries. Whilst Heinzs top-15 brands account for twothirds of the companys annual sales, it should also be noted that 60% of sales are derived from outside of its origin in the United States.
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The company now has a greater focus on its core operations than it had previously. In June 2002, Heinz disposed of a number of North American businesses in a move designed to make Heinz a more focused, predictable and faster-growing company.
Figure 6.20: Heinz SWOT analysis

Company Strengths
Strong, established brands that hold number one and number two market positions in more than 50 countries Diversified customer base - 60% of sales are derived from outside of the US Greater focus on core operations
Company Weaknesses
In January 2003, the company recognised that operations were not as efficient and streamlined as they should be. It announced that it was to make a number of changes in its US business structure to introduce a more effective, efficient and customer-focused operation
The companys biggest growth opportunity is Heinz Ketchup. The company has set a target of a global market share of 50% The company plans to grow shares in developed markets, build foodservice tabletop ketchup outside the United States and drive usage in emerging markets
Company Threats
Whilst its main brand is its biggest strength, such a reliance on any one category or brand could be considered risky should unforeseen developments hinder the growth or performance of the core markets.
Business Insights
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Chapter 7
Hershey
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Chapter 7
Summary
Hershey
Hershey Foods Corporation is a leading North American manufacturer of chocolate and non-chocolate confectionery and chocolate-related grocery products. Operations of Hershey Foods Corporation are concentrated in two divisions. U.S.-related manufacturing and Hershey International, which exports to over 90 countries. The companys main brands are Hersheys, Reeses, Kit Kat, Kisses, Twizzlers, Jolly Rancher, Carefree and Ice Breakers. Hersheys sales are split as 80% chocolate products and 20% non-chocolate. The international business outside of North America accounts for less than 5% of total sales. In July 2003, Hershey announced a number of initiatives in its value enhancing strategy, including the introduction of new products and various initiatives to streamline its supply chain, which included a realignment of the sales organisation and the disposal of non-strategic brands and products. Hershey has license agreements with affiliated companies of Cadbury Schweppes to manufacture and/or market and distribute confectionery products worldwide as well as Cadbury and Caramello confectionery products in the United States. The Corporation also has an agreement with Nestl SA, to manufacture and distribute Kit Kat and Rolo confectionery products in the United States. Wal-Mart Stores, Inc. and subsidiaries is the corporations largest customer and represented about 17% of sales in 2002. Other large customers include K-mart, Target, Albertsons, CVS, and VSA. Hershey is looking to leverage its core competencies in the broader snack market. It believes that targeted adjacent segments offer growth opportunities, as consumers are likely to select well-known brands in a broader array of snacks. Hershey has identified margin growth opportunities across their supply chains that include product line rationalisation and increased manufacturing efficiency.
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About Hershey
Hershey Foods Corporation is a leading North American manufacturer of chocolate and non-chocolate confectionery and chocolate-related grocery products, and has a variety of international operations.
Operations of Hershey Foods Corporation are concentrated in two divisions. In the United States, Hershey Chocolate North America is a producer of chocolate and nonchocolate confectionery products, as well as chocolate-related grocery products. Hershey International oversees the corporations international interests and exports to over 90 countries worldwide.
With sales of $4.1 billion in 2002, the companys main brands are Hersheys, Reeses, Kit Kat, Kisses, Twizzlers, Jolly Rancher, Carefree and Ice Breakers. Hersheys sales are split as 80% chocolate products and 20% non-chocolate products. The International business outside of North America accounts for less than 5% of the Corporations total sales.
History In early 1894, the Hershey Chocolate Company was born as a subsidiary of Milton Hersheys existing Lancaster caramel business. In addition to chocolate coatings, Mr. Hershey made breakfast cocoa, sweet chocolate and baking chocolate. In 1900, Mr. Hershey sold the Lancaster Caramel Company for $1 million. However, he retained the chocolate manufacturing equipment and the rights to manufacture chocolate, believing a large market existed for affordable confections that could be mass-produced. As the company grew, the Hershey Corporation was formed in the State of Delaware in October, 1927.
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Recent performance
Hersheys leadership position within the U.S. confectionery market is a source of competitive advantage. In 2002, Hersheys leading brands accounted for almost 60% of retail sales, however another focus in 2002 was instant consumables- convenient, onthe-go confectionery such as loose bars and individual packages of gum and mints. These items provide a significant source of incremental sales.
Performance in 2003 In July 2003, Hershey announced a number of initiatives in its value enhancing strategy, including the introduction of new products and various initiatives to streamline its supply chain, which included a realignment of the sales organisation and the disposal of non-strategic brands and products.
During the third quarter of 2003, the Corporation realised funds from the sale of a group of gum brands to Farleys and Sathers Candy Company, Inc. The gum brands included Fruit Stripe chewing gum, Rain-Blo gum balls and Super Bubble bubble gum. Proceeds from the sale of the gum brands totalled approximately $20.0 million.
Financial performance Table 7.32: Hershey financial performance 20002003

$m Turnover (1) Net Income Notes: (1) Net Sales;
2000 3,820 335
2001 4,137 207
2002 4,120 404
2003 4,173 458
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Figure 7.21:
Hershey financial performance 20002003; turnover and net income
$m 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2000
Turnover Net Income
2001
2002
2003
Business Insights
In May 2003, Hershey announced that it had agreed the sale of the Sixlets brand to SweetWorks. Included in the transaction were the rights to sell Sixlets branded products, under license. In January 2003, SweetWorks purchased the Ovation chocolate brand from Hershey Foods.
Also in May, Hershey launched plans to build a new distribution centre in the Gateway Commerce Centre in Madison County, Illinois. The 1.1 million-square-foot distribution centre is expected to be operational by March 2004 as part of the companys strategy to improve customer service and implement a low-cost supply chain.
In October 2003, the company announced that consolidated net sales for the first nine months of 2003 were $2,993 million compared with $2,964 million for the first nine months of 2002. Net income for the first nine months of 2003 was $312 million, compared with $273 million for the comparable period of 2002.
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At the end of January 2004, Hershey announced its results for the fourth quarter of 2003 and preliminary full-year results for 2003. Boosted by new products such as Hersheys Smores and Swoops, in the fourth quarter Hershey recorded net income of $144.9 million, compared to $130.3 million in 2002. Fourth-quarter consolidated net sales were $1.18 billion, compared with $1.16 billion a year earlier.
For the full year 2003, consolidated net sales were $4.17 billion, compared with $4.12 billion for 2002. Net income for 2003 was $457.6 million, compared with $403.6 million for 2002. Announcing the results, the company stated that its plans for the year include accelerating new product launches and introducing higher-margin items.
Market positioning
Higher margins in confectionery The Corporations principal product groups include: confectionery products sold in the form of bar goods, bagged items and boxed items; grocery products in the form of baking ingredients, chocolate drink mixes, peanut butter, dessert toppings and beverages. Operating profit margins vary considerably among individual products and brands, however Hershey believes that margins on confectionery products are generally greater than those on certain other food products.
Hersheys principal confectionery brands include: Almond Joy and Mounds candy bars, Cadbury Creme Eggs candy, Hersheys Cookies n Creme candy bar, Hersheys milk chocolate and milk chocolate with almonds bars, Hersheys Nuggets chocolates, Hersheys Kisses and Hersheys Hugs chocolates, Jolly Rancher candy, Kit Kat wafer bar, Milk Duds candy, PayDay peanut caramel bar, Reeses crunchy cookie cups, Reeses NutRageous candy bar, Reeses peanut butter cups, Sweet Escapes candy bars, TasteTations candy, Twizzlers candy, Whoppers malted milk balls, and York peppermint patties.
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Grocery products include Hersheys baking chocolate, Hersheys chocolate drink, Hersheys chocolate milk mix, Hersheys Chocolate Shoppe ice cream toppings, Hersheys cocoa, Hersheys syrup, Hersheys Hot Cocoa Collection hot cocoa mix, Reeses peanut butter, and Hersheys, Reeses and Heath baking pieces.
The Americas Table 7.33: Hershey market shares in the Americas, 2002
Country Canada Canada Canada Colombia Mexico Mexico Mexico Mexico US US US US Market Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Dairy Dairy Confectionery Confectionery Confectionery Dairy Category Chocolate Gum Sugar Sugar Chocolate Sugar Milk Overall Chocolate Gum Sugar Milk Company Value% Hershey Canada Inc Hershey Canada Inc Hershey Canada Inc Hershey Foods Corp Hershey Mxico SA de CV Hershey Mxico SA de CV Hershey Mxico SA de CV Hershey Mxico SA de CV Hershey Foods Corp Hershey Foods Corp Hershey Foods Corp Hershey Foods Corp 19.62 0.60 2.17 0.20 19.74 1.05 0.90 0.40 33.73 7.77 12.54 0.10
Business Insights
Outside the Americas Internationally, the company exports Hersheys branded confectionery and grocery products to over 90 countries worldwide.
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Table 7.34: Hershey market shares outside the Americas, 2002

Country China Greece Hong Kong Japan New Zealand New Zealand Philippines Philippines Philippines Philippines Philippines Russia Saudi Arabia Saudi Arabia Singapore South Africa Taiwan Taiwan Taiwan Thailand Vietnam Market Confectionery Confectionery Confectionery Confectionery Confectionery Dairy Confectionery Confectionery Dairy Dairy Dairy Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Dairy Dairy Confectionery Confectionery Category Chocolate Chocolate Chocolate Chocolate Chocolate Milk Chocolate Sugar Milk Milk Overall Chocolate Chocolate Sugar Chocolate Gum Chocolate Milk Overall Chocolate Chocolate Company Value% Hershey Foods Corp Hershey Foods Corp Hershey Food Ltd Hershey Japan Co Ltd Hershey Foods Corp Hershey Foods Corp Hershey Foods Corp Hershey Foods Corp Hershey Foods Corp Hershey Philippines Inc Hershey Foods Corp Hershey Foods Corp Hershey Foods Corp Hershey Foods Corp Hershey Foods Corp Hershey Foods Corp Hershey Foods Corp Hershey Foods Corp Hershey Foods Corp Hershey Foods Corp Hershey Foods Corp 6.05 0.40 0.42 0.92 1.40 0.10 19.07 1.40 2.20 0.10 1.60 0.35 0.82 0.60 5.77 4.10 7.32 0.70 0.50 5.30 0.27
Business Insights
Hershey has license agreements with affiliated companies of Cadbury Schweppes to manufacture and/or market and distribute York, Peter Paul Almond Joy and Peter Paul Mounds confectionery products worldwide as well as Cadbury and Caramello confectionery products in the United States, subject to a minimum sales requirement.
The Corporation also has an agreement with Societe des Produits Nestl SA, which licenses the Corporation to manufacture and distribute Kit Kat and Rolo confectionery products in the US, subject to certain conditions, including minimum unit volume sales.
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Product examples Figure 7.22: A selection of brands from Hershey
Source: http://www.hersheys.com/products/
Business Insights

Hersheys stated mission is to be a focused food company in North America and selected international markets and a leader in every aspect of its business, particularly the North American confectionery market and the U.S. market for chocolate-related grocery products.
In March 2003, the company stated that accelerating profitable top-line growth was its number-one priority, with two components to deliver against this priority. First, the company is seeking to increase its leadership position in the U.S. confectionery market. Secondly, the company is looking to leverage its core competencies in the broader snack market. Targeted adjacent segments offer incremental growth opportunities, as consumers are likely to select well-known brands in a broader array of snacks.
Additionally, the company has identified further margin expansion opportunities across the supply chain that will enable further investment in growth initiatives. These include product line rationalisation and increased manufacturing efficiency. The companys cocoa costs will increase in 2004 as a result of recent price increases in the world cocoa
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market. However, these raw material cost increases will be offset through a combination of price increases and/or product weight changes, and an improved sales mix.
Hersheys customers and competitors Wal-Mart Stores, Inc. and subsidiaries is the corporations largest customer and represented about 17% of sales in 2002. Other large customers include K-mart, Target, Albertsons, CVS, and VSA. In the U.S. chocolate confectionery sector, Hersheys largest competitor is Mars, followed by Nestl and Russell Stover. In the domestic nonchocolate gum and mint categories the corporations largest competitors are Wrigley and Kraft/Nabisco.
Private label no concern Hershey believes that private label represents around 2% of confectionery category sales, a share that it believes is fairly constant. The corporation does not see private label products as a significant threat to its sales as it believes that consumers recognise the superior value, quality, and taste of branded confectionery products. Hershey also believes that U.S. confectionery manufacturers have maintained a very good price-value relationship which has been a major reason behind the fact that private label accounts for only 2% of the market.
Hershey sells to between eight and 10 different customer types, including grocery wholesalers, chain grocery stores, confectionery distributors, mass merchandisers, vending companies, wholesalers, convenience stores, concessionaires and food distributors. Full-time sales representatives, food brokers and part-time retail sales merchandisers sell the companys products.
NPD tracks consumer megatrends in 2003 In April 2003, Hershey introduced, for the first time in its 109-year history, sugar free chocolate confectionery featuring Reeses Sugar Free Peanut Butter Cup Miniatures, Hersheys Sugar Free Chocolate sweets, Hersheys Sugar Free Chocolate sweets with
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Almonds and Hersheys Sugar Free Dark Chocolate sweets. The company positioned the products as having the same high quality and taste, but without the sugar and about 19% fewer calories. The brands contain a sugar substitute (lactitol), which is slowly metabolised and generally causes only a small rise in blood sugar levels.
Other recent new product introductions from Hershey have included Smores candy bar (incorporating graham crackers, marshmallow and Hersheys milk chocolate), Swoops chocolate slices (in four flavours, packaged in re-sealable on the go containers) and Reeses mini pieces in portable tubes, as well as additional Limited Edition Reeses products.
In December 2003, Hershey launched one gram Sugar Carb bars to meet increasing consumer interest in foods for low-carbohydrate lifestyles. The bars are formulated with sugar alcohols and fibre in place of traditional sweeteners, delivering a product with only one gram of sugar per 1.1 oz. bar. The new chocolate flavour bar contains around 20% fewer calories than a regular Hersheys milk chocolate bar and has minimal impact on blood sugar levels, an important key to maintaining a low-carbohydrate lifestyle for health conscious consumers. The bars will initially be launched in three flavours, chocolate, chocolate with almonds and chocolate with soy crisps.
In the same year, Hershey introduced two new flavours of Hersheys Kisses Limited Editions: Hersheys Kisses Mint Chocolates and Extra Creamy Hersheys Kisses with Toffee & Almonds. In July, in response to consumer demand, Hersheys Kisses Rich Dark chocolates were also added to the permanent Hersheys Kisses collection.
SWOT analysis
The following section provides a brief appraisal of the performance and strategy of Hershey in the form of a SWOT analysis, highlighting the relative strengths, weaknesses, opportunities and threats faced by the company.
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Strengths Hersheys leadership position within the U.S. confectionery market is a source of competitive advantage in building relationships with both customers (distribution chains) and consumers. A major company strength is the number of different customer types it sells its products through from chain grocery stores to vending companies.
Recent supply chain rationalisation has delivered significant improvements within the companys logistics area in recent years, delivering better customer service at lower costs.
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Figure 7.23: Hershey SWOT analysis

Company Strengths
Leadership positions within the US confectionery market are a source of competitive advantage Hershey sells to a diversified range of between 8-10 different customer types Rationalisation has delivered better customer service at lower costs
Company Weaknesses
Dependency upon US markets. International business outside of North America accounts for less than 5% of the Corporations total sales Supply chain inefficiencies and poor customer service have hindered performance
New products, better programming and targeted support at store level, has seen recent market share gains in convenience channels Growth in international markets is an important source of growth Leverage its core competencies in the broader snack market
Company Threats
Raw material cost increases in 2004 will be offset by price increases, product weight changes, and an improved sales mix Consumer health concerns. In April 2003, Hershey introduced, for the first time in its 109-year history, sugar free chocolate confectionery
Business Insights
Weaknesses Dependency upon U.S. markets is a primary weakness for Hershey. Whilst the company has leadership positions in the U.S. market, its international business outside of North America accounts for less than 5% of the Corporations total sales. This makes the company heavily dependent upon the performance of the U.S. market and, in particular Wal-Mart. Wal-Mart Stores, Inc. and subsidiaries is the corporations largest customer and represented about 17% of Hersheys sales in 2002.
In recent years, the company has suffered from supply chain inefficiencies and poor customer service. In July 2003, Hershey announced a number of initiatives in its value enhancing strategy, including various initiatives to streamline its supply chain, which
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included a realignment of the sales organisation and the disposal of non-strategic brands and products.
Hershey has also launched plans to build a new distribution centre as part of the companys strategy to improve customer service and implement a low-cost supply chain.
Opportunities In recent years, convenience stores have been an area of focus for Hershey. The company has historically been underrepresented in this market segment, though a combination of new products, better programming and targeted support at store level, has seen recent market share gains.
Growth in international markets has been restricted in recent years and the global marketplace remains an important source of growth to the company. The company has stated that strategic alternatives to address the long-term opportunities have been reviewed as it seeks to invest resources proportionally with potential growth prospects.
Additionally, the company has identified further margin expansion opportunities across the supply chain that will enable further investment in growth initiatives. These include product line rationalisation and increased manufacturing efficiency.
Threats The companys cocoa costs will increase in 2004 as a result of recent price increases in the world cocoa market. The company does not expect these to pose too serious a threat to its financial performance as the cost increases will be offset through a combination of price increases and/or product weight changes, and an improved sales mix.
Hershey must also realise that chocolate confectionery markets are increasingly mature and susceptible to declining growth rates. The company is also recognising the threat to
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its core chocolate product posed by consumer health concerns and reacting by launching new products such as sugar free chocolate confectionery. The brands contain a sugar substitute (lactitol), which is slowly metabolised and generally causes only a small rise in blood sugar levels.
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Chapter 8
Kellogg
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Chapter 8
Summary
Kellogg
Kellogg is a leading producer of cereal and convenience foods, including cookies, crackers, toaster pastries, cereal bars, frozen waffles and meat alternatives. The companys products are manufactured in 18 countries and marketed in more than 180 countries around the world and its brands include Kelloggs, Keebler, Pop-Tarts, Eggo, Cheez-It, Nutri-Grain, Rice Krispies, Special K, Murray, Austin, Morningstar Farms, Famous Amos, Carrs, Plantation, and Kashi. Between 1997 and 2000, difficult trading conditions in the cereal category, combined with heavy price promotion by competitors and a lack of sustained marketing support, contributed to falling sales at Kellogg. The company responded by accelerating investment in long-term growth strategies, including product development, technology, and efficiency initiatives. The acquisition of Keebler in 2001 has helped Kellogg to achieve greater scale in the United States, including a stronger presence in traditional supermarkets and in non-traditional channels such as convenience and gas stores, vending and foodservice. Kellogg has reported strong performances in the first half of 2003, which continued into the third-quarter, though the snacks business has faced difficulties. 2004 will see a change in strategy for the snacks business, from an acquire-andintegrate approach to one of sustainable, organic growth. In May 2003, Kellogg announced plans to expand its reach beyond the cereal and snack food aisles with extensive licensing initiatives in the toy, clothing, entertainment, publishing, and food categories. In 2004, Kellogg is undertaking a series of productivity initiatives. These include a snack plant consolidation, capacity rationalisation and workforce reduction. A key operating principle for Kellogg is to achieve greater value for the consumer (to ultimately achieve higher value/dollar sales and profit), rather than promoting greater volume sales through discounting.
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About Kellogg
Established in 1906, Kellogg is a leading producer of cereal and convenience foods, including cookies, crackers, toaster pastries, cereal bars, frozen waffles, meat alternatives, pie crusts and cones.
The companys products are manufactured in 18 countries and marketed in more than 180 countries around the world and its brands include Kelloggs, Keebler, Pop-Tarts, Eggo, Cheez-It, Nutri-Grain, Rice Krispies, Special K, Murray, Austin, Morningstar Farms, Famous Amos, Carrs, Plantation, and Kashi.
History William Kelloggs accidental discovery of cereal in 1894 marked the beginning of the business. The first production of the newly invented cereal began in 1906 and the first marketing campaigns saw sales of the new product leap from 33 cases to 2,900 cases per day.
In 1914, W. K. Kellogg began worldwide expansion of the cereal business with introduction of Kelloggs Corn Flakes in Canada and in 1922, sales started in the UK. In 1924, the company built its first plant in Australia. In 1930, Kellogg became the first company to print nutrition messages, recipes and product information on its packages and in 1938, the company built a plant in Manchester, UK. This was followed by new plants in Mexico in 1951 and Japan in 1963.
The mid-1990s saw rapid expansion with the construction of plants in Latvia, India and China. In 1999, Kellogg purchased Worthington Foods, maker of Morningstar Farms, Worthington, Loma Linda and Natural Touch products. The following year, the company acquired Kashi Company, which produces all-natural foods that are free of highly refined sugars, unnecessary additives and preservatives. This was followed in 2001 by the acquisition of Keebler Foods Company, a leading cookie and cracker
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manufacturer in the United States. In 2002, the company formed a multi-year global relationship with Disney to launch several new cereal and snack food products.
Recent performance
The March 2001 acquisition of Keebler Foods Company was by far the largest acquisition in the companys history and its more diversified product portfolio will undoubtedly boost the companys growth. The company believes that it now manufactures products that rank first or second in U.S. sales across seven major food categories. The company also believes that Keebler takes second place in the cookie and cracker categories, both of which it rates as growing faster than most other U.S. food categories. Additionally, Keeblers direct store door (DSD) delivery system is expected to increase the growth potential of Kellogg snack foods such as Rice Krispies Treats squares and Nutri-Grain bars.
The acquisition has helped Kellogg to achieve greater scale in the United States, including a stronger presence in traditional supermarkets and in non-traditional channels such as convenience and gas stores, vending, foodservice, club stores, and mass merchandise stores. Cost synergies, which are expected to reach $170 million annually over three years, will also increase Kelloggs financial flexibility.
Eleven Kellogg and Keebler brands had 2000 retail sales of at least $100 million in the United States, two of which were greater than $1 billion. These brands include (2000 sales in brackets): Kelloggs cereal ($2.5 billion), Keebler cookies and crackers ($1.3 billion), Pop-Tarts toaster pastries ($500 million), Eggo waffles ($390 million), Cheez-It crackers ($313 million), Nutri-Grain cereal bars ($230 million), Rice Krispies Treats squares ($150 million), Murray cookies ($143 million), Austin snacks ($129 million), Morningstar Farms products ($120 million) and Famous Amos cookies ($100 million).
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Between 1997 and 2000, difficult trading conditions in the cereal category combined with heavy price promotion by competitors contributed to the companys net sales falling by 3.1%. The poor performance was also attributed to the company having fewer new products in 2000 and a lack of sustained marketing support for products introduced in 1999. Perhaps more significantly, operating profits fell by over 17% over the 1997 1999 period, though they recovered in 2000. The decline was attributable primarily to increased production, distribution, and promotional expenditures for convenience food products and higher energy costs.
The company responded by accelerating investment in long-term growth strategies, including product development, technology, and efficiency initiatives. In 2000, Kellogg implemented a growth strategy designed to restore industry-leading growth and vitality to the company.
In 2002, the companys net sales increased by 10%, boosted by owning Keebler Foods for one additional quarter versus the prior year. On a comparable basis, adjusting for that acquisition and a small disposal, net sales growth was 4%. At the same time, operating profit increased by 29%, or 8% on a comparable basis. It was driven by strong gross profit margin expansion, which enabled the company to increase its investment in new products and brand building.
Performance in 2003 During April 2002, the company sold certain assets of Keeblers Bake-Line private-label unit, including a bakery in Marietta, Oklahoma, to Atlantic Baking Group. This was followed in January 2003, with the sale of additional private-label operations.
Kellogg has reported strong performances in the first half of 2003, which continued into the third-quarter, even after significant reinvestment for future growth. Through the first nine months of 2003, reported net earnings increased by 13% to $599.1 million, compared to year-earlier earnings of $529.9 million. During the third quarter of 2003 (period ending September 27, 2003), the company reported consolidated internal net
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sales growth of 4.5%. U.S. net sales in the retail cereal channel increased approximately 11%, as a combination of brand-building activities and innovation resulted in higher volumes.
Excluding the impact of private-label business disposals during the previous 12 months, internal net sales of the U.S. snacks business, (which includes cereal bars and other wholesome snacks, cookies, and crackers), declined by around 4% in the third quarter. Over three-quarters of this decline was attributable to two factors: Discontinuance of a low-margin contract manufacturing relationship in May 2003; an acceleration of stock-keeping unit (SKU) rationalisation, beginning in the second quarter of 2003.
The remainder of the decline was attributable to a fall in cookie sales, as a result of aggressive price-promotion by competitors and a relative lack of innovation and brandbuilding activities, problems that are expected to persist.
In January 2004, the company reported full-year financial results for 2003, with an increase in net sales of 6% to $8.8 billion. Whilst Kellogg USA reported net sales growth of 2% in 2003, Kellogg International recorded net sales growth of 15%, which was led by Latin America and continued growth in cereal and snacks in Mexico in particular.
Operating profit increased by 2% in 2003, taking into account an 11% drop in the fourth quarter. The company attributed this to substantial reinvestment for the future. In addition, the company absorbed substantial asset write-offs and up-front costs related to productivity initiatives, such as capacity rationalisation in Australia, Argentina and the United States, as well as other supply-chain and overhead reductions in Europe.
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Financial performance Table 8.35: Kelloggs financial performance 20002003

$m Turnover Operating Profit
2000 6,087 990
2001 7,548 1,168
2002 8,304 1,508
2003 8,812 1,544

Business Insights
Figure 8.24:
Kelloggs financial performance 20002003; turnover and operating profit
$m 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2000
2001
2002
2003
Business Insights
During the second half of 2003 and throughout 2004, management is undertaking a series of productivity initiatives. These include a snack plant consolidation in Australia, manufacturing capacity rationalisation in the Mercosur region of Latin America, and plant workforce reduction in the UK.
Table 8.36 illustrates the performance of the various operating segments divisions over a three and a half year period. Net sales in the U.S. increased by 69% between 2000 and
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2002, whilst operating profits rose by 60%. The company is in the process of reorganising its geographic management structure to North America, Europe, Latin America, and Australia/Asia by 2004.
Table 8.36: Kelloggs divisional performance 20002003

$m U.S. Net Sales Operating Profit Europe Net Sales Operating Profit Latin America Net Sales Operating Profit Other Net Sales Operating Profit
2000
2001
2002
2003
3,264 670
4,889 876
5,525 1,073
5,629 1,055
1,462 235
1,361 246
1,470 253
1,734 280
624 162
650 171
631 170
646 169
716 89
648 103
678 104
802 140
Business Insights
The companys long-term annual growth targets are low single-digit for sales and mid single-digit for operating profit. In addition, the companys results for its 2004 fiscal year will include a 53rd week, which could add around one percentage point of extra growth to its sales results.
Market positioning
Meeting consumer needs in cereals, snacks and health foods Keebler, founded in 1853, is a leading cookie and cracker manufacturer in the United States, with brands such as Austin, Cheez-It, Chips Deluxe, Club, Famous Amos, Fudge Shoppe, Keebler, Murray, Plantation Sunshine, Town House and Zesta. Through its Little Brownie Bakers subsidiary, Keebler is also a leading licensed supplier of Girl Scout Cookies.
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Table 8.37: Kellogg market shares, 2002

Country Colombia Colombia Thailand UK US Market Dairy Dairy Savoury Snacks Confectionery Savoury Snacks Category Overall Yoghurt Overall Sugar Overall Company Value% Kellogg de Colombia SA Kellogg de Colombia SA Kellogg (Thailand) Ltd Kellogg Co of Great Britain Ltd Keebler Foods Co 0.30 1.60 0.20 1.97 0.30
Business Insights
Morningstar Farms is a leading vegetarian food brand in the United States. The company offers a selection of vegetarian foods including vegetarian hamburgers, hot dogs, chicken, buffalo wings, breakfast meats and egg substitutes.
Natural appeal Kashi was created in 1984 and manufactures all-natural food products such as cereals, whole-grain rice, crackers and the GoLEAN slimming system. Each product is minimally processed and free of highly refined sugars, unnecessary additives, and preservatives. Natural Touch also meets consumers requirements for food without artificial additives, flavours or colours. Their products are made from all-natural ingredients with minimal processing. Vegetarian products include meatless burgers, chicken, fish, gravy mixes, corn dogs, chilli and breakfast meats. Other natural and functional brands include Worthington and Loma Linda.
In 2003, Kelloggs Rice Krispies celebrated its 75th anniversary with a number of promotions and events. The year also saw the 150th anniversary of the Keebler brand.
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Figure 8.25: A selection of products from Kellogg
Source: http://63.79.76.140/kelloggco/our_brands/index.html
Business Insights

Three fundamental targets In 2000, Kellogg implemented a growth strategy designed to restore industry-leading growth and vitality to the company. This was based on three fundamental targets: Prioritise to Win. The company made the decision to prioritise investments first to the United States and then to other core markets, including the UK/Republic of Ireland, Mexico, Canada, and Australia/New Zealand; Set the Right Targets. The company recognised that in the past targets have been driven by short-term results at the expense of healthy, long-term growth. As a result the company set more realistic targets;
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Sweat the Execution. Realising that execution is at the heart of any food companys competitive edge, the company acknowledged that it must be aligned behind a business plan and focused on achieving the delivery of that plan. Finally, the company is now better placed to share proven ideas across functions, businesses, and geographies. The companys managers now appreciate that its portfolio is focused and consistent enough to enable them to share ideas from business to business.
A key operating principle for Kellogg is to achieve greater value for the consumer (to ultimately achieve higher value/dollar sales and profit), rather than promoting greater volume sales through discounting. The company believes that volume to value is the best way to produce sustainable, profitable growth. More recently, the company has focused on selling more of its most profitable brands, including new offerings that carry higher margins. In addition, it has realised additional cost savings from the Keebler acquisition, which have led to improvements in its gross profit margin.
The company will continue to leverage its consumer recognition and the overall growth of the food and beverage licensing industry with its expanded licensing programme. In November 2003, in conjunction with Bruce Brown Fashions Inc., Kellogg launched a womans clothing line designed for active woman, inspired by the Special K consumer. For children, Kellogg linked up with Modern Publishing for a new series of colouring and activity books features Kelloggs cereal characters in fun settings for kids to colour. In the freezer cabinet, Kellogg has partnered with The Jel Sert Company, a manufacturer of freezer pops, to introduce Fudge Shoppe Fudge Pops.
In addition, 2004 will see a fundamental change in strategy for the companys snacks business, from an acquire-and-integrate approach to one of sustainable, organic growth.
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NPD focuses on helping modern, busy consumers In May 2003, Kelloggs Pop-Tarts introduced a new permanent addition to its range, the first yoghurt filled variety. Pop-Tarts Yoghurt Blasts pastries feature alternating stripes of real fruit with yoghurt filling inside a toastable, vanilla-flavoured crust. Available in strawberry and blueberry, the new products are topped with frosting that coordinates with the colour of the yoghurt filling.
August 2003 saw the introduction of new Kelloggs Krave snack bars. The snack bars offer adults an alternative to chocolate confectionery. Targeting health conscious consumers that want to manage their chocolate cravings, the new bars have nearly half the fat of leading confectionery bars, as well as being a good source of protein and calcium. Krave snack bars contain 11 essential vitamins and minerals and 50% of daily value of anti-oxidants, vitamins A, C and E, and have nearly as much calcium as a cup of low fat cottage cheese. The bars come in two flavours Chocolate Delight and Chocolate Peanut. Chocolate delight features whipped chocolate blended with toasted grains and toffee bits in a chocolate coating, while chocolate peanut flavour includes chewy nougat with crispy rice, caramel and chopped peanuts in a chocolate coating.
In September 2003, Kellogg launched Nutri-Grain Granola Bars and Snack Bites. These were introduced to help busy adults succeed in their morning marathons, targeting time poor consumers who do not have the time to prepare breakfast for themselves whilst meeting their familys needs. The bars and bites were launched in six varieties: honey oat and raisin, mixed berry and chocolatey chip granola bars; as well as oatmeal raisin, berry medley and chocolatey chip granola bites.
In November 2003, Kellogg Company launched a limited edition Dr. Seuss The Cat in the Hat cereal and Pop-Tarts toaster pastries through a promotion with Universal Pictures/DreamWorks Pictures/Imagine Entertainments Dr. Seuss The Cat in the Hat. This was the latest partnership from Kellogg that uses licensed characters.
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In January 2004, the company launched Eggo French Toaster Sticks with two primary customers in mind, children who like French toast and their parents who usually dont have time to make it. As the first French toast offering for the Eggo brand, Eggo French Toaster Sticks take only a few minutes to prepare. Eggo French Toaster Sticks, available in original and cinnamon flavours, contain less fat than competitive products, have 220 calories per serving and include a number of key vitamins and nutrients, ranging from calcium and iron, to Vitamin A and Folic Acid. The product launch included an integrated marketing campaign with in-store sampling and point of sale materials, along with an online, print and TV broadcast advertising campaign.
SWOT analysis
The following section provides a brief appraisal of the performance and strategy of Kellogg in the form of a SWOT analysis, highlighting the relative strengths, weaknesses, opportunities and threats faced by the company.
Strengths The companys products are manufactured in 18 countries and marketed in more than 180 countries around the world. Eleven Kellogg and Keebler brands had 2000 retail sales of at least $100 million in the United States, two of which were greater than $1 billion.
Kelloggs growth prospects are supported by the companys underlying strength and stability: its nearly century-long record of leadership in the grain-based food business together with the non-cyclical nature of its products.
The acquisition of Keebler delivered a more diversified product portfolio, which will undoubtedly boost the companys growth. The company believes that it now manufactures products that rank first or second in U.S. sales across seven major food
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categories and that Keebler takes second place in the cookie and cracker categories, both of which it rates as growing faster than most other U.S. food categories.
Figure 8.26: Kellogg SWOT analysis

Company Strengths
Eleven Kellogg and Keebler brands had 2000 retail sales of at least $100 million in the US, two of which were greater than $1 billion billion. The acquisition of Keebler delivered a more diversified product portfolio which will undoubtedly boost the companys growth growth.
Company Weaknesses
Sales decline expected in 2004, for the cookie sector due principally to category factors factors. Recent decline was also attributable to a relative lack of innovation and brand -building activities, problems which are expected to persist persist.
Promotions, NPD and brand extensions are essential to achieve growth in cereals cereals. Keebler acquisition brings stronger presence in traditional supermarkets and in non -traditional channels channels. Expand reach beyond the cereal and snack foods with licensing initiatives initiatives.
Company Threats
Boxed cereal markets are facing pressure from private label alternatives and a perceived lack of convenience convenience. Kellogg faces significant increases in the prices of certain ingredients, packaging, and energy. Possible dependence upon a small number of customers customers.
Business Insights
Weaknesses The company expects another year of sales decline in 2004 for the cookie portion of its U.S. snacks business, due principally to category factors, aggressive SKU eliminations, and discontinuance of a custom manufacturing business during 2003.
Opportunities To maintain growth in its core cereals markets, the company must embrace a range of strategies including promotions, new product development and brand extensions, particularly focused at the convenience market to cater for the on-the-go snack culture.
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This will include the continued development of cereal into bars, which usually demand a higher price point.
The Keebler acquisition has helped Kellogg to achieve greater scale in the United States, including a stronger presence in traditional supermarkets and in non-traditional channels such as convenience and gas stores, vending, foodservice, club stores, and mass merchandise stores. Cost synergies associated with the acquisition will also increase Kelloggs financial flexibility.
Following a difficult trading in the years 19972000, the company believes that volume to value is the best way to produce sustainable, profitable growth. More recently, the company has focused on selling more of its most profitable brands, including new offerings that carry higher margins.
The company is seeking to further expand its reach beyond the cereal and snack food aisles with extensive licensing initiatives in the toy, clothing, entertainment, publishing, and food categories. The company will continue to leverage its consumer recognition and the overall growth of the food and beverage licensing industry with its expanded licensing programme.
Threats Traditional boxed cereal markets are facing pressure from private label alternatives and a perceived lack of convenience. The company has experienced intense competition for sales of all of its principal products in its major markets, both domestically and internationally.
In a threat to profitability, in 2004, Kellogg will face higher employee expenses and significant increases in the prices of certain grains, cocoa, other ingredients, packaging, and energy.
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The company has a dependence upon a small number of customers. Its largest customer, Wal-Mart and its subsidiaries, accounted for approximately 12% of consolidated net sales during 2002, largely within the United States. During 2002, the companys top five customers, collectively, accounted for approximately 30% of the companys consolidated net sales and approximately 40% of U.S. net sales.
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Chapter 9
Kraft
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Chapter 9
Summary
Kraft
Kraft is the largest branded food and beverage company in North America and the second largest in the world. Kraft Foods markets food and beverage brands in five product sectors: snacks, beverages, cheese, grocery, and convenient meals - in more than 150 countries. The companys brands include Kraft cheese, Jacobs and Maxwell House coffees, Nabisco cookies and crackers, Philadelphia cream cheese, Oscar Mayer meats, Post cereals, and Milka chocolates. Throughout the first nine months of 2003, several factors contributed to lower than anticipated volume growth at Kraft. These included trade inventory reductions, warehouse consolidations and store closings. The appointment of Roger Deromedi as the Chief Executive Officer of Kraft in December 2003 reflected the companys slow sales growth and difficulty launching new brands rather than extending existing brands. In January 2004, Kraft announced a new global organisational structure, its global One Company structure, to better position Kraft to deliver sustainable growth. The company announced three elements to its new strategy: a new global marketing and category development group; geographic-based commercial units; and key functions are now to be worldwide in scope. Krafts brand strategy focuses on fast-growing sectors such as snacks, beverages and convenient meals. These offer the best growth potential and account for the majority of the companys revenues (around 66% in 2002). Kraft is seeking to exploit faster growing distribution channels such as convenience stores, mass merchandisers, drug stores, and vending machines, all of which it believes are growing faster than the traditional grocery channel. Category leadership provides Kraft with the benefits of scale, consumer loyalty and greater in-store emphasis by retailers. This enables Kraft to win a significant share of a categorys growth and profit.
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About Kraft
Kraft is the largest branded food and beverage company in North America and the second largest in the world. Kraft Foods markets food and beverage brands in five product sectors: snacks, beverages, cheese, grocery, and convenient meals - in more than 150 countries. The companys brands include Kraft cheese, Jacobs and Maxwell House coffees, Nabisco cookies and crackers, Philadelphia cream cheese, Oscar Mayer meats, Post cereals, and Milka chocolates.
Kraft believes its brands hold the market leading position in 21 of its 25 top categories in the United States and 21 of its top 25 country categories internationally. The company operates 218 manufacturing and processing facilities worldwide, with 100 of those located in North America. In 2002, revenues reached nearly $30 billion and operating companies income was $6.4 billion.
History Kraft has its roots in a diverse range of companies, some of which were established over 200 years ago. The companys history can be traced back to 1767 when Bayldon and Berry began selling candied fruit peel in York, England. Joseph Terry later joined the company and the business grew to become Terrys of York. However, the Kraft name first appeared in 1903 when James Kraft began a wholesale cheese business in Chicago, Illinois. By 1914, the company had opened its first plant and began manufacturing its own cheese. In 1923, Vegemite yeast spread was introduced in Australia by Fred Walker & Co. of Melbourne. In 1926, the Kraft Cheese Company acquired an interest in the company.
In 1924, Kraft opened his first office in London. This was followed by offices in Hamburg in 1927, at the same time as Kraft Cheese Company Ltd. was established in England. In 1928, the Kraft Cheese Company acquired the Phenix Cheese Corporation, maker of the Philadelphia brand cream cheese (introduced in the United States in 1880). In 1934, Kraft acquired Kohler-Werke of Lindenberg, Germany and established Kraft
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Kase-Werke, G.m.b.H. In 1950, Kraft Deluxe process cheese slices and launched them in the United States; the first commercially packaged sliced process cheese in the country. In 1955, the product was introduced to the UK. Also in 1955, Kraft formed Kraft Foods de Mexico, S.A. de C.V. and opened a processing plant near Monterey, Mexico.
In 1988, Kraft was acquired by Philip Morris, making Philip Morris the worlds largest consumer products company. The following year, the food products divisions of Philip Morris, General Foods and Kraft, were joined to become Kraft General Foods. Kraft General Foods International was also established. In 1990, Kraft General Foods International acquired Jacobs Suchard, making it the number one in the European roast and ground coffee market and a leader in confectionery. Acquired brands included Carte Noire, Grand Mere and Jacobs coffee and Suchard, Milka, Toblerone and Cote dOr chocolates. In 1992, Kraft General Foods International acquired Splendid, the second largest Italian coffee manufacturer, and El Caserio, a leader in processed cheese in Spain. Kraft General Foods International also made 14 other acquisitions during the year.
Between 19921993, Kraft moved into the Central and Eastern European market, with the acquisition of five local confectionery companies in the region: Csemege in Hungary, Figaro in Slovakia, Kaunas in Lithuania, Olza in Poland and Republika in Bulgaria. In 1993, Kraft General Foods International acquired Freia Marabou a.s. (Scandinavias premier confectioner) and Terrys of York, in the UK. Also that year, Kraft General Foods acquired the United States and Canadian ready-to-eat cereal business from RJR Nabisco, including the Shreddies and Shredded Wheat cereal products. The following year, Kraft General Foods International acquired the Lyons instant coffee business from Lyons Tetley in the UK. The company also acquired a majority interest in Poiana, Romanias leading confectioner.
In 1995, Kraft General Foods was reorganised and renamed Kraft Foods, Inc. and Kraft General Foods International was renamed Kraft Foods International (KFI). In 1996, the
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company extended its presence in the Latin American chocolate market with the purchase of Lacta in Brazil.
In 2000, Kraft Foods parent company Philip Morris acquired Nabisco Holdings, a world leader in cookies, crackers and snacks, for almost $15 billion. The Nabisco brands were integrated into the Kraft Foods business worldwide. The following year, Philip Morris offered an Initial Public Offering for Kraft Foods. Also in 2001, KFI strengthened its coffee businesses in Central and Eastern Europe and North Africa through the acquisition of several brands including Nova Brasilia in Bulgaria; Nova Brasilia, Classic Brasilier and Prestige in Romania; and Samar and Gaouar in Morocco.
In January 2003, Philip Morris, the parent company of Kraft Foods, changed its name to Altria Group, Inc. to communicate its corporate structure with greater clarity. In addition to owning 84% of Kraft, Altria is the parent company of Philip Morris International, Philip Morris USA and Philip Morris Capital Corporation. It is also the largest shareholder in the worlds second-largest brewer, SABMiller plc.
Recent performance
Performance in 2003 Throughout the first nine months of 2003, several factors contributed to lower than anticipated volume growth at Kraft. These factors included trade inventory reductions, resulting from several customers experiencing financial difficulty, warehouse consolidations, store closings and retailers stated initiatives to reduce working capital. To improve volume and share trends, Kraft announced in September that it would increase investment in certain U.S. businesses in 2003 and expects this to continue into 2004.
In the first nine months of 2003, Kraft realised volume gains of 0.6%, largely due to growth in the beverages, desserts and cereals segments, growth in developing markets,
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new product introductions and the impact of acquisitions. These were partially offset by the impact of disposals and lower consumption in certain categories, particularly U.S. cookies. Net revenues over the first three-quarters of the year increased by $804 million (3.7% on the same period in 2002) and operating income increased by $43 million (1.0%).
At the end of January 2004, Kraft announced it was to cut 6,000 jobs as part of its strategy aimed at strengthening performance and achieving long-term growth targets. A global restructuring programme is expected to involve the closure of up to 20 of Krafts production facilities worldwide and the elimination of about 6,000 positions at all levels of the company, or about 6% of its total workforce, over the next three years.
The announcement came as the company reported full-year 2003 net revenues of $31.0 billion, compared to $29.7 billion in the previous year. Commenting on the results, CEO Roger Deromedi stated: While Krafts fourth quarter results were in line with our expectations, we clearly are not satisfied with our performance in the quarter or for the full year.
Financial performance Table 9.38: Kraft financial performance 20002003

$m Net Revenues Operating Income
2000 22,922 4,012
2001 29,234 4,884
2002 29,723 6,114
2003 31,010 6,011

Business Insights
The appointment of Roger Deromedi as the Chief Executive Officer of Kraft in December 2003 reflected the companys slow sales growth and difficulty launching new brands rather than extending existing brands. Whilst the company has found success with brand extensions for such products as Oreos and Jell-O, it has failed to produce new brands that private labels cannot easily reproduce as a me-too product.
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Figure 9.27:
Kraft financial performance 20002003; turnover and operating income
$m
35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 2000
Net Revenues Operating Income
2001
2002
2003
Business Insights
The following table illustrates the performance of each of the reporting divisions of Kraft over the 20002003 period.
Table 9.39: Kraft divisional performance 20002003

$m -Cheese, Meals and Enhancers Net Revenue Operating Income -Biscuits, Snacks and Confectionery Net Revenue Operating Income -Beverages, Desserts and Cereals Net Revenue Operating Income -Oscar Mayer and Pizza Net Revenue Operating Income 2000 2001 2002 2003
7,923 1,845
8,732 2,099
9,172 2,210
9,439 2,230
293 100
5,071 966
4,887 1,051
4,801 887
4,267 1,090
4,237 1,192
4,412 1,136
4,567 1,247
2,829 512
2,930 539
3,014 556
3,100 556
Business Insights
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Table 9.40: Kraft divisional performance 20002003 continued

$m Total Kraft Foods North America Net Revenue Operating Income -Europe, Middle East and Africa Net Revenue Operating Income -Latin America and Asia-Pacific Net Revenue Operating Income Total Kraft Foods International Net Revenue Operating Income
2000
2001
2002
2003
15,312 3,547
20,970 4,796
21,485 4,953
21,907 4,920
6,398 1,019
5,936 861
6,203 962
7,045 1,012
1,212 189
2,328 378
2,035 368
2,058 270
7,610 1,208
8,264 1,239
8,238 1,330
9,103 1,282
Business Insights
Acquisitions and sales In March, Kraft reached a preliminary agreement to acquire the Family Nutrition Company S.A.E., a leading producer of biscuits and snack cakes in Egypt. The Family Nutrition Company was a privately owned family business with 2002 revenues of approximately $40 million and employing over 1,800 people.
In April 2003, Kraft reached an agreement to sell its retail rice business in Germany, Austria and Denmark to Ebro Puleva SA, a leading Spanish producer of sugar, dairy and rice products. The sale includes the reis-fit brand marketed in Germany and Austria and ris-fix sold in Denmark.
In September 2003, Kraft announced plans to sell its Invernizzi branded cheese business in Italy to Groupe Lactalis, a leading French producer of dairy products. The proposed sale includes the Invernizzi gorgonzola, crescenza and mozzarella businesses and a manufacturing facility in Caravaggio, Italy. The transaction reflects Krafts strategy of focusing on growing its leading brands in its core categories. In Italy, these brands include Philadelphia, Sottilette, Susanna, Giravolte, Jocca and Osella cheeses, Hag and
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Splendid coffees, Simmenthal canned meats and Milka, Cote dOr and Toblerone chocolates.
Also in September, Kraft announced the acquisition of the Back to Nature brand cereal and granola business from Organic Milling, Inc., a privately held manufacturer of natural products.
Market positioning
Coverage across five global product sectors Krafts brand portfolio covers five global product sectors: snacks, beverages, cheese, grocery, and convenient meals. The two dominant brands are Kraft and Nabisco. The company believes that Kraft, with $3.6 billion in revenues, is the worlds leading brand of cheese, though it also includes salad and spoonable dressings, packaged dinners, barbecue sauce and other products. Nabisco is the companys umbrella brand for the cookies and crackers business and has over $3.5 billion in sales.
The Americas Our other leading brands include Oscar Mayer, the leading processed meats brand in the United States; Maxwell House, a leading coffee brand marketed in more than 78 countries; Philadelphia, a leading global cream cheese brand; and Post, a ready-to-eat cereal brand in the United States.
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Table 9.41: Kraft market shares in the Americas, 2002

Country Argentina Argentina Brazil Brazil Canada Canada Canada Canada Canada Colombia Mexico Mexico US US US US US US US US US US Venezuela Venezuela Venezuela Venezuela Market Confectionery Confectionery Confectionery Savoury Snacks Chilled Food Confectionery Confectionery Dairy Dairy Confectionery Dairy Dairy Confectionery Dairy Dairy Chilled Food Confectionery Dairy Dairy Dairy Savoury Snacks Confectionery Dairy Dairy Savoury Snacks Confectionery Category Chocolate Chocolate Chocolate Overall Overall Chocolate Sugar Cheese Overall Sugar Cheese Overall Sugar Cheese Overall Overall Sugar Cheese Overall Yoghurt Overall Gum Cheese Overall Overall Sugar Company Value% Kraft Suchard Argentina SA Nabisco Terrabusi Kraft Foods Brasil SA Kraft Foods Brasil SA Kraft Canada Inc Kraft Canada Inc Kraft Canada Inc Kraft Canada Inc Kraft Canada Inc Nabisco Royal Colombiana SA Kraft Foods de Mxico SA de CV Kraft Foods de Mxico SA de CV Callard & Bowser Suchard Inc Churny Cheese Inc Churny Cheese Inc Kraft Foods Inc Kraft Foods Inc Kraft Foods Inc Kraft Foods Inc Kraft Foods Inc Kraft Foods Inc Nabisco Foods Co Alimentos Kraft de Venezuela CA Alimentos Kraft de Venezuela CA Nabisco de Venezuela CA Nabisco de Venezuela CA 12.04 5.45 29.76 3.80 1.23 0.20 4.67 26.60 8.20 0.12 4.50 1.50 2.20 0.70 0.20 17.98 7.50 33.60 10.90 5.40 3.90 2.52 21.20 9.10 3.10 7.82
Business Insights
Asia-Pacific Important markets for the companys Philadelphia cream cheese brand in Asia-Pacific are Australia, Hong Kong, Japan, Philippines, Singapore and South Korea. Kraft Singles have important shares in Australia, Hong Kong, Indonesia, Malaysia, Singapore, South Korea and the Philippines.
Major markets for the companys Ritz crackers brand include China, Hong Kong, Indonesia, Taiwan and Thailand. In the dressings sector Vegemite is one of Australias best-known brands and is also popular in New Zealand.
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Table 9.42: Kraft market shares in Asia-Pacific, 2002

Country Australia Australia Australia Australia China Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Indonesia Indonesia Indonesia Indonesia Japan Malaysia Malaysia Malaysia Malaysia Malaysia Malaysia New Zealand New Zealand Philippines Philippines Philippines Philippines Philippines Singapore Singapore Singapore Singapore Singapore South Korea South Korea South Korea South Korea Taiwan Taiwan Taiwan Taiwan Taiwan Thailand Thailand Thailand Thailand Market Confectionery Dairy Dairy Confectionery Savoury Snacks Confectionery Confectionery Confectionery Dairy Dairy Savoury Snacks Confectionery Dairy Dairy Savoury Snacks Savoury Snacks Confectionery Confectionery Confectionery Dairy Dairy Savoury Snacks Dairy Dairy Confectionery Confectionery Dairy Dairy Savoury Snacks Confectionery Confectionery Dairy Dairy Savoury Snacks Dairy Dairy Dairy Dairy Confectionery Confectionery Confectionery Dairy Dairy Confectionery Confectionery Dairy Dairy Category Chocolate Cheese Overall Sugar Overall Chocolate Gum Sugar Cheese Overall Overall Chocolate Cheese Overall Overall Overall Chocolate Gum Sugar Cheese Overall Overall Cheese Overall Chocolate Sugar Cheese Overall Overall Chocolate Sugar Cheese Overall Overall Cheese Overall Milk Overall Chocolate Gum Sugar Cheese Overall Chocolate Sugar Cheese Overall Company Value% Kraft Jacobs Suchard (Australia) Kraft Foods Ltd Kraft Foods Ltd Nabisco Group Ltd Nabisco (China) Ltd Kraft Foods Ltd (Asia) Kraft Foods Ltd (Asia) Kraft Foods Ltd (Asia) Kraft Foods Ltd Kraft Foods Ltd Kraft Foods Ltd Kraft Ultrajaya Indonesia PT Kraft Ultrajaya Indonesia PT Kraft Ultrajaya Indonesia PT Kraft Ultrajaya Indonesia PT Yamazaki Nabisco Co Ltd Kraft Foods Malaysia Kraft Foods Malaysia Kraft Foods Malaysia Kraft Foods Malaysia Kraft Foods Malaysia Nabisco Group Ltd Kraft Foods Ltd Kraft Foods Ltd Kraft Foods (Philippines) Inc Kraft Foods (Philippines) Inc Kraft Foods (Philippines) Inc Kraft Foods (Philippines) Inc Nabisco Philippines Inc Kraft Foods (S) Pte Ltd Kraft Foods (S) Pte Ltd Kraft Foods (S) Pte Ltd Kraft Foods (S) Pte Ltd Kraft Foods (S) Pte Ltd Kraft Co Ltd Kraft Co Ltd Dongsuh Foods Co Ltd Dongsuh Foods Co Ltd Kraft Foods Taiwan Ltd Kraft Foods Taiwan Ltd Kraft Foods Taiwan Ltd Kraft Foods Taiwan Ltd Kraft Foods Taiwan Ltd Kraft Foods (Thailand) Ltd Kraft Foods (Thailand) Ltd Kraft Foods (Thailand) Ltd Kraft Foods (Thailand) Ltd 1.40 14.50 2.90 1.00 1.10 9.35 3.52 1.40 49.60 0.60 3.20 1.22 62.30 1.50 0.20 2.60 1.02 6.07 0.30 48.30 0.20 0.90 2.40 0.50 3.20 3.75 53.50 12.70 1.20 2.95 0.47 29.00 4.70 6.80 2.10 0.10 4.40 3.20 3.45 1.07 1.57 16.00 0.40 5.72 1.70 31.00 0.80
Business Insights
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Eastern Europe Milka is a leading chocolate confectionery brand. Major markets for the brand in Eastern Europe include Bulgaria, Czech Republic, Hungary, Poland and Slovakia.
Kraft also manufactures Prince Polo & Siesta, a crunchy wafer brand that is popular in Czech Republic, Poland and Slovakia and 3-Bit, a crunchy biscuit product that has significant shares in the Czech Republic, Hungarian, Polish and Slovakian confectionery markets.
In the snacks markets, Estrella is popular in Latvia, Lithuania and Russia, whilst Lux is available in the Ukraine.
Table 9.43: Kraft market shares in Eastern Europe, 2002

Country Market Category Chocolate Sugar Milk Overall Overall Chocolate Sugar Chocolate Milk Overall Chocolate Chocolate Sugar Overall Chocolate Company Value% Kraft Foods Bulgaria AD Kraft Foods Bulgaria AD Kraft Foods Bulgaria AD Kraft Foods Bulgaria AD Kraft Foods Bulgaria AD Kraft Jacobs Suchard spol sro Kraft Jacobs Suchard spol sro Kraft Foods Hungria Kft Kraft Foods Hungria Kft Kraft Foods Hungria Kft Kraft Foods Polska Sp zoo Kraft Foods Romania SA Kraft Foods Romania SA Kraft Foods Romania SA Kraft Foods Ukraina Open JSC 45.58 0.70 0.70 0.10 2.10 19.34 6.47 20.24 0.60 0.20 14.02 33.88 26.24 1.30 13.79
Bulgaria Confectionery Bulgaria Confectionery Bulgaria Dairy Bulgaria Dairy Bulgaria Savoury Snacks Czech Republic Confectionery Czech Republic Confectionery Hungary Confectionery Hungary Dairy Hungary Dairy Poland Confectionery Romania Confectionery Romania Confectionery Romania Savoury Snacks Ukraine Confectionery
Business Insights
Middle East and Africa Saudi Arabia is an important market in the dessert sector for Krafts Dream Whip, a whipped cream dessert-topping product.
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Table 9.44: Kraft market shares in the Middle East and Africa, 2002
Country Morocco Morocco Saudi Arabia Saudi Arabia Saudi Arabia Saudi Arabia Saudi Arabia South Africa South Africa South Africa South Africa South Africa Market Confectionery Confectionery Confectionery Dairy Dairy Savoury Snacks Dairy Confectionery Confectionery Dairy Confectionery Confectionery Category Sugar Sugar Chocolate Cheese Overall Overall Overall Chocolate Sugar Cheese Gum Sugar Company Value% Kraft Foods International Nabisco Group Ltd Kraft Jacobs Suchard Ltd Kraft Jacobs Suchard Ltd Kraft Jacobs Suchard Ltd Nabisco Arabia Co Ltd Nabisco Arabia Co Ltd Kraft Foods International Kraft Foods International Kraft Foods International Nabisco South Africa (Pty) Ltd Nabisco South Africa (Pty) Ltd 2.47 1.40 6.22 16.10 4.40 1.90 0.50 0.40 1.90 0.10 6.45 12.89
Business Insights
Western Europe The Philadelphia cream cheese brand has several important European markets. These include Austria, Belgium, Germany, Holland, Ireland, Italy, Scandinavia, Spain and the UK.
Major markets for the Milka brand in Western Europe include Austria, Belgium, France, Germany, Italy, Netherlands, Portugal, Spain, Switzerland and Turkey.
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Table 9.45: Kraft market shares in Western Europe, 2002

Country Austria Austria Austria Austria Belgium Belgium Belgium Belgium Belgium Denmark Denmark Denmark Denmark Denmark Egypt Finland Finland Finland France France France Germany Germany Germany Germany Greece Greece Greece Greece Ireland Ireland Ireland Ireland Italy Italy Italy Italy Netherlands Netherlands Netherlands Netherlands Norway Norway Norway Norway Portugal Portugal Portugal Portugal Market Confectionery Dairy Dairy Dairy Chilled Food Confectionery Confectionery Dairy Dairy Savoury Snacks Confectionery Dairy Dairy Dairy Confectionery Confectionery Dairy Dairy Chilled Food Confectionery Dairy Confectionery Dairy Dairy Dairy Confectionery Dairy Dairy Dairy Confectionery Confectionery Dairy Dairy Confectionery Dairy Dairy Dairy Confectionery Confectionery Dairy Dairy Confectionery Confectionery Dairy Dairy Confectionery Dairy Dairy Dairy Category Company Value% 33.36 4.00 1.60 1.80 0.1 29.14 3.47 2.00 0.90 23.20 12.04 4.00 1.20 2.20 0.42 9.37 0.60 0.30 0.3 10.94 0.20 13.79 6.80 1.90 3.00 26.26 0.70 0.10 0.60 2.75 2.40 13.10 2.20 2.12 7.90 0.20 4.90 9.90 0.60 0.30 0.10 46.18 5.55 0.80 0.40 4.60 11.10 0.70 3.40
Chocolate Kraft Foods sterreich GmbH Cheese Kraft Foods sterreich GmbH Milk Kraft Foods sterreich GmbH Overall Kraft Foods sterreich GmbH Overall Kraft Foods International Chocolate Kraft Foods Belgium SA Sugar Kraft Foods Belgium SA Cheese Kraft Foods Belgium SA Overall Kraft Foods Belgium SA Overall Estrella A/S Chocolate Kraft Freia Marabou A/S Cheese Kraft Freia Marabou A/S Milk Kraft Freia Marabou A/S Overall Kraft Freia Marabou A/S Chocolate Kraft Jacobs Suchard Ltd Chocolate Kraft Foods Finland AB Milk Kraft Foods Finland AB Overall Kraft Foods Finland AB Overall Kraft Foods France SA Chocolate Kraft Foods France SA Milk Kraft Foods France SA Chocolate Kraft Foods Deutschland GmbH & Co Cheese Kraft Foods Deutschland GmbH & Co Milk Kraft Foods Deutschland GmbH & Co Overall Kraft Foods Deutschland GmbH & Co Chocolate Kraft Foods Hellas SA Cheese Kraft Foods Hellas SA Milk Kraft Foods Hellas SA Overall Kraft Foods Hellas SA Chocolate Kraft Foods Ireland Ltd Sugar Kraft Foods Ireland Ltd Cheese Kraft Foods Ireland Ltd Overall Kraft Foods Ireland Ltd Chocolate Kraft Jacobs Suchard SpA Cheese Kraft Jacobs Suchard SpA Milk Kraft Jacobs Suchard SpA Overall Kraft Jacobs Suchard SpA Chocolate Kraft Foods Nederland BV Sugar Kraft Foods Nederland BV Cheese Kraft Foods Nederland BV Overall Kraft Foods Nederland BV Chocolate Kraft Foods Norge AS Sugar Kraft Foods Norge AS Cheese Kraft Foods Norge AS Overall Kraft Foods Norge AS Chocolate Kraft Foods Portugal Lda Cheese Kraft Foods Portugal Lda Milk Kraft Foods Portugal Lda Overall Kraft Foods Portugal Lda
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Business Insights
Table 9.46: Kraft market shares in Western Europe, 2002

Country Spain Spain Spain Spain Sweden Sweden Sweden Sweden Sweden Switzerland Switzerland Switzerland Switzerland Switzerland Turkey UK UK UK UK UK Market Confectionery Confectionery Dairy Dairy Confectionery Confectionery Dairy Dairy Dairy Confectionery Confectionery Dairy Dairy Dairy Confectionery Chilled Food Confectionery Confectionery Dairy Dairy Category Company Value% 6.02 0.40 10.10 2.40 46.35 1.27 1.60 5.20 2.40 5.35 4.37 0.30 0.70 0.30 3.15 0.51 3.97 0.30 5.50 1.60
Chocolate Kraft Foods Espaa SA Sugar Kraft Foods Espaa SA Cheese Kraft Foods Espaa SA Overall Kraft Foods Espaa SA Chocolate Kraft Sverige AB Sugar Kraft Sverige AB Cheese Kraft Freia Marabou Sverige AB Milk Kraft Freia Marabou Sverige AB Overall Kraft Freia Marabou Sverige AB Chocolate Kraft Foods (Schweiz) AG Sugar Kraft Foods (Schweiz) AG Cheese Kraft Foods (Schweiz) AG Milk Kraft Foods (Schweiz) AG Overall Kraft Foods (Schweiz) AG ChocolateMarsa Kraft Gida Sanayii ve Ticaret AS Overall Kraft Foods UK Ltd Chocolate Kraft Foods UK Ltd Sugar Kraft Foods UK Ltd Cheese Kraft Foods UK Ltd Overall Kraft Foods UK Ltd
Business Insights
Product examples In the convenience sector, Lunchables, a selection of cheese, cracker and meat prepacked lunches are popular in Belgium, France, Italy and the UK. In the UK, in August 2003, Kraft published an announcement in the national press regarding a Lunchables product recall. A small number of packs of Dairylea Lunchables StacKems were found to contain small fragments of wire in the cracker biscuit, as a result of an isolated manufacturing incident at a third party supplier. In May 2003, at a time when the Food Standards Agency recommended salt levels in childrens food should be cut, Kraft Foods announced it was cutting the average salt content from 2.5 grams to 2 grams a pack. According to Bob Fenton from Kraft Foods: The whole thing about Lunchables is that they should be bought as an occasional treat and our research shows that many youngsters don't have more than seven or eight a year.
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Figure 9.28: A selection of brands from Kraft
Source: http://www.kraft.com/brands/
Business Insights
Foodservice In addition to the retail products, Kraft also serves foodservice markets. Kraft Foodservice has launched www.kraftfoodservice.com to feature a searchable library of over 750 recipes, product information catalogues and new product news. New foodservice products include: Available in 1-gallon bulk and 2 oz. portion control pouches - Kraft Signature Oriental Sesame Dressing; portion control cups (2 oz) to add flavour to menu items with products such as Kraft Ranch, Blue Cheese, and Honey Mustard Dressings, Kraft Sweet n' Sour and Tartar Sauces and Bulls Eye Barbeque Sauce;
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Oscar Mayer branded bacon.

New structure for 2004 In January 2004, Kraft announced a new global organisational structure, its global One Company structure, as part of a strategy to better position Kraft to deliver sustainable growth. The company announced three elements to the new strategy. Firstly, a new global marketing and category development group is being formed to accelerate growth and global expansion. Secondly, geographic-based commercial units will be responsible for driving strong results country by country with the best programmes and execution for local consumers and customers. Thirdly, key functions are to be worldwide in scope, to increase effectiveness and drive cost savings across Krafts business system. All three groups will work together in alignment with the companys global consumer sectors beverages, snacks, cheese & dairy, convenient meals, and grocery.
The new Global Marketing & Category Development division will lead Krafts growth agenda by driving category development across countries with global category strategies, new-product growth platforms and marketing expertise.
Krafts geographic-based commercial units will be grouped into North America Commercial and International Commercial, with direct responsibility for country-bycountry marketing and sales, including profit and loss responsibility. These organisations will leverage local category strategies, growth platforms and global marketing developed in cooperation with the Global Marketing & Category Development group.
For financial segment reporting purposes, Kraft Foods will have six segments: U.S. beverages & grocery; U.S. snacks; U.S. cheese, Canada & North America foodservice; U.S. convenient meals; Europe, Middle East & Africa; and Latin America & Asia Pacific.
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Brand strategies drive performance Fast-growing sectors One of Krafts most important strengths is the power of its brands. As such, any growth strategy must focus on these and especially those in fast-growing sectors such as snacks, beverages and convenient meals. These sectors offer the most significant global growth potential and account for the majority of the companys revenues (around 66% in 2002). To maximise growth, NPD, acquisitions and marketing support help build the brands and capture an increasing share of category sales.
Health The company has also recognised that it must be responsive to consumers demands for products with positive health, energy, or nutritional attributes. These range from reductions in fat, sugar, or calorie content; to foods fortified with vitamins, minerals, or other nutrients; to soy-based meat alternatives.
Distribution channels In addition, Kraft is seeking to exploit faster growing distribution channels such as convenience stores, mass merchandisers, drug stores, and vending machines, all of which it believes are growing significantly faster than the traditional grocery channel. Krafts current share of total food and beverage sales in these alternate channels is not as high as in the grocery channel, and its opportunity for growth is greater. In a similar vain, the company is also to target fast-growing demographic and economic segments. In the United States, African-Americans and Hispanics population groups are growing almost five times faster than the rest of the population and the company is seeking to improve its coverage of distribution channels that serve such consumers and developing new products that will appeal to these consumers. In developing markets where purchasing power is increasing, the company is also introducing premium products to meet consumers needs.
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Kraft manages its business and brand portfolio through acquisitions, licensing arrangements and disposals. Acquisitions and licensing arrangements seek to add businesses that are in fast-growing categories, have valuable brands, and/or provide improved scale and market positions. In turn, Kraft disposes of businesses that do not meet growth or return expectations, that lack strategic fit, or which, by divesting them, will improve productivity.
Advantages of global category leadership Category leadership provides Kraft with the benefits of scale, consumer loyalty and greater in-store emphasis by retailers. This enables Kraft to win a significant share of a categorys growth and profit, which in turn helps generate resources to reinvest in marketing and product innovation.
To help maintain the companys leadership positions in its principal categories, it has formed worldwide councils, which share best practices. Kraft is also pursuing growth in Central and Eastern Europe, the Middle East, Latin America and Asia Pacific. In developing markets, the companys strategy has four key components: Introduce additional snack, beverage and cheese categories in developing markets where Kraft already have a presence; introduce additional brands across key price segments within the categories where Kraft already have a presence; enter developing markets where Kraft does not yet have a presence; pursue tactical fill-in acquisitions, especially in snacks and beverages, in developing markets.
Initiatives respond to health concerns In July 2003, in response to rising obesity rates around the world, Kraft announced a series of commitments that are to focus in four key areas: product nutrition, marketing
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practices, consumer information and public advocacy and dialogue. As a part of the process, Kraft formed a global council of advisors to help it structure its ongoing response to obesity and develop policies, standards, measures and timetables for implementation.
In the area of product nutrition, Kraft is committed to placing a cap on the portion size of single-serve packages, introducing guidelines for the nutritional characteristics of all products and making improvements to existing products and providing alternative choices.
Where marketing is concerned, the company is seeking to eliminate all in-school marketing. It also intends to apply locally appropriate criteria to use with the vending industry in different regions of the world to determine the selection of Kraft products to be sold through in-school vending machines. Additionally, it is to introduce guidelines for all advertising and marketing practices, including advertising and marketing to children, to encourage appropriate eating behaviours and active lifestyles.
Improving information to the consumer is also a commitment from Kraft, including the provision of nutrition labelling in all markets worldwide (including markets where labelling is not required), adding nutrition and/or activity-related information on product labels and company websites and the introduction of guidelines for the use of healthrelated claims in all markets, including markets where no restrictions exist.
SWOT analysis
The following section provides a brief appraisal of the performance and strategy of Kraft in the form of a SWOT analysis, highlighting the relative strengths, weaknesses, opportunities and threats faced by the company.
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Scale and leadership brings advantages Competitive and scale advantages come with size and leadership. Category leadership provides Kraft with the benefits of scale, consumer loyalty and greater in-store emphasis by retailers.
Kraft is the largest branded food and beverage company in North America and the second largest in the world. Kraft believes its brands hold the market leading position in 21 of its 25 top categories in the US and 21 of its top 25 country categories internationally.
The companys global scale including its position as the largest branded food and beverage company in North America and the second largest in the world enables it to be more efficient and effective in expanding brands geographically, while reducing costs and improving productivity and margins.
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Figure 9.29: Kraft SWOT analysis

Company Strengths
Leadership provides Kraft with the benefits of scale, consumer loyalty and greater in-store emphasis by retailers Global scale enables it to be efficient and effective in expanding geographically, while reducing costs and improving productivity and margins
Company Weaknesses
Recent management changes reflected the companys slow sales growth and difficulty launching new brands Until structural changes in January 2004, Kraft was not positioned to fully exploit global growth opportunities
Exploit faster growing distribution channels which are growing faster than the traditional grocery channel Growth strategy must focus on brands in fast-growing sectors: snacks, beverages and convenient meals Leverage brands in new, developing markets and categories
Company Threats
Consumer health concerns. Kraft faces the challenge of reducing or removing trans fats from many of its products Reduced volume growth due to trade inventory reductions, warehouse consolidations, store closings and retailer initiatives to cut working capital
Business Insights
Difficulty launching new brands Recent management changes reflected the companys slow sales growth and difficulty launching new brands rather than extending existing brands. Whilst the company has found success with brand extensions, it has failed to produce new brands that private labels cannot easily reproduce.
In comparison to competitors, the company has been relatively slow to tap into the market for cereal bars, however its acquisition of Nabisco has provided it with expertise in both cereals and snack bars.
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Opportunities In addition, Kraft is seeking to exploit faster growing distribution channels such as convenience stores, mass merchandisers, drug stores, and vending machines, all of which it believes are growing significantly faster than the traditional grocery channel. Krafts current share of total food and beverage sales in these alternate channels is not as high as in the grocery channel, providing a significant opportunity for growth.
Over the next few years, Kraft expects to achieve significant cost savings as it integrates the operations of Nabisco with Kraft Foods around the world.
One of Krafts most important strengths is the power of its brands. As such, any growth strategy must focus on these and especially those in fast-growing sectors such as snacks, beverages and convenient meals.
Threats With an increasingly health-conscious focus, Kraft also faces the challenge of reducing or removing trans fats from many of its products and this will remain a target for 2004. In July 2003, in response to rising obesity rates around the world, Kraft announced a series of commitments that are to focus in four key areas: product nutrition, marketing practices, consumer information and public advocacy and dialogue. As a part of the process, Kraft formed a global council of advisors to help it structure its ongoing response to obesity and develop policies, standards, measures and timetables for implementation.
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Chapter 10
Masterfoods
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Chapter 10
Summary
Masterfoods
Mars operates in over 100 countries. The company remains privately owned and operates its three core businesses, snackfood, petcare and main meal food, under the Masterfoods name in most parts of the world. The company manufactures many top snack food and confectionery brands including M&Ms, Milky Way, Snickers, Mars and Twix. The companys brands also include Uncle Bens, the first mass-produced parboiled rice product whose range has now extended to include pasta and sauces. As a privately owned corporation, Masterfood believes it enjoys greater flexibility and autonomy. In Europe, the Americas, Asia and Australia/New Zealand the combined businesses are run on a regional basis. In Germany, a merger of Mars GmbH and Effem GmbH formed Masterfoods GmbH in January 2001, bringing together companies with an annual turnover of 1,500 million. Also in January 2001, Mars Alimentaire, Doveurope and Unisabi, all subsidiaries of Mars, came together to form Masterfoods France, with sales of over 1,372 million. In the UK, Masterfoods was formed in January 2002, by the merger of Mars Confectionery and Pedigree Masterfoods. The increase in popularity of cookie bars in the United States in 2002, largely initiated by both Nabisco and Masterfoods USA slowed in 2003, though Masterfoods cookie line has grown into a $53 million brand. Serving convenience and impulse markets, in January 2003, Masterfoods USA introduced its first bite-sized line. Popables features miniature Snickers, Three Musketeers or Milky Way sweets in a pouch. In May 2003, Masterfoods in the UK announced that the recipes used for Mars and Snickers bars have changed amid health fears over a fatty ingredient.
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About Masterfoods
Mars is a $14 billion business operating in over 100 countries. The company remains privately owned and operates its three core businesses, snackfood, petcare and main meal food, under the Masterfoods name in most parts of the world.
Masterfoods USA records annual sales in excess of $5 billion and operates 15 manufacturing facilities.
Outside the Masterfoods structure, Mars also operates a smaller business, MEI/Drinks Group, which makes drinks vending systems and electronic coin changers and other electronic transaction solutions for a range of industries.
History The company was established when Frank Mars and his wife Ethel started making and selling a variety of butter-cream confectionery from their home in Tacoma Washington in 1911. In 1920, the Milky Way bar was launched in the United States (which is known in Europe as the Mars bar). Together with other confectionery brands such as Snickers, they became the foundation of a global snack food business.
In the 1930s Forrest Mars made the first move into pet food and pioneered the development of the European pet food industry. He created a successful formula that was then transferred to the United States and the rest of the world. Mars was also the first company to apply modern manufacturing techniques to parboil rice on a large scale. Just six years after its 1946 launch, Uncle Bens became one of Americas top selling brands of packaged long grain rice before being introduced successfully to international markets.
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Master Foods of Australia was founded by Henry Lewis in 1926 and passed onto his sons, John, David and Victor before becoming part of the Mars familys group of companies in 1967.
In 1950, Henry and his sons a launched a brand name for their products, Masterfoods, which was first registered in 1945 where it was used on re-packaged goods such as herbs and spices. The very first product manufactured under the Masterfoods brand was Bread & Butter Cucumbers. In 1952, a number of products were added to the Masterfoods range: mustard, paprika, Lemon Aid and mint jelly. The first herbs and spices in glass jars were also produced in 1954 and included products such as celery salt and vanillin sugar.
In the 1960s the company was still importing speciality foods from overseas, one being Uncle Bens rice from Mars in the United States. A relationship was formed which eventually led to the purchase of the business in 1967. Master Foods of Australia now offers over 700 products in categories as diverse as mustards, shelf stable dips, beans, marinades, relishes, sauces, herbs and spices (dry & wet), pasta and stir fry sauces and dressings. It exports to New Zealand, the United States and Canada, and throughout the Asian and Pacific region as well as supplying the food service and industrial sectors.
Recent performance
As a profitable, privately owned corporation, Masterfood believes that it enjoys unrivalled flexibility and autonomy. In Europe, the Americas, Asia and Australia/New Zealand the combined core businesses are run on a regional basis, each reporting in to a Regional President.
Performance in 2003 Confectionery brands account for the large majority of the companys sales. It operates a portfolio of leading brands including Mars, M&Ms and Snickers. However despite a
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strong portfolio, the company has faced difficulty in maintaining sales growth in recent months.
In 2003, Mars extended some of its confectionery brands into biscuits, a market that is set for higher growth rates than traditional chocolate confectionery. Additionally, manufacturers are aware that consumers see biscuit categories as less unhealthy than chocolate products. Mars Bisc& range includes biscuits topped with M&Ms, Twix, Mars and Bounty. Mars products are individually wrapped items available in multipacks, designed to take advantage of the latest snacking and lunch box trends.
In October 2003, Mars Masterfoods USA announced it was conducting a review of its media buying and planning business in the United States with a view toward consolidating it.
Market positioning
Household names in confectionery, pet food, snacks, rice and vending The company manufactures many top snack food and confectionery brands including M&Ms, Milky Way, Snickers, Mars and Twix. In the pet care sector, Waltham manufactures food brands such as Whiskas and Pedigree.
The Americas The companys brands also include Uncle Bens, the first mass-produced parboiled rice product whose range has now extended to include pasta and sauces. In the beverages sector, the company operates vending systems including Klix and Flavia.
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Table 10.47:
Country Chile US US US Venezuela
Masterfoods market shares in the Americas, 2002

Market Category Chocolate Chocolate Sugar Overall Chocolate Company Value% Mars Inc Mars Inc Mars Inc Mars Inc M&M Mars 0.32 30.51 6.72 0.20 9.40
Confectionery Confectionery Confectionery Savoury Snacks Confectionery
Business Insights
Asia-Pacific Effem China develops, produces and markets a range of snack food and pet food products for sale in China (including Hong Kong) and for export to Japan. The company employs over 500 people in Huairou and a further 300 sales associates across different cities in China.
Table 10.48:
Country Japan Malaysia Malaysia Philippines South Korea Thailand Vietnam
Masterfoods market shares in Asia-Pacific, 2002

Market Category Chocolate Chocolate Sugar Chocolate Chocolate Chocolate Chocolate Company Value% Master Foods Ltd Mars Inc Mars Inc Mars Inc Masterfoods Korea Mars Confectionery of Australia Mars Inc 1.60 9.45 1.45 14.67 11.07 10.10 4.10
Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery
Business Insights
Eastern Europe In Poland, Masterfoods Polska is based in Sochaczew, 45 kilometres west of Warsaw and employs 1,400 people. The site includes the head office built in 1994 and four factories. In 1992, the company started manufacturing dog food and two years later a
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second dry pet food factory was opened. Between 1995 and 2001, the company established further snack food and wet pet food factories.
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Table 10.49:
Country Bulgaria Bulgaria Czech Republic Czech Republic Hungary Hungary Hungary Poland Poland Romania Romania Russia Russia Slovakia Ukraine Ukraine
Masterfoods market shares in Eastern Europe, 2002

Market Category Chocolate Sugar Chocolate Sugar Chocolate Milk Overall Chocolate Sugar Chocolate Sugar Chocolate Sugar Chocolate Chocolate Sugar Company Value% Masterfoods Bulgaria EOOD Masterfoods Bulgaria EOOD Master Foods ks Master Foods ks Masterfoods Hungary Kft Masterfoods Hungary Kft Masterfoods Hungary Kft Master Foods Polska Master Foods Polska Master Foods Romania SRL Master Foods Romania SRL Mars LLC Russia Mars LLC Russia Master Foods Slovakia Masterfoods & Effem Masterfoods & Effem 4.30 2.15 5.37 1.10 5.17 1.50 0.60 12.62 2.50 2.12 1.62 9.75 0.97 2.65 7.10 0.10
Confectionery Confectionery Confectionery Confectionery Confectionery Dairy Dairy Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery
Business Insights
Middle East and Africa Master Foods South Africa was established in 1996. The market was initially developed through the import of the companys established brands and the first manufacturing facilities and offices were built in Rosslyn, Pretoria in 1998.
In 2000, a local sugar confectionery business, Sovereign Sweets, was acquired. In just three years, the business more than quadrupled in growth, making Streamers and Big Time, two of the most recognised confectionery brands in South Africa. Based in Cape Town, a dry food manufacturing facility was added to the site following the acquisition of the Royco soups and sauces business in 2002.
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Table 10.50:
Country Egypt Egypt Egypt Israel Morocco Saudi Arabia Saudi Arabia Saudi Arabia South Africa South Africa
Masterfoods market shares in the Middle East and Africa, 2002

Market Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Dairy Dairy Confectionery Confectionery Category Chocolate Chocolate Sugar Chocolate Chocolate Chocolate Milk Overall Chocolate Sugar Company Value% Mars Inc Master Foods Middle East Mars Inc Mars BV Mars Inc Master Foods Master Foods Middle East FZE Master Foods Middle East FZE Mars Inc Mars Inc 5.55 0.50 1.82 4.10 15.24 37.18 1.10 0.50 0.87 0.22
Business Insights
Western Europe In Germany, a merger of Mars GmbH and Effem GmbH formed Masterfoods GmbH in January 2001, bringing together 1,900 employees with an annual turnover of 1,500 million. Also in January 2001, Mars Alimentaire, Doveurope and Unisabi, all subsidiaries of Mars, came together to form Masterfoods France, with sales of over 1,372 million and 2,350 employees.
Table 10.51:
Country Austria Austria Belgium Denmark Finland France Germany Germany Greece Greece Greece Greece Ireland Ireland Ireland
Masterfoods market shares in Western Europe, 2002

Market Category Chocolate Overall Chocolate Chocolate Chocolate Chocolate Chocolate Overall Chocolate Sugar Milk Overall Chocolate Sugar Milk Company Value% Masterfoods Austria OHG Masterfoods Austria OHG Masterfoods NV SA Masterfoods Denmark A/S Master Foods Oy Masterfoods France SA Masterfoods GmbH Masterfoods GmbH Masterfoods NV SA Masterfoods NV SA Masterfoods NV SA Masterfoods NV SA Mars Ireland Mars Ireland Mars Ireland 10.70 1.20 13.97 11.24 6.52 6.17 14.99 8.40 11.24 1.60 0.40 0.10 23.71 5.30 0.10
Confectionery Savoury Snacks Confectionery Confectionery Confectionery Confectionery Confectionery Savoury Snacks Confectionery Confectionery Dairy Dairy Confectionery Confectionery Dairy
Business Insights
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Table 10.52:
Country Ireland Italy Netherlands Netherlands Norway Portugal Sweden UK UK UK UK
Masterfoods market shares in Western Europe, 2002 continued

Market Category Overall Chocolate Chocolate Sugar Chocolate Chocolate Chocolate Chocolate Sugar Milk Overall Company Value% Masterfoods Ireland Ltd Masterfoods Italia SpA Mars BV Mars BV Masterfoods Norway AS Masterfoods de Portugal Inc Masterfoods Sweden AB Masterfoods UK Ltd Masterfoods UK Ltd Mars UK Ltd Mars UK Ltd 0.60 4.15 21.09 0.50 8.80 12.19 5.92 24.09 9.90 0.30 0.10
Savoury Snacks Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Confectionery Dairy Dairy
Business Insights
Masterfoods Italy was formerly known as Dolma S.p.a., which has been operating in Italy since 1978. The company was based near Milan until 1990 when a new site at Belgioioso was built. The Belgioioso site also includes a pet food factory that opened in 1996.
Product examples In the UK, Masterfoods was formed in January 2002, by the merger of Mars Confectionery and Pedigree Masterfoods.
Figure 10.30:
A selection of brands from Masterfoods
Source: http://www.mars.com/What_do_we_do&63/
Business Insights
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Foodservice MasterFoodServices is the foodservice division that provides solutions to the foodservice industry. It represents the following brands: Uncle Bens, Seeds of Change, Ebly, M&MS, Snickers, Skittles, Dove, Milky Way, Combos, Twix, Starburst, Kudos, Cookies&, and 3 Musketeers Brands, and the Ethel M Chocolates line of specialty gourmet chocolates. The company has recently initiated the MastersProgram, which is exclusively for foodservice professionals. It provides escalating discounts to member operators who purchase from one or more areas of its brand portfolio.

NPD plays a vital role in growth The increase in popularity of cookie bars in the United States in 2002, largely initiated by both Nabisco and Masterfoods USA slowed in 2003, although Masterfoods cookie line has grown into a $53 million brand, making the company the eighth-largest cookie vendor.
Serving convenience and impulse markets, in January 2003, Masterfoods USA introduced its first bite-sized line. Popables features miniature Snickers, Three Musketeers or Milky Way sweets in a pouch. The company also sells M&Ms and Skittles in containers for vehicle cup holders.
Product developments in the UK have recently seen mobile telephone operator O2 receive a contract from food manufacturer Masterfoods to run an on-pack text message promotion. The Chococollect initiative will see consumers of promotional packs of Mars, Twix, Bounty, Snickers, Snickers Cruncher and Maltesers confectionery being provided with a number which they can send a text message to in order to potentially win a prize. Chococollect started in April 2003 and initially ran for eight months. O2 will also develop games, ring tones and other mobile content for Masterfoods and the companys brands.
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In May 2003, Masterfoods in the UK announced that Mars and Snickers bars have had their recipe changed amid health fears over a fatty ingredient. Hydrogenated vegetable fat has been removed from the chocolate bar because of its links with high cholesterol levels and heart disease.
In August 2003, Masterfoods entered the energy bar sector with Snickers Marathon. Snickers Marathons are 2-ounce bars with either a chewy chocolate peanut or multigrain crunch, each fortified with 16 vitamins and minerals. The bars also contain around 10g of a special protein blend, designed to provide a long-lasting energy boost.
Other new launches from Masterfoods USA in 2003 included a new Starburst flavour, fruit and creme, as well as a breath freshener product, Aqua Drops, positioned as a thirst quencher.
SWOT analysis
The following section provides a brief appraisal of the performance and strategy of Masterfoods in the form of a SWOT analysis, highlighting the relative strengths, weaknesses, opportunities and threats faced by the company.
Brand names carry cross-category As a profitable, privately owned corporation, Masterfood believes that it enjoys unrivalled flexibility and autonomy. The companys strength lies in its chocolate confectionery brands, which account for the majority of Marss confectionery sales.
In recent years the company has begun to reduce its reliance on chocolate confectionery sales with a number of brand extensions. These have boosted company sales that were coming under threat from more intense competition. Mars led the confectionery category extension into ice cream markets, while the latest developments have included
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extensions into cake bars and biscuits. The brand extension policy also offers economies of scale, particularly in the marketing and promotion of its products.
Figure 10.31:
Company Strengths
Strong portfolio of category leading confectionery brands Recent fall in reliance on chocolate confectionery sales with a number of brand extensions Brand extensions offer economies of scale, particularly in marketing and promotion activity
Masterfoods SWOT analysis

Company Weaknesses
High dependence upon chocolate markets, given that those markets are increasingly mature and susceptible to declining growth rates
Extension of confectionery brands into biscuits, a market with higher growth rates than chocolate confectionery Functional confectionery - following entry into the energy bar sector, can other brands be extended into high growth categories?
Company Threats
Increasingly mature nature of chocolate confectionery, which is susceptible to declining growth rates Health-wise consumers look to products they see as being healthier or a sugar-free alternatives
Business Insights
High dependency on chocolate The companys dependence upon chocolate markets could be perceived as a weakness, especially given that chocolate confectionery markets are increasingly mature and susceptible to declining growth rates.
Despite undertaking successful brand extensions, these may only take growth so far and the company should look to innovate and expand into carefully targeted, but as yet unrelated sectors.
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Further potential for brand extensions In 2003, Mars extended some of its confectionery brands into biscuits, a market that is set for higher growth rates than traditional chocolate confectionery. Additionally, manufacturers are aware that consumers see biscuit categories as less unhealthy than chocolate products.
Opportunities outside of traditional chocolate markets were also extended in August 2003, when Masterfoods entered the energy bar sector with Snickers Marathon. Additionally, it has added products ranging from breath mints to organic frozen foods and drink vending machines.
Mature markets and health-wise consumers With a large proportion of sales dependent upon chocolate confectionery, the company, perhaps more than most, must be concerned with the increasingly mature nature of the segment, which is susceptible to declining growth rates.
Additionally, consumers, increasingly aware of the health implications of indulging themselves on confectionery, will start to look to products they see as being healthier or a sugar-free alternative. It is only recently that chocolate manufacturers have introduced such alternatives and the company cannot afford to be left behind such initiatives. For example in May 2003, Masterfoods in the UK announced recipe changes amid health fears over a fatty ingredient. In line with other confectionery manufacturers, the companys cocoa costs will increase in 2004 as a result of recent price increases in the world cocoa market.
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Chapter 11
Nestl
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Chapter 11
Summary
Nestl
Nestl believes it is the undisputed leader in the food industry, with more than 470 factories around the world and sales of more than CHF 81 billion. The company divides its brand portfolio into 10 sectors: baby foods, dairy products, breakfast cereals (through a joint venture with General Mills), ice cream; chocolate and confectionery; prepared foods, foodservices, beverages, bottled water and pet care. The companys leading brands include Alete, Coffee-Mate, Extrme, Maxibon, Crunch, Smarties, Kit Kat, Buitoni, Nesquik, Nescaf, Perrier and Vittel. After a challenging first half of 2003, Nestl recorded organic growth of 5.4% over the first nine months of 2003. Product categories such as soluble coffee and frozen and chilled culinary products performed well in the first nine months of 2003, whilst ice cream and water benefited from the exceptionally hot European summer. In June 2003, Nestl announced it received the go-ahead to combine the Nestl Ice Cream Company with Dreyers Grand Ice Cream Inc. As a result of the deal, Nestl will own approximately 67% of the equity of Dreyers Holdings. Nestl has a joint venture with General Mills outside North America, Cereal Partners Worldwide, which is active in more than 80 countries. The joint venture has recently launched of breakfast cereal brands into the cereal bar market. One of Nestls key strategies is to grow its existing products through innovation and renovation while maintaining a balance in geographic activities and product lines.
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About Nestl
Nestl believes it is the undisputed leader in the food industry, with more than 470 factories around the world and sales of more than CHF 81 billion. The company divides its brand portfolio into 10 sectors: Baby foods (with brands including Alete and BEBA); dairy products (Coffee-Mate, Gloria and LC1); breakfast cereals (through a joint venture with General Mills) ice cream (Extrme and Maxibon); chocolate & confectionery (Crunch, Smarties and Kit Kat); prepared foods (Maggi, Buitoni and Stouffers); foodservices; beverages (Milo, Nesquik, Nescaf and Nestea); bottled water (Perrier, Sanpellegrino and Vittel); petcare (Pro Plan, ONE, Tidy Cats, Fancy Feast and Felix).
History In the mid-1860s Henri Nestl, a trained pharmacist, began experimenting with various combinations of cows milk, wheat flour and sugar in an attempt to develop an alternative source of infant nutrition for mothers who were unable to breast feed. After initial success, Farine Lacte Nestl was soon marketed in much of Europe.
The Anglo-Swiss Condensed Milk Company, founded in 1866 by Americans Charles and George Page, extended its product line in the mid-1870s to include cheese and infant formulas. The Nestl Company, which had been purchased from Henri Nestl by
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Jules Monnerat in 1874, responded by launching a condensed milk product of its own and the two companies remained competitors until their merger in 1905.
The company formed by the 1905 merger was called the Nestl and Anglo-Swiss Milk Company. By the early 1900s, it was operating factories in the United States, UK, Germany and Spain. In 1904, Nestl added chocolate to its range of food products after reaching an agreement with the Swiss General Chocolate Company.
Condensed milk exports increased rapidly as the company replaced sales agents with local subsidiary companies. In 1907, the company began full-scale manufacturing in Australia, its second-largest export market. Warehouses were built in Singapore, Hong Kong, and Bombay to supply the rapidly growing Asian markets.
The 1920s saw Nestls first expansion beyond its traditional product line. The manufacture of chocolate became the companys second most important activity. In 1930, the Brazilian Coffee Institute sought new products to reduce Brazils large coffee surplus. Eight years of research produced a soluble powder that has since revolutionised coffee-drinking habits worldwide. Nescaf became an instant success and was followed in the early 1940s by Nestea.
The close of World War II marked the beginning of the most dynamic phase of Nestls history. Throughout this period, Nestls growth was based on its policy of diversifying within the food sector to meet the needs of consumers. Dozens of new products were added as growth within the company accelerated and outside companies were acquired. In 1947, Nestl merged with Alimentana S.A., the manufacturer of Maggi seasonings and soups, becoming Nestl Alimentana Company. The acquisition of Crosse & Blackwell, the UK manufacturer of preserves and canned foods, followed in 1950, as did the purchase of Findus frozen foods (1963), Libbys fruit juices (1971) and Stouffers frozen foods (1973). Meanwhile, sales of Nescaf continued to rise. From 1950 to 1959, sales of instant coffee nearly tripled, and from 1960 to 1974, they quadrupled.
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In 1974, the company took the decision to diversify for the first time outside the food industry when it became a major shareholder in LOral, a leading cosmetics manufacturer. Nestls rapid growth in the developing world partially offset a slowdown in the companys traditional markets in the 1970s. Nestl made its second venture outside the food industry by acquiring Alcon Laboratories, a U.S. manufacturer of pharmaceutical and ophthalmic products.
Between 1980 and 1984, the company divested a number of non-strategic or unprofitable businesses. In 1984, Nestls improved financial performances led to a new round of acquisitions, including a public offer of $3 billion for Carnation. Consolidation since 1996 has been demonstrated by the acquisition of the Italian mineral water concern San Pellegrino (1997), the acquisition of Spillers Petfoods of the UK (1998), and also with the decision to divest the Findus brand in order to concentrate on high added-value frozen food products (1999). Since then, Ralston Purina was acquired (2002). In the same year, the former Perrier Vittel water business was re-named Nestl Waters. Also in 2002, the company made two major acquisitions in North America: Nestl announced that its U.S. ice cream business was to be merged into Dreyers, and it also acquired Chef America, a U.S.-based hand-held frozen food product business.
Recent performance
In 2002, Nestl recorded real internal growth (RIG) of 3.4%. This was below the companys trend target of 4%, primarily due to difficult trading conditions in Latin America and Japan. RIG measures the like for like volume growth achieved by the Group from one year to the next and excludes the impact of selling price increases. Organic growth, which excludes acquisitions and divestitures (measured at constant exchange rates), was 4.9%. Acquisitions, net of divestitures, contributed 8.4% to sales with the biggest impact on sales in 2002, as well as on profitability, being the acquisition of Ralston Purina.
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Nestl set itself a target of achieving an organic growth rate of between 5-6% for 2003 as a whole.
Performance in 2003 After a challenging first half of 2003, Nestl announced its results for the first nine months of the year in October. The company recorded organic growth of 5.4% though sales fell to CHF 64.6 billion, a drop of 2.4% due to an adverse foreign exchange impact (at constant exchange rates sales increased by 6.8%).
European operations achieved organic growth of 2.3%. Markets in Eastern Europe, with 10% growth, outperformed the more mature Western European markets, which recorded 1.6% growth. The Americas region recorded organic growth of 5.9%. In Latin America, the strength of the Groups brands allowed it to increase prices in line with its strategy to maintain margins despite difficult economic conditions. In Asia, Oceania and Africa organic growth of 4.2% was achieved despite disruption caused by SARS and troubles in the Ivory Coast. The Japanese market also saw the first signs of a recovery.
Financial performance Table 11.53:

CHF m Sales Net Profit 2000 81,422 5,763
Nestl financial performance 20002003

2001 84,698 6,681 2002 89,160 7,564 Interim 2002 44,219 5,656 Interim 2003 41,437 2,780
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Figure 11.32:
Nestl financial performance 20002003; turnover and operating income
CHF m
100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2000 2001 2002 Interim 2002 Interim 2003
Business Insights
Sales Net Profit
Product categories such as soluble coffee and frozen and chilled culinary products performed well in the first nine months of the year, whilst ice cream and water benefited from the exceptionally hot European summer. Chocolate, on the other hand, was handicapped both by the hot weather and the price increases earlier in the year in response to higher cocoa prices.
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Table 11.54:
Sales CHF m Beverages Coffee Nestl Waters Other
Nestl Divisional Performance 20002003

2000 23,044 9,096 5,947 8,001 22,048 12,471 4,989 3,807 781 14,564 7,336 7,228 10,974 8,427 1,406 1,141 6,068 4,724 81,422 2001 24,023 8,937 7,418 7,668 23,041 13,061 5,366 3,770 844 15,092 7,566 7,526 11,244 8,745 1,377 1,122 6,232 5,066 84,698 2002 23,325 8,287 7,720 7,318 23,376 12,339 5,143 5,010 884 15,834 8,711 7,123 10,774 8,493 1,306 975 10,719 5,132 89,160 Interim 2003 11,195
Milk products, nutrition & ice cream Milk products Nutrition Ice Cream Other Prepared dishes & cooking aids Frozen & chilled Culinary & others Chocolate, confectionery & biscuits Chocolate Confectionery Biscuits PetCare Pharmaceutical products Total Group
11,031
7,573
4,415
4,674 2,549 41,437

Business Insights
In an effort to improve the growth and performance of Nestls ice cream business and enhance its competitive position, in January 2003, Nestl announced it had acquired the Mvenpick ice cream brand worldwide (with the exception of the New Zealand manufacturing operations). Mvenpick Group operates its ice cream business mainly through licensing agreements with companies in Germany, Norway, Sweden, Finland, Egypt and Saudi Arabia. In Germany, the key market for Mvenpick ice cream, the Schller Company, acquired by Nestl in March 2002, held the license. Whilst Nestl will continue to manufacture Mvenpick ice cream products in Switzerland, the agreement does not include other Mvenpick food businesses such as coffee, jams, chilled dairy products and wine nor the Hotel and Restaurant Business, which will continue to be owned by the Mvenpick Group.
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In June 2003, Nestl announced that the Federal Trade Commission in the United States had cleared the transaction that combines the Nestl Ice Cream Company and Dreyers Grand Ice Cream Inc. Dreyers acquired Nestls U.S. frozen dessert business in exchange for a shareholding of Dreyers Grand Ice Cream Holdings, Inc., a newly formed public holding company. Nestl will own approximately 67% of the equity of Dreyers Holdings.
As part of the agreement Dreyers must sell its Dreamery and Whole Fruit Sorbet brands. Nestl will sell most of its distribution operations in the United States to CoolBrands. Additionally, Dreyers and Masterfoods U.S.A. terminated their ice cream joint venture by the end of 2003, and Unilever had the right to terminate its Ben&Jerrys distribution relationship with Dreyers. Dreyers is the largest manufacturer and distributor of ice cream and frozen dessert products in the United States. The company sells ice cream under the Dreyers and Edys brand names in 14 western states in the United States and just the Dreyers brand in parts of Asia.
In December 2003, Nestl reached an agreement on the sale of its dairy business in Turkey to Danone. The transaction concerns the Nestl Turkey chilled dairy and UHT milk products. However, Nestl will retain a presence in the dairy market in Turkey through one of its key strategic brands, Nesquik, and through Nestl Cocuk (will initially be manufactured by Danone for Nestl). Nestl hopes that the sale of this business will allow Nestl Turkey to grow by focusing its resources on its wellestablished core categories.
Market positioning
Factories or operations in almost every country in the world Nestl claims to be the largest food and beverage company in the world, with factories or operations in almost every country in the world.
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In North America, Nestl operates the Hagen-Dazs brand. In 1999, Nestl and Pillsbury announced the formation of a 50/50 joint venture to include Nestls novelty ice cream business in the United States and Pillsburys U.S. Hagen-Dazs frozen dessert business.
The Americas In February 2004, Brazils antitrust regulator, CADE, ruled against Nestls acquisition of the chocolate manufacturer Garoto. Under Cades ruling, the local subsidiary of Swiss food giant Nestl will have to sell Garoto to a third party holding a share of less than 20% of Brazils chocolate market. Through Garoto, Nestl had boosted its market share to 50% from 29%.
Table 11.55:
Country Argentina Argentina Argentina Argentina Argentina Brazil Brazil Brazil Brazil Brazil Canada Canada Canada Chile Chile Chile Chile Colombia Colombia Colombia Colombia Colombia Mexico Mexico Mexico Mexico Mexico Market Confectionery Confectionery Dairy Dairy Dairy Confectionery Confectionery Dairy Dairy Dairy Confectionery Dairy Dairy Confectionery Dairy Dairy Dairy Confectionery Confectionery Dairy Dairy Dairy Confectionery Dairy Dairy Dairy Dairy
Nestl market shares in the Americas, 2002

Category Chocolate Sugar Milk Overall Yoghurt Chocolate Sugar Milk Overall Yoghurt Chocolate Milk Overall Chocolate Milk Overall Yoghurt Chocolate Sugar Cheese Milk Overall Chocolate Cheese Milk Overall Yoghurt Company Value% Nestl Argentina SA Nestl Argentina SA Nestl Argentina SA Nestl Argentina SA Nestl Argentina SA Nestl Brasil Ltda Nestl Brasil Ltda Nestl Brasil Ltda Nestl Brasil Ltda Nestl Brasil Ltda Nestl Canada Inc Nestl Canada Inc Nestl Canada Inc Nestl Chile SA Nestl Chile SA Nestl Chile SA Nestl Chile SA Nestl de Colombia SA Nestl de Colombia SA Nestl de Colombia SA Nestl de Colombia SA Nestl de Colombia SA Nestl Mxico SA de CV Nestl Mxico SA de CV Nestl Mxico SA de CV Nestl Mxico SA de CV Nestl Mxico SA de CV 2.67 0.45 13.70 7.80 3.60 26.66 3.75 17.30 13.90 23.10 14.72 3.90 2.00 23.94 30.90 22.20 30.60 13.72 6.90 0.30 14.10 9.60 20.92 5.70 11.00 11.00 24.30
Business Insights
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Table 11.56:
Country US US US US US Venezuela Venezuela Venezuela Venezuela Venezuela
Nestl market shares in the Americas, 2002 continued

Market Category Overall Chocolate Sugar Milk Overall Chocolate Gum Sugar Milk Overall Company Value% Nestl USA Inc Nestl USA Inc Nestl USA Inc Nestl USA Inc Nestl USA Inc Nestl de Venezuela SA Nestl de Venezuela SA Nestl de Venezuela SA Nestl de Venezuela SA Nestl de Venezuela SA 0.51 6.32 3.65 2.40 1.50 52.78 3.42 7.25 6.10 3.10
Chilled Food Confectionery Confectionery Dairy Dairy Confectionery Confectionery Confectionery Dairy Dairy
Business Insights
Asia-Pacific Introduced in 1938, today CRUNCH is Nestls third largest confectionery brand sold in about 40 countries worldwide and is available in the following varieties: Nestl CRUNCH, Nestl White CRUNCH, Nestl CRUNCH Pieces, Nestl Buncha CRUNCH and more recent products Nestl Crunch with caramel and Nestl CRUNCH assorted minis.
Table 11.57:
Country Australia Australia Australia Australia Australia China China China Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong India India India India India Market Confectionery Confectionery Dairy Dairy Dairy Confectionery Dairy Dairy Confectionery Confectionery Dairy Dairy Dairy Confectionery Confectionery Dairy Dairy Dairy
Nestl market shares in Asia-Pacific, 2002

Category Chocolate Sugar Milk Overall Yoghurt Chocolate Milk Overall Chocolate Sugar Milk Overall Yoghurt Chocolate Sugar Milk Overall Yoghurt Company Value% Nestl Australia Ltd Nestl Australia Ltd Nestl Australia Ltd Nestl Australia Ltd Nestl Australia Ltd Nestl (China) Ltd Nestl (China) Ltd Nestl (China) Ltd Nestl Hong Kong Ltd Nestl Hong Kong Ltd Nestl Hong Kong Ltd Nestl Hong Kong Ltd Nestl Hong Kong Ltd Nestl India Ltd Nestl India Ltd Nestl India Ltd Nestl India Ltd Nestl India Ltd 17.44 32.98 4.20 4.00 9.90 7.72 3.70 3.40 9.50 6.00 40.41 39.60 35.10 21.12 4.02 2.50 2.40 7.70
I Source: Author analysis of Datamonitor research
Business Insights
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Table 11.58:
Country Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Japan Japan Japan Japan Japan Malaysia Malaysia Malaysia Malaysia Malaysia New Zealand New Zealand New Zealand New Zealand Philippines Philippines Philippines Philippines Philippines Philippines Singapore Singapore Singapore Singapore Singapore Singapore South Korea South Korea South Korea Taiwan Taiwan Taiwan Taiwan Thailand Thailand Thailand Thailand Thailand Vietnam Vietnam Vietnam Vietnam
Nestl market shares in Asia-Pacific, 2002 continued

Market Category Chocolate Sugar Milk Milk Overall Overall Chocolate Milk Overall Overall Yoghurt Chocolate Sugar Milk Overall Yoghurt Chocolate Sugar Milk Overall Chocolate Chocolate Sugar Milk Overall Yoghurt Overall Chocolate Sugar Milk Overall Yoghurt Sugar Milk Overall Chocolate Sugar Milk Overall Chocolate Sugar Milk Overall Yoghurt Chocolate Milk Overall Yoghurt Company Value% Nestl Indonesia PT Nestl Indonesia PT Nestl (M) Bhd Nestl Indonesia PT Nestl (M) Bhd Nestl Indonesia PT Nestl Japan Ltd Nestl Japan Ltd Nestl Japan Ltd Nestl Snow Co Ltd Nestl Snow Co Ltd Nestl (M) Bhd Nestl (M) Bhd Nestl (M) Bhd Nestl (M) Bhd Nestl (M) Bhd Nestl New Zealand Ltd Nestl New Zealand Ltd Nestl New Zealand Ltd Nestl New Zealand Ltd Goya Foods Inc Nestl Philippines Inc Nestl Philippines Inc Nestl Philippines Inc Nestl Philippines Inc Nestl Philippines Inc Nestl Singapore Pte Ltd Nestl Singapore Pte Ltd Nestl Singapore Pte Ltd Nestl Singapore Pte Ltd Nestl Singapore Pte Ltd Nestl Singapore Pte Ltd Nestl Korea Ltd Nestl Korea Ltd Nestl Korea Ltd Nestl Taiwan Ltd Nestl Taiwan Ltd Nestl Taiwan Ltd Nestl Taiwan Ltd Nestl (Thailand) Ltd Nestl (Thailand) Ltd Nestl (Thailand) Ltd Nestl (Thailand) Ltd Nestl (Thailand) Ltd Nestl Vietnam Ltd Nestl Vietnam Ltd Nestl Vietnam Ltd Nestl Vietnam Ltd 4.12 5.22 1.00 25.80 1.00 25.20 2.95 2.90 1.80 0.20 0.80 27.21 10.89 33.70 33.40 24.40 13.19 29.49 3.70 2.50 6.55 11.64 5.55 48.00 36.90 57.50 0.93 23.26 11.79 11.30 8.40 0.50 1.07 1.70 1.20 3.55 5.72 7.10 5.20 17.97 3.80 22.20 17.50 4.30 1.67 7.90 8.40 10.30
Confectionery Confectionery Dairy Dairy Dairy Dairy Confectionery Dairy Dairy Dairy Dairy Confectionery Confectionery Dairy Dairy Dairy Confectionery Confectionery Dairy Dairy Confectionery Confectionery Confectionery Dairy Dairy Dairy Chilled Food Confectionery Confectionery Dairy Dairy Dairy Confectionery Dairy Dairy Confectionery Confectionery Dairy Dairy Confectionery Confectionery Dairy Dairy Dairy Confectionery Dairy Dairy Dairy
Business Insights
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Eastern Europe Nestl originally entered dairy markets with shelf stable brands such as Nido, Nespray, La Lechera and Carnation. It has since built an international presence in the chilled dairy and ice cream sectors under the Nestl brand.
Table 11.59:
Country Bulgaria Bulgaria Bulgaria Bulgaria Czech Republic Czech Republic Czech Republic Czech Republic Hungary Hungary Hungary Hungary Poland Poland Poland Slovakia Slovakia Slovakia Slovakia Slovakia Slovakia Romania Romania Russia Russia Ukraine Ukraine Market Confectionery Confectionery Dairy Dairy Confectionery Confectionery Dairy Dairy Confectionery Confectionery Dairy Dairy Confectionery Dairy Dairy Confectionery Confectionery Confectionery Confectionery Dairy Dairy Confectionery Confectionery Dairy Dairy Confectionery Dairy
Nestl market shares in Eastern Europe, 2002

Category Chocolate Sugar Milk Overall Chocolate Sugar Milk Overall Chocolate Sugar Milk Overall Sugar Milk Overall Chocolate Gum Sugar Sugar Milk Overall Chocolate Sugar Milk Overall Chocolate Milk Company Value% Nestl Sofia AD Nestl Sofia AD Nestl Sofia AD Nestl Sofia AD Nestl Cesko sro Nestl Cesko sro Nestl Cesko sro Nestl Cesko sro Nestl Hungria Kft Nestl Hungria Kft Nestl Hungria Kft Nestl Hungria Kft Nestl Polska Sp zoo Nestl Polska Sp zoo Nestl Polska Sp zoo Nestl Slovensko sro Nestl Slovensko sro Nestl Cesko sro Nestl Slovensko sro Nestl Slovensko sro Nestl Slovensko sro Nestl Romania SRL Nestl Romania SRL Nestl Zhukovskoye Morozhenoye Nestl Zhukovskoye Morozhenoye Nestl SA Nestl SA 19.09 10.54 3.20 0.60 56.95 47.88 6.15 2.60 15.82 18.29 2.90 1.30 0.30 1.70 0.30 33.58 0.37 3.30 21.90 2.80 1.20 1.77 5.05 0.20 0.10 1.70 0.20
Business Insights
Middle East and Africa Nestl holds strong positions in several markets in the Middle East and Africa, particularly in the chocolate confectionery in South Africa and the milk markets in Egypt and Saudi Arabia.
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Table 11.60:
Country Egypt Egypt Egypt Egypt Egypt Morocco Morocco Morocco Morocco Saudi Arabia Saudi Arabia Saudi Arabia Saudi Arabia South Africa South Africa South Africa South Africa South Africa
Nestl market shares in the Middle East and Africa, 2002

Market Confectionery Confectionery Dairy Dairy Dairy Confectionery Confectionery Dairy Dairy Confectionery Confectionery Dairy Dairy Confectionery Confectionery Dairy Dairy Dairy Category Chocolate Sugar Milk Overall Yoghurt Chocolate Sugar Milk Overall Chocolate Sugar Milk Overall Chocolate Sugar Cheese Milk Overall Company Value% Nestl Egypt SAE Nestl Egypt SAE Nestl Egypt SAE Nestl Egypt SAE Nestl Egypt SAE Nestl Maroc SA Nestl Maroc SA Nestl Maroc SA Nestl Maroc SA Nestl SA Nestl SA Nestl SA Nestl SA Nestl South Africa (Pty) Ltd Nestl South Africa (Pty) Ltd Nestl South Africa (Pty) Ltd Nestl South Africa (Pty) Ltd Nestl South Africa (Pty) Ltd 3.42 4.82 32.40 8.50 10.80 17.87 4.02 1.60 2.50 19.09 7.85 20.20 9.80 42.11 5.30 1.90 14.30 10.00
Business Insights
Western Europe In the companys convenience foods sector, Maggi merged with Nestl in 1947. Buitoni, which has been producing pasta and sauces in Italy since 1827, became part of the Nestl Group in 1988.
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Table 11.61:
Country Austria Austria Austria Austria Belgium Belgium Belgium Belgium Belgium Belgium Denmark Denmark Denmark Denmark Finland Finland Finland France France France France France France Germany Germany Germany Germany Germany Greece Greece Greece Greece Ireland Ireland Ireland Ireland Ireland Italy Italy Italy Italy Italy Italy Italy Netherlands Netherlands Netherlands Netherlands
Nestl market shares in Western Europe, 2002

Market Category Chocolate Milk Overall Yoghurt Overall Chocolate Sugar Milk Overall Yoghurt Chocolate Sugar Milk Overall Chocolate Sugar Milk Overall Chocolate Sugar Milk Overall Yoghurt Overall Chocolate Milk Overall Yoghurt Chocolate Sugar Milk Overall Overall Chocolate Sugar Milk Overall Overall Chocolate Sugar Cheese Milk Overall Yoghurt Chocolate Milk Overall Yoghurt Company Value% Nestl sterreich GmbH Nestl sterreich GmbH Nestl sterreich GmbH Nestl sterreich GmbH Nestl Belgilux SA Nestl Belgilux SA Nestl Belgilux SA Nestl Belgilux SA Nestl Belgilux SA Nestl Belgilux SA Nestl Danmark A/S Nestl Danmark A/S Nestl Danmark A/S Nestl Danmark A/S Suomen Nestl Oy Suomen Nestl Oy Suomen Nestl Oy Nestl France SA Nestl France SA Nestl France SA Nestl France SA Nestl France SA Nestl France SA Nestl Deutschland AG Nestl Chocoladen GmbH Nestl Deutschland AG Nestl Deutschland AG Nestl Deutschland AG Nestl Hellas SA Nestl Hellas SA Nestl Hellas SA Nestl Hellas SA Nestl Ireland Ltd Nestl Ireland Ltd Nestl Ireland Ltd Nestl Ireland Ltd Nestl Ireland Ltd Nestl Italiana SpA Nestl Italiana SpA Nestl Italiana SpA Nestl Italiana SpA Nestl Italiana SpA Nestl Italiana SpA Nestl Italiana SpA Nestl Nederland BV Nestl Nederland BV Nestl Nederland BV Nestl Nederland BV 6.00 0.70 1.10 2.40 18.42 10.60 0.60 1.40 4.90 12.40 6.97 0.52 1.00 0.30 3.07 2.07 0.20 7.1 16.72 0.72 3.30 5.40 11.20 0.5 6.85 11.80 4.40 6.60 11.89 0.47 12.50 3.40 7.21 27.36 19.42 0.50 0.30 0.68 14.14 5.17 0.30 2.70 1.40 2.70 11.09 0.80 1.60 0.90
Confectionery Dairy Dairy Dairy Chilled Food Confectionery Confectionery Dairy Dairy Dairy Confectionery Confectionery Dairy Dairy Confectionery Confectionery Dairy Chilled Food Confectionery Confectionery Dairy Dairy Dairy Chilled Food Confectionery Dairy Dairy Dairy Confectionery Confectionery Dairy Dairy Chilled Food Confectionery Confectionery Dairy Dairy Chilled Food Confectionery Confectionery Dairy Dairy Dairy Dairy Confectionery Dairy Dairy Dairy
Business Insights
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Table 11.62:
Country Norway Norway Norway Norway Norway Norway Portugal Portugal Portugal Portugal Portugal Spain Spain Spain Spain Spain Spain Sweden Sweden Switzerland Switzerland Switzerland Switzerland Turkey Turkey Turkey Turkey Turkey Turkey UK UK UK UK UK
Nestl market shares in Western Europe, 2002

Market Category Overall Chocolate Sugar Milk Overall Yoghurt Chocolate Cheese Milk Overall Yoghurt Overall Chocolate Cheese Milk Overall Yoghurt Chocolate Sugar Chocolate Milk Overall Yoghurt Chocolate Sugar Cheese Milk Overall Yoghurt Chocolate Sugar Milk Overall Yoghurt Company Value% Nestl Norge AS Nestl Norge AS Nestl Norge AS Nestl Norge AS Nestl Norge AS Nestl Norge AS Nestl Portugal SA Nestl Portugal SA Nestl Portugal SA Nestl Portugal SA Nestl Portugal SA Nestl Espaa SA (Grupo) Nestl Espaa SA (Grupo) Nestl Espaa SA (Grupo) Nestl Espaa SA (Grupo) Nestl Espaa SA (Grupo) Nestl Espaa SA (Grupo) Nestl Sverige AB Nestl Sverige AB Nestl Suisse SA Nestl Suisse SA Nestl Suisse SA Nestl Suisse SA Nestl Gida Sanayii AS Nestl Gida Sanayii AS Nestl Gida Sanayii AS Nestl Gida Sanayii AS Nestl Gida Sanayii AS Nestl Gida Sanayii AS Nestl UK Ltd Nestl UK Ltd Nestl UK Ltd Nestl UK Ltd Nestl UK Ltd 2.54 5.87 0.30 8.50 3.30 0.50 29.94 10.70 3.50 10.90 25.10 0.71 27.86 4.50 2.80 6.80 13.10 3.92 0.77 22.86 3.50 2.20 5.80 19.72 0.70 2.80 12.00 9.40 10.80 22.11 11.17 1.60 1.30 0.20
Chilled Food Confectionery Confectionery Dairy Dairy Dairy Confectionery Dairy Dairy Dairy Dairy Chilled Food Confectionery Dairy Dairy Dairy Dairy Confectionery Confectionery Confectionery Dairy Dairy Dairy Confectionery Confectionery Dairy Dairy Dairy Dairy Confectionery Confectionery Dairy Dairy Dairy
Business Insights
Product examples Nestl has a joint venture with General Mills outside North America - Cereal Partners Worldwide - that is active in more than 80 countries. The joint venture began in 1990, and its rapid growth has been characterised by strong branding and lately the launching of breakfast cereal brands into the fast-growing cereal bar market.
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Figure 11.33:
A selection of brands from Nestl
Source: http://www.nestle.com/Html/Brands/index.asp and http://www.cerealpartners.co.uk/brands.shtml Business Insights
Foodservice Nestl FoodServices provides food and beverage professionals with a wide selection of branded products and solutions to meet the growing opportunities to service consumers in out-of-home channels. For example, the Ortega Nachos Bar, is a self-serve station for use in schools, C-stores, forecourts etc. The sector is split on a geographical basis with five operating units: FoodServices Australia, FoodServices France, FoodServices Malaysia, FoodServices Russia and FoodServices USA.
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Figure 11.34:
Self-service snacking facility from Nestl FoodServices
Source: Company information
Business Insights

One of Nestls key strategies is to grow its existing products through innovation and renovation while maintaining a balance in geographic activities and product lines. The company has stated that it will not sacrifice the long-term potential of products in favour of short-term performance gains.
Driving growth and improving margins Nestls four pillar strategy is based on operational performance, product innovation, product availability and consumer communication. In addition, the company has implemented four efficiency programmes: GLOBE (Global Business Excellence), IC3 (Increasing Customer and Channel Contributions), Project FitNes and Target 2004+ (MH97).
Nestl has four key strategies, which it is using to drive growth. IC3 is an initiative based on benchmarking the companys performance at comparable retail customers and then working to improve the lower performing ones. Through product innovation and
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renovation, the company aims to ensure that its portfolio of products is updated through new technologies and creative ideas, either through new products and brands, derivatives of existing products, brand extensions or packaging innovations. Product availability, the third driver of growth, aims to ensure that consumers have access to the companys products when, where and how they want them, whilst a focus on consumer communication hopes to drive growth by building brand loyalty.
The three major projects Nestl has implemented three projects with the goal of improving the companys margins. The first of these, GLOBE, is a programme tasked with improving the performance and operational efficiency of the businesses. The programme was launched in July 2000 and runs to 2006; launched at the start of 2002, project FitNes is focused on reducing administrative costs by 1% of the companys food and beverage sales by 2005; finally, Target 2004+ was launched in January 2002 as an industrial efficiency programme (following the MH97 project). The project recorded savings of CHF 1.2 billion in 2002, and total savings from the project are expected to reach CHF 2 billion by 2004.
SWOT analysis
The following section provides a brief appraisal of the performance and strategy of Nestl in the form of a SWOT analysis, highlighting the relative strengths, weaknesses, opportunities and threats faced by the company.
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A global perspective As a market leader, on a global scale, Nestl is able to command both competitive and scale advantages. Category leadership across a diversified portfolio of sectors also helps the company to generate consumer loyalty and achieve greater in-store emphasis by retailers.
As a global operator, Nestl seeks to take advantage of scale, whilst leaving individual operating decisions to country managers with specific expertise and experience in their companies, thus retaining an element of focus on individual operations that are not dictated to from a global headquarters.
Figure 11.35:
Company Strengths
A market leader, on a global scale, Nestl commands competitive and scale advantages Category leadership helps generate consumer loyalty and achieve greater in-store emphasis by retailers Cereal Partners Worldwide: strong branding and an innovative approach
Nestl SWOT analysis

Company Weaknesses
The companys ice cream business had underperformed. Realising this, the company has made efforts to improve the growth and performance of the business and enhances its competitive position
The European dairy market remains a key strategic area for Nestl with initiatives to prioritise this sector Brand extensions can boost sales in stagnant or declining segments and can be used to leverage expertise in successful categories Extending sales in non -retail channels
Company Threats
Consumer trends towards healthier eating will impact sales of indulgent products in favour of reduced -fat alternatives Chocolate confectionery markets are increasingly mature and susceptible to declining growth rates
Business Insights
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Successful brand extensions Despite the recent sale of dairy activities in Turkey, the European dairy market remains a key strategic area for Nestl. The Group has launched a series of initiatives aimed at refocusing and prioritising this sector. The LC1 brand was recently licensed to a third party in Germany and Nestl also reached an agreement with Emmi in Switzerland concerning the production and distribution of its Hirz chilled dairy lines.
In Western Europe, the company sees opportunities to grow by extending coverage in non-retail channels, whilst in Eastern Europe organic growth will provide the platform for greater sales.
Nestl has successfully launched brand extensions into chilled desserts and ice creams, making use of its substantial dairy expertise to introduce Milkybar, Rolo and Smarties desserts. In 2003, Nestl also extended some of their confectionery brands into biscuits, a faster growing segment than traditional confectionery markets, which are also perceived to be less unhealthy than chocolate confectionery.
Nestl has also extended brands within the confectionery market along age and gender lines. After the company saw that KitKat Chunky cannibalised KitKat sales, the Milkybar brand was extended to widen the consumer base by differentiating between consumers. Milkybar Munchies were labelled For Adults while Milkybar Choos were targeted at children.
Future brand extensions may be used to boost sales in stagnant or declining segments or to leverage expertise in particularly successful categories.
Health implications for indulgent products Though the company is not as heavily dependent upon confectionery markets, in comparison to Masterfoods, for example, it must be aware of consumers increasing awareness of the health implications of indulging themselves on confectionery. While
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particularly pertinent for the confectionery markets, Nestl must be aware of the threat to food markets in general, from consumer trends towards healthier eating and position its products accordingly.
As a leading player in chocolate confectionery, a proportion of Nestls sales are under threat from increasingly mature markets, which are susceptible to declining growth rates. Additionally, in line with other confectionery manufacturers, the companys cocoa costs are likely to increase in 2004 as a result of recent price increases in the world cocoa market.
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Chapter 12
Unilever Bestfoods
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Chapter 12
Summary
Unilever Bestfoods
Unilever is one of the worlds leading suppliers of fast moving consumer goods in foods, home care and personal product categories. The business is based on two global divisions: Unilever Bestfoods and Home and Personal Care. In 2002, the company generated foods sales of 27 billion and owned eight foods brands with sales in excess of 1 billion. The foods business spans several categories including savoury and dressings, spreads and cooking products, health and wellness, ice cream and frozen foods. Leading brands include Knorr, Findus. Birdseye, Slim-Fast, Magnum, Cornetto, Solero and Carte dOr, Breyers and Ben & Jerrys and Hellmanns. During 2000, Unilever made 20 acquisitions, the most important of these were Bestfoods, Ben & Jerrys and Slim-Fast. Unilever acquired Bestfoods for an aggregate consideration of 26.1 billion. Despite the integration of Bestfoods, the company announced it was disappointed with top line growth in 2003. The company is seeking to extend brands across product categories, particularly those that feature high levels of consumer trust. Unilever is the worlds biggest ice cream business and its symbol in the ice cream is the Heart, launched in 1997 to unite Unilevers ice cream brands. The companys Path to Growth strategy was designed to accelerate top-line growth and increase operating margins with a series of initiatives to focus on fewer, stronger brands. However, in 2004, the company abandoned the growth targets set for the final year of Path to Growth, choosing to replace them with broad objectives to increase cashflow and returns to shareholders in dividends and share buybacks.
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About Unilever Bestfoods

Unilever is one of the worlds leading suppliers of fast moving consumer goods in foods, home care and personal product categories. The business is based on two global divisions: Unilever Bestfoods and Home and Personal Care. Both divisions have an executive board, responsible for divisional strategy and for implementation across the world. Over one-half of the companys sales are generated by food division brands.
In 2002, the company generated foods sales of 27 billion and owned eight foods brands with sales in excess of 1 billion. The foods business spans several categories including savoury and dressings, spreads and cooking products, health and wellness, ice cream and frozen foods.
The Unilever Group has two parent companies: Unilever NV and Unilever plc. Although these companies are separate legal entities, with separate stock exchange listings, in practice, Unilever operates as a single business with a single management team the Executive Committee of the Board, headed by the Groups joint chairmen. The Executive Committee is responsible for setting global strategy for overall business performance. The company believes that this structure allows for faster decision-making and strengthens its capacity for innovation by more effectively integrating research into the divisional structure.
History Unilever was created in 1930 when the British soapmaker Lever Brothers (founded in 1885) merged with the Dutch margarine producer, Margarine Unie. Between them, they had operations in over 40 countries. Margarine Unie grew through mergers with other margarine companies in the 1920s. Lever established soap factories around the world. In 1917, he began to diversify into foods, acquiring fish, ice cream and canned foods businesses. In the 1930s, Unilever introduced improved technology to the business. The business grew and new ventures were launched in Latin America.
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Sales and acquisitions Since the announcement of the Path to Growth strategy in February 2000, the company has sold a total of 87 companies with sale proceeds of 6.3 billion. Recent significant activity in the companys food business was the sale of 19 food brands to ACH Food Companies, Inc., a subsidiary of Associated British Foods plc, for a total of approximately $360 million in July 2002. The brands and related assets, acquired by Unilever in connection with the October 2000 acquisition of Bestfoods, had combined sales of $310 million in 2001. In November 2002, the company completed the sale of Loders Croklaan Group, an international speciality oils and fats business, to IOI Corporation Berhad of Malaysia for 217 million and in December 2002, the sale of the Iberia Foods business was completed.
In January 2001, the company sold its dry soup and sauces businesses in Europe for a debt free price of 1 billion. Annual sales of the businesses total approximately 435 million. The businesses were being divested as a result of undertakings given to the European Commission in connection with the acquisition of Bestfoods, which was completed in October 2000. In February 2001, the company announced an agreement to sell the Bestfoods Baking Company for a debt free price of 1.9 billion. In May 2001, Unilever announced plans to sell a number of North American brands and related assets from its Unilever Bestfoods portfolio and in August 2001, Unilever sold its North American seafood businesses to Nippon Suisan (USA), Inc, a subsidiary of Nippon Suisan Kaisha Limited for US$175 million.
During 2000, Unilever made 20 acquisitions. In the food business, the most important of these were Bestfoods, Ben & Jerrys and Slim-Fast. In October 2000, Unilever, through its subsidiary Unilever United States, Inc., acquired Bestfoods for an aggregate consideration of 26,083 million. In 2000, Unilever also disposed of 27 businesses for a total consideration of approximately 642 million. Disposals included the European Bakery Supplies Business, Benedicta, a culinary business in France, and various other smaller businesses and brands.
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Recent performance
Unilever concentrates cash in the parent and finance companies in order to ensure maximum flexibility in meeting changing business needs. Operating subsidiaries are financed through the mix of retained earnings, third party borrowings and loans from parent and group financing companies that is most appropriate to the particular country and business concerned.
Leading brand growth revised downwards in 2003 Despite the successful integration of the Bestfoods acquisition and having reshaped the companys brand portfolio (including the sale of 110 businesses), the company announced it was disappointed with top line growth in 2003. Good progress in the vast majority of the business was not yet sufficient to offset the weaknesses in a limited number of under-performing businesses when taken in conjunction with some one-off factors in the first half of 2003.
In its preliminary 2003 results, Unilever announced a 10% rise in net profit before exceptional items. However, sales growth in its leading brands, a key objective of the Path to Growth strategy launched four years ago, was just 2.5%, well short of the target rate of 5.5%-6.0%. Poor performances from Slim-Fast were thought to be largely attributable for the lower sales growth. The diet food and drinks business suffered following the popularity of low-carbohydrate diets. Slim-Fasts revenues fell by one-fifth last year, knocking 0.6% from the companys overall sales growth. As a result, Unilever is re-launching Slim-Fast with a wider variety of products, including low-carb items.
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Financial performance Table 12.63:

m Group Turnover (1) Group Operating Profit (3)
Unilever financial performance 20002003

2000 47,582 5,794 2001 51,514 7,269 2002 48,270 7,260 2003 (2) 47,700 7,501
Notes: (1) Excluding share of sales from joint ventures; (2) Unaudited and provisional results released February 2004; BEIA - Before exceptional items and amortisation of goodwill and intangibles;
Figure 12.36:
Unilever financial performance 20002003; turnover and operating profit
60,000 50,000 40,000 30,000 20,000 10,000 0 2000

Group Turnover Group Operating Profit
2001
2002
2003
Business Insights
Difficult economic conditions in a number of countries in Europe in 2003 were reflected in market growth rates that slowed significantly. Exceptional summer weather in Europe in 2003 had a largely neutral effect on Unilever with benefits to ice cream and RTD Tea but not for savoury, frozen food and cooking products. The company saw growth in spreads and cooking products for its heart health brands Becel/Flora, whilst family
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brands such as Rama and Blue Band adopted a strategy of recovering substantial increases in edible oil costs which some competitors have not followed. The Bertolli brand recorded growth following its extensions into pasta sauces, dressings and toppings. Ice cream sales grew strongly, helped by the hot summer weather and innovations including Magnum 7 sins, Magnum Moments, Magnum snacking bars and the roll out of the Fruit & Fresh mix of yoghurt and ice cream.
In North America, good performances from Hellmanns, Lipton and Bertolli through pasta sauces and frozen foods and Becel margarine in Canada were partly offset by declines in spreads consumption because of lower butter prices, and by declines in Bertolli olive oil and in Ragu pasta sauces. In Asia-Pacific, acquisitions and disposals impacted upon overall performance in 2003. There were positive developments in Indonesia, whilst Knorr Soupy Snax were launched in India and the Knorr brand recorded good growth in China.
Table 12.64:
m Savoury & Dressings Turnover Operating Profit Spreads and Cooking Turnover Operating Profit Health, Wellness & Beverages Turnover Operating Profit Ice Cream & Frozen Foods Turnover Operating Profit
Unilever food divisional performance 20002003

2000 2001 2002 (2) 2003 (1)
5,950 296
9,597 793
9,503 422
9,482 n/a
6,670 823
6,681 797
6,216 793
5,419 n/a
3,430 391
4,150 267
4,215 354
4,052 n/a
7,848 225
7,727 446
7,456 616
7,517 n/a
Notes: (1) at constant exchange rates; (2) Re-stated 2002 turnover figures;
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Total shareholder return positioning Total Shareholder Return (TSR) is a concept used to compare the performance of different companies stocks and shares over time. It combines share price appreciation and dividends paid to show the total return to the shareholder. Unilever calculates TSR over a three-year rolling period and its TSR target is to be in the top third of a reference group of 21 international consumer goods companies. The companies of the TSR peer group are (alphabetical order): Avon, Beiersdorf, Cadbury, Clorox, Coca-Cola, Colgate, Danone, Gillette, Heinz, Kao, LOreal, Lion, Nestl, Pepsico, Philip Morris, Orkla, Procter & Gamble, Reckitt Benckiser, Sara Lee, Shiseido and Unilever.
At the end of 2002, Unilever was positioned 12th, outside its target position, which remains the top one-third of the reference group. However, on a one-year basis its TSR ranking has been in the top one-third of the reference group for each of the last two years.
In November 2003, Unilever agreed to sell its Ambrosia and Brown & Polson businesses to Premier Foods for an undisclosed sum. Ambrosia, a business within Unilever Bestfoods UK, produces and markets a range of milk-based ambient desserts including ready-to-use custard, milk puddings and creamed rice puddings. Brown & Polson is a long established brand relating to cornflour and, within foodservice channels, ambient dessert products. Within the context of Unilevers global Path to Growth strategy, UBF-UK is focussing on a core portfolio of brands and believes that Ambrosias and Brown & Polsons lie outside of this.
Board changes announced in February 2004 In February, Unilever announced that Niall FitzGerald would retire from the company in September 2004. Patrick Cescau, currently Foods Director, will succeed Mr FitzGerald as Chairman of Unilever PLC (and Vice-Chairman of Unilever N.V.). In turn, Kees van der Graaf, currently President of Ice Cream and Frozen Foods Europe, will succeed Mr Cescau as Foods Director.
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Looking forward, the companys 2004 outlook is for low double-digit growth in EPS (BEIA). Unilever expects both improved growth in their leading brands and an increased operating margin, to over 16%, to contribute to this. By the end of the year, the leading brands should represent 95% of the companys business.
Market positioning
From soups and dressings, to frozen food and ice cream Knorr is sold in over 100 markets with sales of around 3.5 billion. It is growing fast across emerging markets in Latin America, Africa, the Middle East and Asia. Brands ranging from the UKs Chicken Tonight to Asias Annapurna and Latin Americas CICA are all part of the Knorr portfolio. Over time, as part of the companys brand focus programme, they are being migrated to share the Knorr name, packaging and marketing communication.
Slim-Fast began life in the late 1970s in the United States as a healthy, nutritional slimming aide. The brand has grown quickly as modern lifestyles meant that people ate more and exercised less, while still being conscious of their health.
Unilever believes that the global ice cream business is worth 5 billion, and that it accounts for a 17% market share. It sells ice cream in over 40 countries worldwide. Unilever is committing 20% more investment in the next three years to marketing and development activities to make the Heart a power brand. Other well-known Unilever ice cream brands include Breyers and Ben & Jerrys. Unilevers ice cream companies, united by the Heart logo, are known by different names in different countries, for example Walls in the UK and South East Asia, Streets in Australia, Kibon in Brazil, Algida in Italy, Langnese in Germany and Ola in the Netherlands. Together they produce brands including Magnum, Cornetto, Solero and Carte dOr.
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Table 12.65:
Country Austria Austria Austria Austria Belgium Belgium Belgium Brazil Brazil Chile France France France Germany Germany Germany Greece Greece Greece India Ireland Ireland Ireland Italy Italy Romania South Africa South Africa Spain Spain Switzerland Turkey UK UK UK UK Market Confectionery Confectionery Dairy Dairy Dairy Dairy Dairy Dairy Dairy Dairy Dairy Dairy Dairy Chilled Food Dairy Dairy Dairy Chilled Food Confectionery Confectionery Chilled Food Dairy Savoury Snacks Confectionery Confectionery Savoury Snacks Dairy Dairy Dairy Dairy Confectionery Confectionery Dairy Dairy Dairy Savoury Snacks
Unilever market shares, 2002

Category Company Value% 1.57 1.02 0.50 0.10 1.90 0.30 0.90 0.57 0.30 0.30 1.20 1.30 0.80 7.14 4.70 1.70 0.10 4.58 0.30 3.40 1.21 0.10 0.20 3.37 1.02 2.70 6.70 1.50 0.40 0.10 0.67 0.40 0.20 0.50 0.30 0.90
Gum Lever Faberg GmbH Sugar Unilever Bestfoods Austria GmbH Cheese Unilever Bestfoods Austria GmbH Overall Unilever Bestfoods Austria GmbH Cheese Unilever Belgium NV Milk Unilever Belgium NV Overall Unilever Belgium NV Milk Unilever Bestfoods Brasil Ltda Overall Unilever Bestfoods Brasil Ltda Cheese Unilever Bestfoods Chile SA Cheese Unilever Bestfoods France SA Milk Unilever Bestfoods France SA Overall Unilever Bestfoods France SA Overall Bestfoods Deutschland GmbH CheeseUnilever Bestfoods Deutschland GmbH OverallUnilever Bestfoods Deutschland GmbH Cheese Elais Oleaginous Products SA Overall Unilever Hellas SA Gum Unilever Hellas SA Sugar Hindustan Lever Ltd Overall Unilever Bestfoods Ireland Ltd Overall Unilever Bestfoods Ireland Ltd Overall Unilever Bestfoods Ireland Ltd Gum Lever Faberg Italia SpA Sugar Lever Faberg Italia SpA Overall Bestfoods Romania SRL Cheese Unilever South Africa (Pty) Ltd Overall Unilever South Africa (Pty) Ltd Milk Unilever Foods Espaa SA Overall Unilever Foods Espaa SA Gum Lever Faberg Schweiz Gum Unilever Sanayii ve Ticaret Trk AS Cheese Unilever Bestfoods UK Ltd Overall Unilever Bestfoods UK Ltd Overall Bestfoods UK Ltd Overall Unilever Bestfoods UK Ltd
Business Insights
Product examples Hellmanns is a 1.7 billion family covering four brands: Hellmanns Wish-Bone, Calv and Amora. Unilever believes that each day, U.S. consumers buy more than one million Hellmanns products. These are sold through a variety of channels including supermarkets, convenience stores and fast food restaurants. Hellmanns world brands are sold in more than 30 countries in North America, Latin America, Europe and now
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Australia where the brand was recently launched. The brands top five countries are the United States, France, Brazil, the UK and Mexico.
Figure 12.37:
A selection of brands from Unilever
Source: Unilever
Business Insights
According to Unilever, Rama is the worlds largest margarine brand. Its main market is Germany but it is also sold in Latin America, Eastern Europe and North Africa. The company believes that Country Crock is the number one U.S. margarine brand. Blue Band is sold in the Netherlands, UK and a number of other countries. Doriana and Dorina are leading margarine brands in Latin America.
In the Healthy Heart sector, Becel was launched in the 1960s at the request of the medical profession and was originally sold only in pharmacies. It is now sold across continental Western Europe and also sold in Turkey, Canada and Brazil. Flora was launched in the UK in 1964 as a sister brand to Becel and is now also sold in Australasia, South Africa, Arabia, Ireland, Spain and Central and Eastern Europe.
Greater brand focus on brands with strong potential Since Unilevers Path to Growth strategy was launched in 2000, the company has reduced the number of brands it manages from 1,600 to some 400 leading brands and
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just under 250 tail brands. This enables the company to concentrate resources on a portfolio of leading brands with strong growth potential.
Brands can be local and also spread across categories Not all of the companys food brands have global appeal. For example, PG Tips and Marmite in the UK, Maille in France, Breyers ice cream in the United States, and soybased drink brand AdeS in Latin America. Additionally, the company is seeking to extend brands across product categories, particularly those that feature high levels of consumer trust. In the food business, an example of this is the Bertollis Italian-inspired food brand that has grown beyond olive oil into pasta sauces, bruschetta toppings, dressings and spreads with olive oil.
Unilever has also announced plans to make greater use of its corporate brand in support of its companies and products around the world. By 2005, subsidiary companies will adopt the name and use it on corporate literature and signage. Eventually, the Unilever name will appear on all product packaging.
NPD plays a key role Oils, fats and spreads Different oils are used for different tasks in Italy and this led to a new Bertolli range of olive oils which, according to Unilever, became a market leader in Italy in 2002: delicato, gentile, fragrante, robusto and classico. By extending beyond the olive oil category and stretching the brand credentials to other products, Bertolli has grown annually by an average of 10% in the last three years to over 500 million.
Blue Band, Rama, Country Crock and Doriana are the largest of the household-name spreads and cooking product brands that make up the companys Family brand world. These brands are sold under more than 20 different names across the globe. NPD has centred on healthy eating and New Blue Band Good Start margarine is fortified with extra calcium and seven essential vitamins. Country Crock Plus Calcium & Vitamins less
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fat and calories than butter or margarine and no cholesterol. Additionally, Family brand spreads in Belgium, Germany and the Netherlands are now made with blends of pure natural oils.
The company has a strong innovation programme planned for both family and heart health brands into 2004. This includes the roll out of the Rama/Blue Band Finesse range of cream alternatives and the extension of the Pro.activ brand to adjacent categories, for which it now has regulatory clearance.
Frozen foods Iglo, Birds Eye and Findus make up the European family of frozen food brands at Unilever. NPD has concentrated on convenience helping people prepare healthy food quickly. Innovations have included Steamfresh vegetables and a new range of premium egg pasta meals from Italy. The Captain, a marketing icon since 1967, has been relaunched and all artificial colours, flavourings and preservatives have been banned from the range and there are strict rules on the amount of total fat, saturated fat and salt. Additionally, the company is starting to utilise its expertise in frozen food to develop frozen ranges for Knorr and Bertolli.
In frozen foods, the companys priority going forward is to generate growth through a more rapid transfer of successful concepts across markets, including Knorr frozen, which is now in seven markets, and through planned innovations in the areas of kids nutrition, convenience meals and concepts based on fresh and natural ingredients such as the recently launched range of Steam Fresh vegetables.
Knorr the number one brand Knorr is Unilevers number one brand and its history dates back to 1838 with experiments in drying seasonings and vegetables to preserve their flavour and nutritional value. Recent innovations in the traditional Knorr range of bouillons and flavourings have included new varieties influenced by Latin and Asian cooking such as garlic and
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tomato, as well as easy-to-use liquid bouillons. Meal kits and ready-to-mix sauces have been introduced to meet the convenience requirements of todays busy consumers and Knorr has expanded its range of two-step cooking sauces, liquid soups, noodle snacks and pasta sauces. In addition, Knorr frozen meals have also been launched in Europe.
Hellmanns Together with its sister brands, Amora, Calv and Wish-Bone, Hellmanns expertise is in the dressings sector. Its history dates back almost 100 years to when Richard Hellmann, a recent arrival to the United States from Germany, began selling the mayonnaise made from his wifes own recipe.
Hellmanns continues to innovate and has launched new varieties of salad dressing, mustard, ketchups and dipping sauces including Hellmanns Dippin Sauces in flavours including Rockin Ranch and Honey Mustard Madness. Hellmanns new yoghurt-based mayonnaise, Just 2 Good, contains low fat mayo and mayonnaise with olive oil as a healthier option to traditional dressings. In addition, new packaging, including colourful, fun and squeezable formats, has helped broaden the brands appeal.
Unilevers Healthy Heart brands, Becel/Flora, have clinically-proven ways to help consumers maintain a healthy heart. The company recognises that coronary heart disease is the principal cause of premature death worldwide and reducing cholesterol is key to minimising the risks. The pro.activ brand is clinically proven to reduce harmful cholesterol by 1015% in three weeks. A vital part of pro.activs success has been the support of health professionals and other key opinion formers. Becel/Flora pro.activ spreads and cooking products include plant sterols that reduce absorption of harmful cholesterol. pro.activ has grown the companys Healthy Heart business to over 1bn in just two years. The same cholesterol-lowering ingredients are now being included beyond spreads and cooking products and planned innovations include pro.activ yoghurt and milk.
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Unilever is the worlds biggest ice cream business and its symbol in the ice cream is the Heart. The Heart was launched in 1997 to unite Unilevers ice cream businesses and brands. In 2003, the company re-launched the Heart as a symbol of the serious fun of ice cream. Recent brand innovations have appealed to a growing desire for good-foryou, fresh and natural ice cream options and include Carte dOr Fruit & Fresh, Solero Smoover and Cornetto Soft.
Foodservice Unilever Bestfoods (UBF) Foodsolutions works with customers including caterers, restaurateurs and major hotel and fast-food chains to create food solutions that help grow their business. Solutions include products that add the right seasoning, flavour or texture, pre-prepared ingredients that save time in a busy kitchen and new ways of serving food on a large scale at consistent quality. Recent foodservice innovations have included the Knorr 100% Soup, a preparation and dispensing system for Lipton Brewed Iced Tea and a new range of lower-fat Hellmanns dressings, available through specialised Hellmanns dispensers, for a fast-food chains salad bar. UBF Foodsolutions operates in 65 countries worldwide.

Unilevers strategy is to focus research and development and marketing on their leading brands, that is, those that are most in demand from consumers.
Leading brands account for over 90% of total business The companys Path to Growth strategy was designed to accelerate top-line growth and further increase operating margins. The plan centred on a series of initiatives to focus on fewer, stronger brands to accelerate growth. It was subsequently amended, following the acquisition on Bestfoods, which was completed in October 2000. Path to Growth commits Unilever to delivering (by 2004) annual top line growth of 5-6% and operating margins in excess of 16% (before exceptional items and amortisation).
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Now in the final year of Path to Growth, the company has achieved faster growth in its leading brands and progress with the integration of Bestfoods and its disposal programme. The companys leading brands now account for 93% of its total business (up from 75% in 1999). The companys portfolio has been reshaped and enhanced through acquisitions and the sale of 99 businesses that did not have acceptable growth or margin potential.
The cornerstone of the plan is the focus of product innovation and brand development on a portfolio of around 400 leading brands, which will lead to less fragmentation of resource and bigger hit innovations. By 2004 Unilever expected its leading brands to represent 95% of the business (the figure reached 93% at the end of 2003). The increase in brand power should reflect the contribution from acquisitions, the planned acceleration in exit from the non-corporate businesses and the disposal or harvesting of tail brands. In addition to the Path to Growth restructuring, savings of 0.8 billion were expected to be generated through the integration with Bestfoods.
Ultimately, Unilever expects to achieve greater share through a more focused portfolio of brands in highly fragmented markets, backed by more effective innovations with fewer projects, faster rollout and increased speed to market. It will innovate in the fastest growth segments of the market and also grow its brands outside their current geography and category structures into new and emerging markets. It will look beyond narrow category definitions to adjacent segments for many of its brands.
In February 2004, Unilever announced that it is to remove its sales and margin targets for 2004 (as defined in Path to Growth) and replace them with broad objectives to increase cashflow and returns to shareholders in dividends and share buybacks over five years. The shift in focus followed stock market criticism of the company for failing to fulfil its promise of revenue growth.
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Looking beyond the Path to Growth Speaking after the release of preliminary 2003 results, in February 2004, Chairman Antony Burgmans hinted at plans for acquisitions to boost the market position of its 14 product categories with a particular focus on Asian markets. As part of its new Unilever in 2010 strategic plan, the company is setting aside around 2.0 billion per year for acquisitions which would focus on its existing product groups, with no plans to expand into categories such as mineral water or yoghurt.
Over the period of 2005 to 2010, Unilever is hoping for average revenue growth of between 3.0%-5.0%, with a further 2.5 percentage points added to the operating margin.
SWOT analysis
The following section provides a brief appraisal of the performance and strategy of Unilever in the form of a SWOT analysis, highlighting the relative strengths, weaknesses, opportunities and threats faced by the company.
Strength demonstrated by core brands Unilevers core strength is demonstrated by the power and global appeal of its main brands. In 2002, the company owned eight foods brands with sales in excess of 1 billion. These brands belong to a diversified group of food categories, reducing the companys risk to down turns in any one sector. As the companys portfolio has been reshaped and enhanced through acquisitions and disposals its leading brands now account for 93% of its total business (up from 75% in 1999).
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Figure 12.38:
Company Strengths
Unilever Bestfoods SWOT analysis

Company Weaknesses
Though the company has made progress, a number of weaker and under-performing businesses remain in the companys portfolio
Power and global appeal of brands. Eight foods brands with sales in excess of 1 billion Diversified group of food categories, reducing the companys risk to down turns in any one sector Greater focus: the company has reduced the number of brands it owns
Innovate in the fastest growth segments of the food industry Look beyond category definitions to adjacent segments for many of its brands The Knorr brand has potential in emerging markets in Latin America, Africa, the Middle East and Asia
Company Threats
Low-carb diet threat to sales of Slim Fast products Consumer healthy eating trends away from indulgent, full-fat and some processed foods
Business Insights
The companys Path to Growth strategy continues to offer growth opportunities and greater efficiencies. Further gains are envisaged throughout 2004, as the company increases levels of outsourcing and sees advantages from its global procurement programme.
Underperforming businesses remain Though the company has made progress, a number of weaker and under-performing businesses remain in the companys portfolio. With over a year to go until Unilever reaches the end of Path to Growth, the company is aware of the difficulties in certain areas of its business and is committed to improving performances.
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Brand extensions and emerging markets Though Knorr is Unilevers key brand growth opportunities remain. The brand has significant potential in emerging markets in Latin America, Africa, the Middle East and Asia.
Through the realisation of the Path to Growth strategy, Unilever expects to innovate in the fastest growth segments of the food industry and also grow its brands outside their current geography and category structures into new and emerging markets. Increasingly, it will look beyond category definitions to adjacent segments for many of its brands.
Low-carb diet threat to Slim Fast Unilever reported disappointing Slim Fast sales in 2003, largely due to the success of low-carbohydrate diets, which were particularly pronounced in the United States. This comes just as recent innovation in the Slim Fast brand has been aimed at repositioning the brand, away from the meal replacement category, towards products such as soups and pastas. Together with Slim Fast ice cream, a variety of snack bars and websites promoting diet advice, the brand is more closely aligning itself with competitors such as Weight Watchers from Heinz.
In line with other food manufacturers, Unilever faces a threat to its sales from consumer health trends, that may see moves away from indulgent, full-fat and some processed foods, towards foods that are perceived to carry greater health and nutritional benefits. It is up to Unilever to respond to these trends by designing new products that offer consumers the choice, quality and range of alternatives they demand, in healthier formats.
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Chapter 13
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Chapter 13
Summary
Over one-third (36%) of respondents believe that the global food leaders increased their dominance in 2003, by increasing their market share at the expense of their competitors. Respondents believed that this growth was likely to be sourced to NPD and innovation. Convenience issues had a strong influence on the strategies of the global food leaders in 2003. This was seen as the most important issue shaping the strategies of the leading companies, ahead of issues such as healthy eating, brand recognition, pleasure and indulgence. Danone and Unilever stand out as being the two companies most responsive to new customer trends. Among the leading global food companies, Cadbury-Schweppes and Masterfoods are perceived to be the least successful innovators. When it comes to moving into new international markets, survey respondents perceive Unilever and Nestl to be the most successful companies. Hershey is perceived to be less successful than the other global leaders at communicating its brand messages, with almost 30% of respondents believing the company is weak in this area. Over 80% of respondents believe that the Asia-Pacific region offers the greatest growth opportunities for the global food leaders, with 42% predicting high growth potential in the region. NPD, innovating and launching new products into developed markets is the strategy most likely to deliver growth in the short-term future. Over one-quarter of respondents felt that Danone was well placed to deliver very strong growth over the next three years.
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Introduction
This chapter presents the results of the Business Insights Global Food Leaders Industry Opinion Survey, conducted in December 2003 with the help of more than 50 senior level respondents from across the food industry; retailers, manufacturers and ingredients companies from Europe and the United States.
The survey was designed to be strategic and forward-looking, focusing on the role of the global food leaders in todays food markets allowing insight into the thoughts and predictions of their industry peers. The survey begins by assessing the performance in 2003 of the global food leaders against their peers in terms of financial performance, merger and acquisition activity, changes in market shares, marketing activity and NPD initiatives.
It then goes on to identify the competitive positioning of the global food leaders, collectively at first, but then positioning the companies against themselves in terms of reacting to customer trends, innovation, spotting growth opportunities and marketing activity. The survey then looks at the opportunities for expansion into new markets around the world and identifies which of the companies are best placed to exploit growth in the coming years and how they will achieve it.
Therefore, this chapter is divided into four main sections: Food leaders: 2003 performance; Food leaders: competitive positioning; Food leaders: geographical strategies; Food leaders: the future.
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Food leaders: 2003 performance

In terms of sales growth, almost one-half of the respondents surveyed (43%) believed that the global food leaders recorded above average growth in 2003, though their performance was not expected to be particularly exceptional. Respondents were more inclined to believe that the global food leaders had the ability to increase their 2003 profits over and above the industry average. Product innovation drives growth in market share Over one-third (36%) of respondents believe that the global food leaders increased their dominance in 2003, by increasing their market share at the expense of their competitors. Respondents believed that this growth was likely to be sourced to NPD and product innovation, as over 70% of those surveyed pointed towards above average levels of innovation and new product launches by the global leaders.
Figure 13.39:
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Growing revenues Increasing profitability
Global food leaders: performance in 2003
Increasing Innovation i.e. Establishing market the launch of new consumer dominance i.e. new products trends i.e. new market share packaging
Marketing budgets and advertising spend
Merger and acquisition activity
Very strong growth/activity above average Growth/activity above average but not exceptional Average market growth/activity Growth/activity less than average but not stagnant or declining Very low growth/stagnating market or activity
Source: Global Food Leaders Industry Opinion Survey
Business Insights
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Marketing and advertising expenditure in the food industry were also driven by the global food leaders in 2003. One-half of respondents believed that the growth in spend of the global leaders was above the industry average.
Food leaders: competitive positioning

The survey asked, in the context of several other consumer trends and market influences: how important have the three food megatrends of health, convenience and indulgence been in shaping the marketing, product, NPD and branding strategies of the global food leaders.
Convenience shapes strategy ahead of brand recognition and pleasure Over 40% of respondents believe that convenience issues had a strong influence on the strategies of the global food leaders in 2003. This was seen as the most important issue shaping the strategies of the leading companies, ahead of issues such as healthy eating, brand recognition, pleasure and indulgence.
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Figure 13.40: How important have the three food and drinks megatrends been in shaping the marketing, product, NPD and branding strategies of the global food leaders?
Green issues and environmental concerns
Threats posed by the growth of private labels
Discounts/promotions/special offers
Innovations and product advantages from packaging
Brand recognition
Pleasure (the importance of premium and indulgent products)
Healthy eating
Convenience
Economic downturn
0%
20%
40%
60%
80%
100%
Very low influence Average influence Very strong influence
Some influence Growth above average but not exceptional
Business Insights
Whilst healthy eating was viewed as the second most important issue shaping corporate strategies overall, a larger share of respondents regarded both brand recognition and pleasure/indulgence as having a strong influence rather than healthy eating. This suggests that whilst convenience remains by far the most important consumer trend facing food manufacturers, the second tier of trends is difficult to separate (branding, pleasure and healthy eating) and are all of similar importance.
Whilst over one-fifth of respondents suggested that private labels are exerting a strong influence on the corporate strategies of the food leaders (a similar proportion to healthy eating), almost 15% believe they only have a marginal influence.
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Danone and Unilever react more quickly to customer trends The survey respondents believe that, among the global food leaders, Danone and Unilever stand out as being the two companies most responsive to new customer trends. At the same time, Cadbury-Schweppes and Masterfoods are perceived as being relatively slower to react to changing customer trends in the food industry.
One in five respondents believe that Kraft is relatively slow to react to consumer trends. Following trading difficulties, the company appointed Roger Deromedi as the Chief Executive Officer in December 2003.
Figure 13.41:
Rating the global food leaders: reacting to customer trends
Hersheys International Heinz Kelloggs General Mills Unilever Bestfoods Masterfoods (Mars Inc.) Kraft Danone Cadbury-Schweppes Nestl 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Very weak
Weak
Average performance
Strong
Very strong
Business Insights
In addition, Heinz has also made a number of changes in its U.S. business to make it a more customer-focused operation. Two business units were created, Heinz US Away from Home and Heinz US Consumer Products.
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Unilever perceived as the leading innovator When it comes to innovation, the survey respondents believed that Unilever is by far the strongest company in this area. Over 85% of respondents believe the company is either a strong or very strong innovator, with Danone, Nestl and Heinz perceived as the next best innovators.
Figure 13.42:
Rating the global food leaders: innovation
Very weak
Weak
Average performance
Strong
Very strong
Business Insights
Among the leading global food companies, Cadbury-Schweppes and Masterfoods are perceived to be the least successful innovators.
Cadbury and Hershey could do better at spotting cross-category opportunities In terms of the ability of a manufacturer to spot cross category expansion opportunities, survey respondents believe Unilever, followed by Nestl to be the most successful
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companies. Almost 90% of respondent believe that General Mills is average at spotting cross category opportunities, whilst over one-third believe that Cadbury-Schweppes and Hershey are weak or very weak in this area.
Figure 13.43:
Rating the global food leaders: identifying cross-category expansion opportunities
Very weak
Weak
Average performance
Strong
Very strong
Business Insights
Hershey is perceived to be relatively weak at moving into new markets When it comes to moving into new international markets, survey respondents once again perceive Unilever and Nestl to be the most successful companies. Over 40% of respondents also believe that Hershey is weak or very weak at expanding across international borders.
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Figure 13.44:
Rating the global food leaders: country coverage/moving into new countries
Hersheys International Heinz Kelloggs General Mills Unilever Bestfoods Masterfoods (Mars Inc.) Kraft Danone Cadbury-Schweppes Nestl 0% Very Weak 10% 20% 30% 40% 50% 60% 70% Strong 80% 90% 100%
Weak
Average performance
Very strong
Business Insights
Nestl leads the way in terms of marketing strength In terms of marketing and communications, Nestl is perceived to be ahead of all the other leading food manufacturers; with over 70% of respondents believing the company is either strong or very strong in this area. Hershey is perceived to be less successful at communicating its brand messages, with almost 30% of respondents believing the company is weak in this area.
Cadbury-Schweppes, a company also perceived to be relatively weak in this area announced in February 2004 that its marketing expenditure in 2003 was 702 million, an increase of 28% on 2002 levels. This represents marketing: net sales ratio of 10.9%, with the increase being due to the acquisition of Adams, which already had a higher
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marketing to sales ratio. Prior to acquisitions, the companys marketing to sales ratio was 9.9%, with the year-on-year reduction reflecting a lower spend during periods of unfavourable weather conditions in Americas Beverages and European Confectionery sectors.
Figure 13.45: Rating the global food leaders: marketing and communications activity (website, advertising, promotions etc)
Very weak
Weak
Average performance
Strong
Very strong
Business Insights
Food leaders: geographical strategies

Respondents to the industry opinion survey were asked which geographic regions would offer the highest growth potential for the global food leaders over the next three years.
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Asia-Pacific offers the greatest growth potential Over 80% of respondents believe that the Asia-Pacific region offers the greatest growth opportunities for the global food leaders, with 42% predicting high growth potential in the region. Whilst a similar proportion (over 80%) believe there is tremendous growth potential in Eastern Europe, the share of respondents believing that the region offers high growth potential (above strong growth) was less than for Asia-Pacific.
Figure 13.46: Which of the following geographic regions will offer the highest growth potential for your chose global food leaders over the next three years?
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Western Europe Eastern Europe North America Latin America Asia-Pacific
High growth potential Strong growth Average growth compared to other regions No growth Negative growth/market contraction
Middle East and Africa
Business Insights
Over 40% of respondents believe that North America and the Middle East both offer no growth opportunities for the global food leaders over the next three years. One in three respondents believe the same can be said for Western European markets.
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Food leaders: the future

Looking to the future, respondents were asked to select the strategies they believe will help the global food leaders grow most aggressively over the next three years.
NPD and innovation is the best way to deliver growth Without question, NPD, innovating and launching new products into developed markets is the strategy most likely to deliver growth in the short-term future. However, this was followed closely by line extensions and new formats of launching current products in developed markets and by extending current products into new geographical markets.
Figure 13.47: Which of the following companies are best placed to compete most effectively over the next three years?
Very low growth/stagnating market shares and/or revenues Growth less than average Average market growth Growth above average but not exceptional Very strong growth
Business Insights
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Category expansion (i.e. moving from confectionery to frozen food) was deemed to be the strategy least likely to deliver growth to the global leaders over the next three years, with over one in five respondents believing this route is not likely to deliver growth.
Finally, the survey respondents were asked to state which global food leaders are best placed to compete most effectively over the next three years.
Danone is the company most likely to deliver growth Over one-quarter of respondents felt that Danone was well placed to deliver very strong growth over the next three years. Whilst a similar proportion of respondents also felt that Nestl is in a similar position, over one-half of respondents (55%) believe that Danone will deliver above average but not exceptional growth whilst less than 20% believe this of Nestl.
Figure 13.48:
Which strategies will help the global food leaders grow most aggressively over the next three years?
Merger and acquisition activity in small, high growth potential market Merger and acquisition activity in developed markets
Growth in new areas such as nutraceuticals or probiotics Category expansion i.e. moving from confectionery to frozen food NPD, innovation and launching new products into lessdeveloped markets Line extensions and new formats of launching current products in developed markets NPD, innovating and launching new products into developed markets Extending current products into new geographical markets
0%
20%
40%
60%
80%
100%
Very unlikely
Not likely
No opinion
Likely
Very likely
Business Insights
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At the opposite end of the scale, 45% of respondents believe that Kellogg is set to deliver less than average growth over the next three years, with over one in three respondents also believing this of Heinz and Hershey. Almost one in 10 respondents stated they expect Hershey and General Mills to deliver very low growth over the next three years.
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Chapter 14
Conclusions
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Chapter 14
Summary
Conclusions
Whilst the concepts of convenience and premiumisation are long established, in recent months, the leading manufacturers have made a concerted effort to promote the health and nutritional benefits of their portfolios. Although it has been a well-documented trend for several years now, there is little evidence that convenience will become less important for consumers in the near future. The Asia-Pacific region offers the greatest growth opportunities for the global food leaders, whilst many also see tremendous growth potential in Eastern Europe. Whilst being amongst the five largest confectionery markets, in terms of market growth, the UK, Japan and Russia have been amongst the 10 slowest growing markets over the last six years. Among the worlds larger dairy markets that are also fast growing, China, Mexico and Brazil feature prominently. Whilst China is the worlds tenth largest dairy market, it is also the fourth fastest growing. It seems unlikely that the level and size of acquisitions seen in the last five years will continue though many companies remain open to selective, bolt-on acquisitions. Categorising the market by consumer trend enables the manufacturer to create new strategies for increasing its market share without cannibalising the market for existing products. Organic growth can exploit faster growing distribution channels such as convenience stores, mass merchandisers, drug stores, and vending machines, all of which may be growing faster than the traditional grocery channels. NPD, innovating and launching new products into developed markets is the strategy most likely to deliver growth in the short-term future.
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Introduction
This chapter presents the main findings of the report, with a forward-looking bias. It begins by considering the opportunities for the global food leaders in the food industry, highlighting the consumer trends, product categories and growth regions that will be important to the leading companies in the near future.
The chapter then goes on to highlight key strategies that manufacturers are and will be adopting in the food industry if they are to maintain, consolidate or even improve their position as global food leaders.
The global food industry

To take advantage of the growth opportunities in the global food industry, food manufacturers are aligning their product portfolios to more accurately meet the needs of the modern consumer. These largely centre on the three consumer megatrends of convenience, health and pleasure.
Whilst the concepts of convenience and premiumisation are long established, in recent months, the leading manufacturers have made a concerted effort to promote the health and nutritional benefits of their portfolios. Manufacturers are also extending product ranges by fortifying products with health benefits. Just one example of this occurred when Masterfoods entered the energy bar sector with Snickers Marathon. Snickers Marathons are each fortified with 16 vitamins and minerals and contain around 10g of a special protein blend, designed to provide a long-lasting energy boost.
Convenience remains most important However, although it has been a well-documented trend for several years now, there is little evidence that convenience will become less important for consumers in the near future. Over 40% of respondents to the Global Food Industry Survey conducted in
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December 2003 believe that convenience issues had a strong influence on the strategies of the global food leaders throughout 2003. This was seen as the most important issue shaping the strategies of the leading companies, ahead of issues such as healthy eating, brand recognition, pleasure and indulgence.
Results from the survey also suggested that whilst convenience remains by far the most important consumer trend facing food manufacturers, the second tier of trends are difficult to separate (branding, pleasure and healthy eating) and are all of similar importance.
Asia-Pacific and Eastern Europe are top targets for expansion The results of the Global Food Industry Survey suggest that the Asia-Pacific region offers the greatest growth opportunities for global food leaders, whilst many also see tremendous growth potential in Eastern Europe. Analysis of recent growth in the main food markets around the world confirms this.
Whilst being the largest market for chilled food, in terms of market growth, Japan has been of the slowest growing markets over the last six years. However, within the larger chilled food markets, the greatest market opportunities for growth appear to be in the Ukraine and France. Similar patterns emerge in confectionery. Whilst being amongst the five largest markets, in terms of market growth, the UK, Japan and Russia have been amongst the 10 slowest growing markets over the last six years. Within the larger confectionery markets, the greatest market opportunities for growth appear to be in China and Mexico.
Among the worlds larger dairy markets that are also fast growing, China, Mexico and Brazil feature prominently. Whilst China is the worlds tenth largest dairy market, it is also the fourth fastest growing. Finally, amongst the 10 largest savoury snack markets, Russia, in eighth place, is also the worlds fastest growing market whilst Mexico, the fourth largest market is also the fifth fastest growing market.
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Strategies for success

The future development of the food industry is largely linked to the strength of brands, and their ownership and control.
Focus on core brands and strengths A number of the large food manufacturers have disposed of non-core assets in their portfolios in order to focus on their core operations. Unilever is a prime example of such a strategy, particularly following the 2000 acquisition of Bestfoods. Since the announcement of the Path to Growth strategy in February 2000, the company has sold a total of 87 companies with sale proceeds of 6.3 billion. This has reduced the number of brands that the company manages from 1,600 to around 400 leading brands and just under 250 tail brands.
Heinz has also followed this strategy and disposed of certain businesses in recent years in order to concentrate more fully on realising the full potential of its core brands. In June 2002, Heinz disposed of a number of North American businesses and merged them with Del Monte Foods Company in a move designed to make Heinz a faster-growing company.
Growth through acquisition Whilst a number of companies have disposed of assets, alternative strategies have seen manufacturers undertake large-scale acquisitions to become a global food leader, or to consolidate their position amongst the leaders.
A good example of a company that has grown rapidly through acquisitions is CadburySchweppes. More recently, Cadburys has been going through something of a transition phase, with the integration of the Adams business well underway. However, since 1997, the company has spent a total of 3.3 billion on acquisitions (not all in confectionery markets) though it has also realised 1.4 billion from disposals.
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Following the acquisition of Pillsbury in 2001, General Mills is now seeking greater organic growth rather than boosting growth rates with further acquisitions. The March 2001 acquisition of Keebler Foods Company was by far the largest acquisition in Kelloggs history. The acquisition gave the company a more diversified product portfolio will undoubtedly boost the companys growth.
Perhaps the best example of growth through acquisition is that of Kraft (although the company itself was acquired by Philip Morris now named Altria in 1988). By far the biggest of its acquisitions was the 2000 acquisition of Nabisco Holdings, a leader in cookies, crackers and snacks, for almost $15 billion.
Expansion and cross-category As it seems unlikely that the level and size of acquisitions seen in the last five years will continue (though many companies remain open to selective, bolt-on acquisitions), organic growth is set to be the main driver of growth for the global food leaders. Categorising the food market by product type or category may not reveal many new sales opportunities for manufacturers. However, categorising the market by consumer trend enables the manufacturer to create new strategies for increasing its market share without cannibalising the market for existing products.
Examples of such strategies include Hershey, which is looking to leverage its core competencies in the broader snack market. Kellogg has also announced plans to expand its reach beyond the cereal and snack food aisles with extensive licensing initiatives in the toy, clothing, entertainment, publishing, and food categories.
In terms of the ability of a manufacturer to spot cross category expansion opportunities, respondents to the Global Industry Survey believe Unilever, followed by Nestl to be the most successful companies, whilst over one-third believe that Cadbury-Schweppes and Hershey are weak or very weak in this area.
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NPD will be the main driver of growth Over one-third of respondents to the Global Industry Survey believe that the food leaders increased their dominance in 2003, by increasing their market share at the expense of smaller manufacturers. Respondents believed that this growth was likely to be sourced to NPD and product innovation, as over 70% of those surveyed pointed towards above average levels of innovation and new product launches by the global leaders.
NPD, innovating and launching new products into developed markets is the strategy most likely to deliver growth in the short-term future, particularly in products and segments that are not easy to replicate via private label alternatives.
Among the global food leaders, Danone and Unilever stand out as being the two companies most responsive to new customer trends. At the same time, CadburySchweppes and Masterfoods perceived as being relatively slower to react to changing customer trends in the food industry. When it comes to innovation, Unilever is perceived to be the strongest company in this area, with Danone, Nestl and Heinz perceived as the next best innovators.
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Chapter 15
Appendix
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Chapter 15
Appendix
Primary research methodology

As a key element of the primary research effort for this report, Business Insights carried out a comprehensive survey in December 2003. Major companies across Europe and the United States were surveyed to canvass their opinions on a number of issues relating to the issues, trends and developments highlighted in this report. In addition, key industry sources were surveyed using a combination of telephone interviews and questionnaires by the author.
Terms and abbreviations used in this report

A list of the most commonly used terms and abbreviations used in the report and their meanings are provided in the following table.
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Table 15.66:
Term CAGR
Terms and abbreviations used in this report

Definition The compound annual growth rate (CAGR) is a way of measuring a markets annual growth over a period of several years. It is the constant percentage rate at which a market would have to grow, year on year, to reach its current value from the value in a base year. It is not the same as average growth but is a more representative measure of annual growth over a number of years. This is a key trend driving the movement for nutrition on-the-go. It is caused by pressure on time and pertains to something that is useful, available and ready to use. Food channels such as takeaways, restaurants and catering. Defined here as comprising visual, sensory, interactive and inspirational elements.
Convenience
Foodservice Fun
Functional and fortified The use of nutrients, vitamins, minerals, fibres and other ingredients to enhance the health benefits of specific products. Guilt-free indulgence Products that offer the dual benefits of being low and light and claim to be indulgent. Products that are positioned as indulgent or luxurious through their marketing or formulation. Refers to products that claim reduced, very low or zero levels of sugars and fats than may be expected for the food type. A term that is legally defined by EU Regulation 2092/91. It is used to describe products that are grown without the use of synthetic chemicals in a farming system that avoids the use of artificial fertilisers, pesticides, growth regulators and livestock feed additives. A consumer shopping pattern whereby products are purchased either at the point of use or in the expectation of use at some appropriate but unknown juncture. Products that are exclusively manufactured for, distributed and marketed by specific retailers. Refers to products that have a higher quality and exclusivity positioning than premium goods characterised by a strong brand image and an exceptionally high price. Treating is a usually a personal and very individual activity. What one consumer regards as a treat another may simply consider normal expenditure, so a fixed definition of what a treat consists of is difficult to provide. One view is that treating represents additional spend over and above ones normal expenditure.
Business Insights
Indulgence
Low and light
Organic
Planned impulse
Private label
Super premium
Treating
Source: Authors research
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Food segmentation table

The following table defines the market segmentations used in the analysis of food markets throughout the report.
Table 15.67:
Market and segment Bakery - Bread and rolls - Breakfast cereals - Cakes and pastries - Morning goods - Savoury biscuits - Sweet biscuits
Definitions of food segments used in this report

Definition
Includes industrial, artisanal and in-store bakery products. Both ready-to-eat and hot cereals. Includes industrial, artisanal and in-store products. Includes industrial, artisanal and in-store products. Includes crackers, dry wafers and snack biscuits. Defined to include artisanal, assortments, butter-based, chocolate, cookies, cream-filled, egg-based, plain, wafers and those baked instore.
Confectionery - Cereal bars - Chocolate Bars made from cereal products Products which contain either real chocolate or a chocolate compound containing substitute raw material ingredients such as cocoa butter extenders. A type of chewing gum that can be blown into large bubbles. Sugar mass, which is processed to be non-grained or to be grained through aeration. Includes sugar-free varieties. Also known as bonbons in France.
- Gum - Sugar confectionery
Dairy - Chilled desserts - Concentrated milk Industrially manufactured, ready-to-eat chilled desserts. Milk preserved and concentrated through the removal of water and additional processes. Chilled long life and frozen cream
- Cream
Business Insights
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Table 15.68:
Market and segment - Cream - Fats and spreads - Fromage frais desserts
Definitions of food segments used in this report continued

Definition Chilled long life and frozen cream Also known as spreadable fats or yellow fats. Fromage frais is also known as curd cheese or quark. This category only includes fromage frais packaged as a dessert. Dairy ice cream and ice milk with fat from either animal or vegetable sources. Includes both full fat and low fat products. Fresh pasteurised milk or long-life products. A fresh or ripened dairy product obtained after coagulation and separation of milk, requiring refrigeration. Not included is liquid coffee creamers. Processed cheese is a blend of natural cheese and emulsifier which is heated to stop ripening. Includes regular, bioactive, set and drinking formats.
- Ice-cream
- Liquid milk - Natural cheese
- Powdered milk - Processed cheese
- Yoghurt Snacks - Popcorn
A variety of maize having hard pointed kernels that puffs up when heated. Potato chips or crisps are products produced directly from the cuts of potatoes. Includes ethnic snacks, extruded snacks, corn chips, tortilla chips and pretzels. Covers all packaged processed nuts, by either being cooked in oil and salted or dry roasted. This includes only snack nuts and does not include nuts used for cooking.
Business Insights
- Potato chips
- Savoury snacks
- Snack nuts
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Index
Adams, 16, 36, 48, 49, 50, 51, 52, 53, 55, 56, 58, 59, 60, 61, 62, 63, 65, 235, 246 Argentina, 31, 55, 74, 80, 91, 134, 154, 192 Asia-Pacific, 25, 30, 43, 48, 55, 56, 60, 74, 75, 152, 154, 155, 174, 193, 194, 212, 227, 237, 243, 245 Australia, 31, 45, 48, 50, 55, 56, 64, 91, 107, 131, 134, 135, 136, 138, 147, 154, 155, 170, 172, 174, 186, 193, 200, 214, 216 Austria, 31, 37, 77, 152, 157, 158, 176, 197, 215 bakery, 254 Belgium, 31, 59, 69, 77, 91, 107, 157, 158, 159, 176, 197, 215, 218 Bestfoods, 20, 27, 34, 35, 206, 207, 208, 209, 210, 213, 215, 220, 221, 223, 246 Brazil, 31, 39, 41, 42, 43, 55, 63, 74, 91, 149, 154, 186, 192, 214, 215, 216, 243, 245 Bulgaria, 31, 57, 76, 148, 149, 156, 175, 195 Cadbury-Schweppes, 16, 26, 28, 34, 36, 227, 232, 233, 234, 235, 246, 247, 248 Canada, 31, 45, 50, 51, 55, 63, 74, 91, 107, 119, 131, 138, 154, 161, 172, 192, 212, 216 Chile, 31, 55, 173, 192, 215 European, 30 China, 30, 31, 40, 41, 42, 43, 45, 48, 52, 56, 61, 64, 75, 91, 102, 120, 131, 154, 155, 174, 193, 212, 243, 245 Colombia, 31, 43, 119, 137, 154, 192 confectionery, 16, 28, 30, 31, 34, 40, 41, 42, 48, 49, 50, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 65, 69, 70, 114, 115, 116, 118, 119, 120, 121, 122, 124, 126, 140, 148, 156, 170, 171, 173, 175, 178, 179, 180, 181, 184, 185, 190, 193, 195, 204, 205, 239, 243, 245, 246, 254 Finland, 31, 59, 77, 158, 176, 190, 197 foodservice, 87, 88, 92, 95, 96, 97, 100, 101, 106, 108, 130, 132, 143, 160, 161, 178, 213, 220 France, 31, 38, 41, 43, 44, 45, 51, 58, 59, 61, 69, 77, 80, 91, 157, 158, 159, 170, 176, 197, 200, 209, 215, 216, 217, 245, 254 Frozen food, 26, 27, 35, 40, 42, 44, 46, 60, 64, 78, 82, 92, 96, 108, 111, 121, 125, 138, convenience, 19, 21, 32, 52, 65, 79, 83, 92, 94, 104, 109, 110, 122, 126, 130, 131, 132, 133, 142, 143, 146, 159, 162, 167, 170, 178, 196, 215, 218, 219, 230, 231, 243, 244, 245 Convenience, 252 Czech Republic, 31, 57, 76, 102, 156, 175, 195 dairy, 30, 31, 37, 42, 43, 44, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, 152, 161, 184, 185, 190, 191, 195, 204, 243, 245, 255 Danone, 17, 21, 26, 28, 34, 35, 37, 67, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, 191, 213, 227, 232, 233, 239, 248 Denmark, 31, 37, 38, 52, 59, 62, 77, 152, 158, 176, 197 drinks, 254 Eastern Europe, 25, 30, 43, 45, 57, 70, 75, 76, 149, 156, 163, 174, 175, 188, 195, 204, 216, 237, 245 Egypt, 31, 37, 52, 57, 102, 152, 158, 176, 190, 195, 196 ethnic, 33, 255 Europe, 228, 251
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142, 160, 166, 177, 180, 200, 201, 203, 216, 223 Fun, 252 Functional & fortified, 252 General Mills, 17, 26, 28, 34, 36, 85, 86, 87, 88, 89, 90, 91, 92, 93, 94, 95, 96, 97, 184, 185, 199, 234, 240, 247 Germany, 31, 37, 38, 40, 41, 42, 43, 44, 45, 69, 77, 147, 152, 157, 158, 170, 176, 186, 190, 197, 204, 214, 215, 216, 218, 219 Greece, 31, 52, 59, 120, 158, 176, 197, 215
Keebler Foods, 34, 36, 131, 132, 133, 137, 247 Kellogg, 18, 19, 27, 28, 34, 36, 129, 130, 131, 132, 133, 134, 135, 136, 137, 138, 139, 140, 141, 142, 143, 240, 247 Kraft, 19, 27, 28, 34, 37, 61, 122, 145, 146, 147, 148, 149, 150, 151, 152, 153, 154, 155, 156, 157, 158, 159, 160, 161, 162, 163, 164, 165, 166, 167, 232, 247 Latin America, 30, 43, 62, 74, 88, 97, 134, 135, 136, 152, 161, 163, 187, 188, 208, 214, 215, 216, 217, 224 Malaysia, 31, 56, 154, 155, 174, 194, 200, 209
Health, 252 Heinz, 18, 26, 28, 34, 36, 99, 100, 101, 102, 103, 104, 105, 106, 107, 108, 109, 110, 111, 213, 224, 232, 233, 240, 246, 248 Hershey, 18, 27, 28, 34, 50, 113, 114, 115, 116, 117, 118, 119, 120, 121, 122, 123, 124, 125, 126, 227, 233, 234, 235, 240, 247 Hong Kong, 31, 56, 75, 91, 120 Hungary, 31, 39, 57, 76, 91, 102, 148, 156, 175, 195 India, 31, 52, 56, 61, 102, 107, 131, 193, 212, 215 Indonesia, 31, 41, 43, 56, 102, 106, 154, 155, 194, 212 indulgent, 33, 204, 224, 252 Innovation, 243 Interactive, 252 Ireland, 31, 52, 59, 62, 77, 91, 138, 157, 158, 176, 177, 197, 215, 216 Israel, 31, 76, 176 Italy, 31, 37, 38, 41, 43, 44, 69, 77, 102, 107, 152, 157, 158, 159, 177, 196, 197, 214, 215, 217, 218 Japan, 30, 31, 38, 39, 40, 41, 42, 43, 44, 45, 46, 74, 75, 120, 131, 154, 155, 174, 187, 194, 243, 245 organic, 33, 35, 36, 49, 68, 70, 73, 86, 87, 91, 93, 97, 130, 139, 181, 184, 188, 204, 247 PepsiCo, 87, 92, 97 Philip Morris, 37, 148, 149, 213, 247 Netherlands, 31, 38, 59, 69, 77, 91, 102, 107, 157, 158, 177, 197, 214, 216, 218 Norway, 31, 158, 177, 190, 199 obesity, 30, 32, 163, 167 Mexico, 30, 31, 40, 41, 42, 43, 44, 45, 46, 51, 74, 80, 102, 119, 131, 134, 138, 148, 154, 192, 216, 243, 245 Morocco, 31, 57, 76, 149, 157, 176, 196 Nestl, 20, 27, 28, 34, 36, 37, 68, 73, 83, 86, 87, 92, 97, 114, 120, 122, 183, 184, 185, 186, 187, 188, 189, 190, 191, 192, 193, 194, 195, 196, 197, 199, 200, 201, 202, 203, 204, 205, 213, 227, 233, 234, 235, 239, 247, 248 manufacturers, ii, 16, 24, 30, 31, 32, 33, 49, 65, 122, 173, 181, 205, 224, 228, 231, 235, 243, 244, 245, 246, 247, 248 Masterfoods, 19, 27, 28, 34, 169, 170, 171, 172, 173, 174, 175, 176, 177, 178, 179, 180, 181, 191, 204, 227, 232, 233, 244, 248 megatrends, 32, 33, 93, 122, 230, 231, 244
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Philippines, 31, 43, 56, 102, 106, 120, 154, 155, 174, 194 Pillsbury, 17, 34, 36, 86, 87, 88, 90, 91, 92, 93, 94, 95, 97, 192, 247 Portugal, 31, 52, 59, 77, 91, 102, 157, 158, 177, 199 premium, 32, 33, 80, 84, 106, 110, 162, 218, 252 retailers, 252 Romania, 30, 31, 39, 41, 43, 45, 76, 148, 149, 156, 175, 195, 215 Russia, 30, 31, 38, 40, 41, 44, 45, 48, 52, 57, 75, 76, 79, 102, 120, 156, 175, 195, 200, 243, 245 Sauces and dressings, 227 Slovakia, 31, 57, 76, 148, 156, 175, 195 snacks, 18, 19, 31, 36, 37, 44, 45, 46, 58, 68, 69, 70, 80, 86, 88, 90, 91, 94, 100, 101, 105, 106, 114, 121, 130, 132, 134, 136, 139, 142, 146, 147, 149, 153, 156, 161, 162, 163, 167, 173, 219, 247, 255 South Africa, 31, 52, 57, 76, 91, 102, 120, 157, 175, 176, 195, 196, 215, 216 South Korea, 31, 102, 154, 155, 174, 194 Spain, 31, 38, 39, 43, 59, 69, 77, 78, 80, 84, 91, 102, 106, 148, 157, 159, 186, 199, 215, 216
Sweden, 31, 59, 78, 107, 159, 177, 190, 199 Switzerland, 31, 49, 59, 78 Taiwan, 31, 56, 120, 154, 155, 194 Thailand, 31, 56, 120, 137, 154, 155, 174, 194 Turkey, 31, 37, 59, 61, 68, 73, 78, 83, 157, 159, 191, 199, 204, 215, 216 UK, 19, 31, 36, 38, 40, 41, 42, 43, 44, 45, 46, 51, 52, 58, 59, 62, 63, 70, 78, 86, 87, 88, 103, 104, 106, 107, 109, 131, 135, 137, 138, 148, 157, 159, 170, 177, 178, 179, 181, 186, 187, 199, 213, 214, 215, 216, 217, 243, 245 Ukraine, 30, 31, 38, 41, 45, 57, 76, 156, 175, 195, 245 Unilever, 20, 21, 27, 28, 34, 35, 191, 206, 207, 208, 209, 210, 211, 212, 213, 214, 215, 216, 217, 218, 219, 220, 221, 222, 223, 224, 227, 232, 233, 234, 246, 247, 248 United States, 18, 38, 40, 41, 42, 44, 45, 46, 51, 62, 68, 73, 80, 87, 88, 91, 100, 101, 102, 106, 108, 109, 110, 114, 115, 120, 130, 132, 134, 136, 137, 138, 141, 143, 144, 147, 148, 153, 162, 170, 171, 172, 173, 178, 186, 191, 192, 209, 214, 216, 217, 219, 224, 251 US, 228 Venezuela, 31, 41, 55, 91, 107, 154, 174, 193 Vietnam, 31, 39, 41, 45, 56, 120, 174, 194
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The Top 10 Global Leaders in Food

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CONSUMER

The Top 10 Global Leaders In Food

Increasing market share, revenues and NPD success By Mark OBornick

Market Dynamics and Emerging Market Analysis

164 164 165 166 167 168 168

Industry Opinion Survey

Figure 13.45: Figure 13.46: Figure 13.47: Figure 13.48:

Industry opinion survey

The aim of this report

Source: Author research/Global Food Industry Survey

Figure 1.2: Selecting the global food leaders Hershey

Source: Author research/Global Food Industry Survey

Market Dynamics and Emerging Market Analysis

Market Dynamics and Emerging Market Analysis

Table 2.1: Country coverage of global food markets

Trends in global food markets

Table 2.2: Ranking of global food leaders by food sales, 2003

Figure 2.3: Global food leaders positioning

$ Change in Food Sales '01-'02

Food Sales Greater growth

Growth in Food Sales '01-'02 (% )

Source: Author analysis of company accounts

Rank Growth 98-03 47 17 15 14 37 10 9 26 42 40

Rank Value Size 03 1 2 3 4 5 6 7 8 9 10

Rank Growth 98-03 1 2 3 4 5

Rank Value Size 03 29 49 14 18 27

250.0% Market Growth 1998-2003

Faster grow ing m arkets

M arket share G reater m arket size

0.0% G any erm 0.0% 5.0% -50.0%

M arket Share 2003

Source: Author analysis of Datamonitor research

Table 2.5: Top 10 ranking by size of global confectionery markets, 2003

Rank Growth 98-03 38 34 50 43 41 9 33 44 21 7

Rank Value Size 03 1 2 3 4 5 6 7 8 9 10

Rank Growth 98-03 1 2 3 4 5

Rank Value Size 03 23 26 50 37 46

160.0% Market Growth 1998-2003 140.0% 120.0%

Faster growing markets

Market share Greater market size

100.0% 80.0% 60.0%

China France Russia US G ermany Japan UK

0.0% 0.0% -20.0%

15.0% 20.0% M arket Share 2003

Source: Author analysis of Datamonitor research

Table 2.7: Top 10 ranking by size of global dairy markets, 2003

Rank Growth 98-03 28 50 41 33 38 44 9 10 23 4

Rank Value Size 03 1 2 3 4 5 6 7 8 9 10

Rank Growth 98-03 1 2 3 4 5

Rank Value Size 03 47 36 14 10 43

250.0% Market Growth 1998-2003

Faster growing markets

Market share Greater market size

Colombia Mexico China Spain Brazil France Italy UK Japan US

0.0% 0.0% -50.0%

15.0% Market Share 2003

Source: Author analysis of Datamonitor research

Rank Growth 98-03 14 48 44 5 41 19 21 1 24 37

Rank Value Size 03 1 2 3 4 5 6 7 8 9 10

Rank Growth 98-03 1 2 3 4 5

Rank Value Size 03 8 28 51 45 4

Faster grow ing m arkets

M arket share G reater m arket