XLRI BUSINESS MANGEMENT 2011-13
STRATEGIC MANAGEMENT PROJECT REPORT ON KRAFT FOODS
SUBMITTED BY:GROUP 13 BM-B
BHANU PRAKASH REDDY
B11074
KUNAL SINGH
B11089
ROHIT SURI
B11104
VRAJESH SHAH
B11121
Contents Introduction.................................................................................................................................................. 2 SWOT Analysis........................................................................................................................................... 3 External Environment ................................................................................................................................ 4 The Macro Environment ........................................................................................................................ 4
The Micro Environment ......................................................................................................................... 5 Industry trends ........................................................................................................................................ 6 Porter s National Diamond for Kraft .................................................................................................. 7 ’
Vision and Values....................................................................................................................................... 8 Customers ................................................................................................................................................... 9 Kraft
s Corporate Strategies ................................................................................................................ 10
’
Business level Strategy ....................................................................................................................... 11 Value Chain ........................................................................................................................................... 11 Managing Growth at Kraft Foods ............................................................................................................... 12 Acquisitions ................................................................................................................................................ 13 Kraft-Cadbury ......................................................................................................................................... 14 International Strategy .................................................................................................................................. 15 Organization structure and Integration ....................................................................................................... 17 The post-merger Culture ............................................................................................................................. 17 Integration and success: .............................................................................................................................. 18 Kraft View .............................................................................................................................................. 19 Cadbury View ......................................................................................................................................... 19
Success so far .......................................................................................................................................... 20 Oreo ........................................................................................................................................................ 20 Core Chocolate business ......................................................................................................................... 20 The Expensive Kraft Split ........................................................................................................................... 20
The Way Ahead ........................................................................................................................................ 21 Brands and positioning ........................................................................................................................... 21 Understanding the Emerging Emerging markets ................................. ................ ................. ................. .................. .................. ............... 21 The inevitable-revenues focus ................................................................................................................ 21 Kraft's -Leadership .................................................................................................................................. 21 Cadbury's-Leadership ............................................................................................................................. 21
Introduction The firm Kraft Foods was formed in 1923 with a view to consolidate the ice cream industry in the United States which was pretty fragmented at that time. However, through a number of acquisitions, it expanded and its product portfolio included a wide range of dairy products. In this manner, it became the world’s and United States’ largest dairy company only within a matter of 8 years (that is by 1930). It was in 1909 that James L. Kraft started a cheese business under the name of J.L. Kraft and Bros. Company in Chicago. Their strategies included extensive product development and marketing through which they started selling 31 3 1 varieties of cheese in the U.S. The National Dairy Products Corporation, which was how Kraft Foods was known then, was formed as a result of a merger Rieck McJunkin Dairy of Pittsburgh, Pennsylvania with McInnerney's Hydrox. It was listed on the New York Stock Exchange and its acquisitions were done through stock instead of cash. In the 1950s, the company started diversifying into the confectionary businesses like candies, macaroni and margarines as commodity dairy products started becoming low value added. The extent of diversification is signified by the fact that it also ventured into the business of glass-packaging with the Metro Glass acquisition. This continued even into the 1960s as the company forayed into markets worldwide through acquisitions. The name of the company was changed to Kraft in 1969 which was followed by reorganization in the structure. Marketing and advertising of the products has always remained one of the focus points at Kraft Foods. This is what the organization has heavily relied on for the sale of their products across the world. The company has several product offerings in cheese, confectionery, snack foods, dairy foods, convenience foods and beverage segments with its products being marketed in over 170 countries. Kraft’s brand portfolio has 12 brands with revenues of over $1bilion with 50 other brands providing revenues exceeding $100 million. Around 80% of these revenues come from brands which are leaders in terms of market share. Kraft has expanded into various product domains and also into different markets worldwide primarily with the help of acquisitions and mergers only. This seems to be the organization’s most adopted way of expanding their operations and introducing different products from their portfolio into the local markets. As of 2010 the company, headquartered in Northfield Illinois, had revenues of US $ 49.2 billion with 127000 employees worldwide.
Kraft has also faced various fallouts in the numerous acquisition deals it has taken up in the past. A similar kind of fallout was also experienced after it acquired Cadbury also. Typically mergers and acquisitions result in a high amount of implementation and integration costs which are expected to be offset by the gain from synergies. However, estimation errors are unavoidable as it is very difficult to predict he exact roadmap of how the deal would turn out. Empirical data suggests that value added through an acquisition is always less than what is expected at the time of the deal. Following the poor performance of the company’s shares and criticism from its stakeholders, the company has announced a split in 2011in to two separate entities. Kraft Foods will continue to run the North American foods business while the new entity tentatively named as Mondelez International will focus on the Global G lobal snacks brands including Cadbury.
SWOT Analysis Here is a SWOT Analysis of Kraft Foods.
STRENGTHS
WEAKNESSES
World’s second largest food company; Global Presence Powerful and iconic brands
Innovation
Geographic Concentration
Robust distribution network
Cost Control
Strong R&D capability
Decline in Profitability
Market Share
Competition
Debt requirements
OPPORTUNITIES
THREATS
Expansion in developing markets
Explore Cadbury Markets
Repositioning
Strategic Agreement and Partnerships
Offer Organic Products
Weak GDP rebound Aggressive competitor, retailer brand promotion tactics Fluctuating prices of raw materials Low consumer confidence
External Environment The Macro Environment
For a firm involved in catering directly to the consumers, the external environment plays a very significant role in its operations and planning. It is imperative for the f irm’s f irm’s strategy makers to factor in the uncertainty caused as a result of this dynamic nature of the external environment. Let’s take a look at the macro environmental factors affecting Kraft Foods through the PESTEL framework. Political: From a US perspective, the political environment is favorable for Kraft Foods. For
several decades the company has been participating in initiatives of political and social relevance. They support political candidates who are involved in drafting government policies relating relating to the company’s business and brands. Kraftpac, a political action committee started by the company provides corporate contributions to political parties and candidates in the federal and state government within the legal ambit. 1However, as was seen with Cadbury, acquisition attempts of foreign companies may bring about strong opposition from the local governments. go vernments. Economic: Food and Beverages industry is non-cyclical in nature and hence is not impacted by
broader economic conditions to a high degree. Still, Kraft Foods may feel the strain of tough economic conditions as some of its brands are targeted towards the premium segment. Tough economic conditions notwithstanding, the company has been able to deliver impressive financial results by investing in their t heir heritage and ‘power’ brands across both grocery and snacks markets in order to deliver a winning product mix. The acquisition of Cadbury has opened up opportunities to expand in to the developing markets like India and Brazil which makes the company ideally placed to sustain its impressive economic performance. However, things like exchange rate fluctuations would have an impact as the company is involved in operations across multiple geographies. Social & Environmental: Kraft Foods committed itself to focus on products, policies and
partnerships to bring about a real difference in challenging areas of social concern like health and well-being of its consumers. The company has helped found Healthy Weight Commitment Foundation in 2009 in order to help reduce obesity in the US. They have actively introduced healthier product offerings which have whole grains, fiber and micronutrients while cutting down on harmful sodium, fat, salts and calories. They have implemented policies on responsible
1
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marketing, nutritional awareness and education which are critical to help consumers make better choices about health and wellbeing2. “The company took initiative to improve the living standards of more than 1 million farmers with effective partnerships with them. They removed nearly 6.5 million pounds (3 million kg) of salt from products in 2010 and helped to provide more than 1 billion servings of food since 1999 in the United States alone” (Ref. CSR wire, 2011). Technological: Being a capital intensive industry, technology does play a part in making the
company competitive and profitable. Kraft employs the best of technologies in its manufacturing and distribution systems and exploits the cost advantage with the use of economies of scale and scope. This gives an edge in terms of quality as well as cost. The company has employed SAP Netweaver technology platform to ensure effective information and business transformation strategy within all the business units (FBR, 2008). The company won the ‘Most Innovative Company’ award in 2008 at the Growth and Innovation Forum held by the Consumer Goods Technology magazine. Legal: The Company ensures compliance to all local and international regulatory provisions
governing the food industry like those relating to nutritional information labels, food content, advertising, packaging, etc. Further, a company like Kraft Foods has to have various manufacturing locations in various parts of the globe. It employs a large work force which brings in the angle of labor laws and legalities involved with operating in multiple countries. The political stability of the countries of its primary focus has a great impact on the business. Along with the advantages of globalization, the organization also has to face the impact of trade restrictions.
The Micro Environment The micro or industry environment is the set of variables which influence a firm’s f irm’s competitive actions and responses directly. We shall use u se Porter’s five forces analysis to determine the intensity of competition in the industry in which Kraft operates. Bargaining power of Suppliers: Due to the presence of several local and international players,
the competition in the food and beverage industry is very high. Companies can choose from a wide variety of suppliers to source its raw materials. Raw materials are often imported from international suppliers in order to get the best price. As a result, the suppliers do not hold much power in this industry and they offer competitive prices to stay in business.
2
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Bargaining power of Buyers: Due to the competitive nature of the market the buyers have the
freedom to switch to sellers who offer acceptable quality product at the lowest prices. Big retail chains like Wal-Mart utilize their process and an d distribution efficiencies to achieve economies of scale and scope to attract the attention of buyers. As a result buyers have high bargaining power and they extract consumer’s surplus. Threat of new Entrants: The state of industry is already very competitive with presence of a
large number of players. p layers. In this scenario it is very difficult for a new entrant to match the existing player’s expenditure on branding, R&D, partnerships and scale of production. Without these internal resources and capabilities it is difficult to cause consumer to switch to a new brand. Intensity of Rivalry: As mentioned earlier there is high competition on the industry. Companies
establish their market share by inducing brand loyalty among consumers and by ensuring presence across multiple market segments. In general it is difficult to preserve loyalty from consumers as they continuously weigh the tradeoff between p rice and quality. Thus there are minimal switching costs for the consumer and the th e products are generally price elastic in nature. Thus most players in the industry aim to provide good quality at affordable prices. The importance of brands is supplemented by huge spends on advertising and promotions in order to counter private label products. Kraft and the other major players undergo frequent restructuring to stay agile and responsive to consumer needs so that they can develop better product mix than the competition. Threat of Substitutes: As the consumer weighs the tradeoff tradeoff between quality and price of
products there is a medium threat of substitutes. As big retail marts are the primary sales channel in developed countries the primary threat of substitutes is posed by private label products. To counter this threat all major players perform major branding exercises to establish the image of quality in the consumer’s mind.
Industry trends The current trends in the foods and beverages industry in the US provides good growth opportunities to established players.
Increased focus on product innovations and offerings in wellness and on-the-move segments
Shift in consumption pattern in favor of quality products offering value and convenience
High level of interest in healthy and a nd nutritious food
Growing opportunities in the developing markets like Brazil, India and China
Focus on sustainability initiatives like water usage, recycling and power efficiency
Kraft Foods has the resources and internal competencies to exploit these trends in the Foods and Beverage industry and convert them into profitable business opportunity. The company is continuously innovating on its product portfolio to come up with product p roduct offerings which provide value to the consumer at affordable prices. Its strong R&D capabilities and decades of experience in product development enable it to provide a strong line of healthy snacking options for the health conscious consumer. Its various policy measures and social partnerships promoting health and wellbeing and environmental consciousness also differentiate it from its competitors in the mind of the consumer. Finally, with its string of acquisitions, most notably Cadbury, the company has managed to get a foothold in the developing markets. Here the company can ride on Cadbury’s brand equity to introduce its powerful brands in other product categories. For example, in India and a nd Mexico, the strategy is to push Kraft’s marquee brands brands Oreos and Lacta chocolate through Cadbury’s established network of mom-and-pop mom-and-pop stores.
Porter’s National Diamond for Kraft We will now analyze the company’s task environment, in the US perspective. The four basic forces according to the Michael Porter’s Porter’s National Diamond model are3,
Factor Conditioning: The recent technological advancement in the United States plays
a major role in production of agricultural products, also there are huge skilled labors available to operate in modern equipment and the capital required for excess production is easily available.
Intensity of the rivalry: The United States Food Industry is highly hig hly competitive, there
are many big players like the Unilever, Frito-Lay, Cargill, Tyson Foods, ConAgra Foods and Smithfield Foods etc.
i ts always Local demand condition: The urban population of United States is high and its increasing which is potential market for food industry, also the partnership with firms like Safeway Store provides additional demand for products of Kraft Foods.
3
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Competitiveness of related and supporting industries: The partnership agreements
with firms like Rainforest alliance, Metro group, AOL T ime Warner, Bally Total Fitness, Stewart-Hass racing, and Allreceipts.com etc. provides good opportunities for Kraft Foods.
Vision and Values The organization identifies its capabilities, resources and core competencies based on its analysis of the external and internal environment. These internal resources are the sources of its “strategic inputs” using which the firm defines define s its vision, mission and formulates its business level strategy. The Vision, mission and values guiding g uiding the business strategy of Kraft Foods are: a re: Vision: Make Today Delicious
Kraft Foods’ corporate vision promotes an optimistic view of life amongst its consumers co nsumers and encourages them to share their experience of delicious food. The company is dedicated ded icated to creating delicious experiences and through its corporate vision it encourages consumers spend memorable moments with their loved ones and enjoy life to the maximum. Values: Kraft Foods adheres to seven core values4:
4
We inspire trust.
We act like owner.
http://www.kraftfoodscompany.com/cn/en/About/values.aspx
We keep it simple.
We are open and inclusive.
We tell like it is.
We lead from head and the heart.
We discuss. We decide. We deliver.
Customers Before deciding on a generic business level strategy the company must look at its customers. Essentially it must determine a)
Who will
be served
b)
What needs
c)
How these
those target customers have that it will satisfy
needs will be satisfied
The product portfolio of Kraft can ca n be classified in to five product p roduct categories like Snacks, Convenient meals, Cheese, Grocery and Beverages. The f ollowing are the categories in which Kraft Foods segments its customers based on the needs which must be met by designing an appropriate product offering.
Health and Wellness: This is the health and nutrition conscious customer segment.
They want to consume healthy food and they choose their products based on its nutritional content. They have various needs like managing their weight, consuming essential vitamins and minerals etc. Kraft Foods provides various products which meet all their demands.
Quick Meals: These are customers having a fast and busy life, but they don’t want to
miss the delicious foods. Kraft Foods have various ready to eat and ready to heat products to satisfy their needs.
Snacking: Kraft provides a huge variety of snack products to customers who seek for
on the go foods. Oreo wafer sticks, Crystal Crystal light ready to drink are few of the largely sold snacking products of Kraft Foods all around the world.
Premium: These are customers who wants high quality qu ality restaurant like food in their
home. Kraft Foods satisfies their needs with premium pre mium foods like DiGiorno Ultimate Pizza, Cote d’Or Chocolates etc.
Kraft’s Corporate Strategies In its annual Consumer Analyst Group conference held in New York in February 2011, Kraft unveiled the following corporate strategies to drive growth in near future5.
Delight Global Snacks Consumers
Unleash the power of our Iconic Brands
Create a performance-driven, values-led organization
Organic Revenue Growth > 5% Mid-High teens margins EPS Growth 9-11 %
The management viewed the company in a good position to gain grow owing to a virtuous cycle as shown below. The following are the key features of the virtuous cycle visualized to grow faster than key competitors and categories
Revitalize the Power Brands o
Invest in advertising of the power brands and Drive Innovation
o
Use entrepreneurial management policies to grow local brands
Increase sales and marketing excellence
Implement end-to-end cost management to achieve record savings o
Supply chain savings
o
Attempt negative overhead growth Focus on Power brands, categories, markets
Reinvest in growth
Leverage Overheads
5
Drive Top-Tier Growth
Reduce Costs
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Thus the overall focus of the corporate strategy seems to be divided in two parts
Brand Building: Associate quality and uniqueness with the power brands in the minds
of the consumer by aggressive push through t hrough advertising, sales and marketing efforts.
Cost reduction: Achieve cost saving measures end-to-end in i n order to improve
profitability.
Business level Strategy For businesses like Kraft Foods which have broad product lines across several product categories, specific business level strategies may vary from one line to another. For example, the Maxwell House Division coffee brand marketed by Kraft Foods pursues cost leadership with its regular ground coffee, but a strategy of differentiation with a few of its other offerings like Colombian Supreme and Rich French Fre nch Roast (Nayyar, 1993). Although the combination of multiple product lines along with cost leadership is not easy to achieve, Kraft is able to do it due to the impressive distribution efficiencies associated with its size and scale together with its rich experience in the foods and beverage industry. Thus while business level strategy may vary from pro duct line to product line, the broad corporate level strategy indicates that Kraft Foods follows an Integrated cost leadership/differentiation strategy.
Value Chain The value chain of Kraft Foods’ operations is is represented below6. It details the primary activities and support activities which are carried out by the company in order to implement its chosen business level strategy.
6
Same as footnote 3
Managing Growth at Kraft Foods The diagram shows a model being used at Kraft foods to formulate future strategies and for looking after day-to-day business.
Whole of the Kraft foods is divided into 3 main teams comprising of the corporate core, business units and shared services. Each of the units has separate functions assigned to them. As we can see in the figure corporate core is the team which decides on the overall strategy of the company. It is the one deciding about the composition of the business portfolios. Setting standards and managing talent is also being done by this team itself. Business units are the separate entities looking after their separate business but works in
coordination with the other two teams. Business units are basically units manufacturing biscuits, cheese, beverages, confectionery and grocery. It is responsible for running the business and measuring the performance standards of the corporate core function. Shared services provide the company with business units with market information and scale
sensitive expertise for efficiency for business. They help in making tradeoffs among priorities and expenses following guidelines from business nits and corporate core.
Acquisitions Kraft foods over the years have maintained their growth using mostly the inorganic route. Acquisitions have been their main way of maintaining growth over the years. It has been acquiring companies since the year 1916 and most recent was the acquisition of the British firm Cadbury. The following table gives the list of all the acquisitions :Year 1916
Acquisitions
Canadian Cheese company
1927 A.E. Wright 1928
Phenix Cheese
1928
Southern Dairies
1928
10 "cheese dealers"
1928
Henard Mayonnaise Co
1929
D.J. Easton
1929
2 mayonnaise companies
1929
10 cheese companies
1929
International Wood Products
1929
Gelfand Manufacturing
1930
Kraft is acquired by National Dairy Products Pr oducts (acquired)
1953
General Foods (which later merged with Kraft) acquires Perkins Products
1980
Kraft merges with Dart Industries
1981
General Foods acquires Oscar Mayer & Co.
1985
Philip Morris Companies Inc. acquires General Foods
1988
Kraft is acquired by Phillip Morris
1989
Phillip Morris combined Kraft with General G eneral Foods to form Kraft General Foods, Inc.
2006
United Biscuits Iberia
2007
Kraft acquires global biscuit business of Group Danone
2010 Acquires Cadbury
We see that over the years the company has acquired various companies across geographies and products. In this report we would try and explore the Kraft-Cadbury acquisition using various frameworks and models.
Kraft-Cadbury Kraft acquired Cadbury in the year 2010 for 19$ billion. In order to broaden its position in the developing market, Kraft made bids to acquire Cadbury. Cadbury. Initially the offer was was rejected but later the revised offer for 19$ billion was approved by Cadbury. The acquisition provided Kraft with the following advantages:1. Increased Market Power : - A primary reason for the acquisition is to achieve greater market power. Acquisition has allowed the company to achieve economies of scale because of increase in their size and economies of scope because of various products. In case of Cadbury the company would be able to offer new products along with the existing products of Cadbury. Cadbury being a 186 year old brand has a very strong and long global presence. Adding to it sales of Cadbury has been growing at a rate of 20% and profits at 30% in most of the markets where it operates. This helped Kraft in increasing its revenues to about 52$ billion out of which 25% comes from the sales of Cadbury in emerging markets. 2. Overcoming Entry Barriers: - Cadbury has a well-established market in India, Brazil
and Mexico. Entering these markets would have required Kraft to spend significantly on
capex, advertisements and supply chains. Because of the acquisition Kraft was able to not only negotiate with these factors but was also able to use the existing supply chains to supply many of its own brands. We have the example to OREO which has been launched in India and has been very successful. Few of the reasons which are behind the success of Oreo are the supply chain and brand name of Cadbury. 3. Increased diversification: diversificati on: - By acquiring Cadbury, Kraft was able to widen its portfolio.
Apart from selling its own products now Kraft would be able to sell Cadbury’s products in various markets and achieve more profits. In addition Kraft would also be able to use the existing networks of Cadbury to make its own products produ cts available in the markets. 4. Leadership in Markets: - Although Kraft is second largest food and beverage
manufacturer of the world and is a leader in various markets, but acquiring Cadbury further helped it to become leader in new developing markets. Ex. Cadbury was the leader in India and Mexico, two of the fastest growing markets. 5. Cost optimization: - Cadbury being located in India also offers a cost advantage for
Kraft foods. Kraft can use Cadbury’s existing plants and distribution channels in India to gain cost advantage.
Internationall Strategy Internationa Kraft has segmented its market geographically into 3 sections:The following pie chart shows the 3 main markets Kraft caters to. Here we can see
24%
that American market still holds the highest share of Kraft sales. But right now it’s the developing markets on which Kraft will be focusing on. Developing markets are growing at 20% on a yearly basis and holds huge potential for the future.
16%
American Market
60%
European market Developing Market
To cater to the growing needs of the developing markets Kraft foods have devised a new strategy known as 5-1010 strategy. Kraft foods’ using this
strategy
wants
to
target
the
main
developing markets. It has identified 10
priority markets and 10 power brands across 5 categories of its products to be launched
the
near
future.
It
will
selectively launch products looking at the demographics and infrastructure of the country. For ex after acquiring Cadbury recently it has only launched Oreo and tang. But since the processed food still not being preferred in Indian homes it is yet to launch processed cheese and other milk products. Re-Defining Focus
Kraft foods have decided to split its business into two units viz. North American grocery business and global snacks business. The company over the years has built two strong but distinct businesses. The company is now trying to focus on the different growth markets for different businesses. The below table gives the th e distinction of the two businesses:-
Grocery Business 1 Annual Business of 16$ billion 2
3
4
Snacks Business
Annual Business of 32$ billion
This Business is more focused towards mature
Business
focused
towards
Developing
markets
markets.
With the break-ups of Sara lee and Ralcorp
Company will combine business units in
holding the company sees new business
Europe, American markets and developing
opportunity for it.
economies
Cheese, beverages and meals would be the
Revenues to come from Oreo, Cadbury, tang
main sources of revenues.
,trident and Milka
Organization structure and Integration “Leap”: Project-“Leap”: ProjectKraft has been working on a new organization structure for Cadbury which aligns it better to integrate it with the parent company. Kraft has a long term strategy of having a wide portfolio and hence wants Cadbury to move away from being only a chocolate producer to a wide range of
foods.
After
the
integration
Cadbury
has
been
divided
into
five
divisions.
Cadbury
Chocolates
Biscuits
Gum and Candy
Malt-Drink
Fruit-Drink
Each division is managed by a director who has to maintain his own profit and loss account, marketing strategy, expenditure and research and development and reports to the country managing director.
The post-merger Culture Soon after its USD 19-billion acquisition of Cadbury in 2010, US food gaint, Kraft set Cadbury's Indian aggressive targets. Cadbury has been set a target of 500 USD target for the year 2010 which is 25% higher over its previous year targets. Cadbury could overcome the challenge and responded with a 30% increase in 2010 in revenue. Kraft got in more capital and was excited over the success. Kraft was not disappointed again which got a 40% growth in revenue in 2011. This just gives a glimpse of how aggression has been injected into Cadbury by the American Firm known for its risk taking and growth hungry attitude. Cadbury was known to have a relaxed work atmosphere which for many years could hold still 70 percent market share. “When working in Cadbury employees could afford to miss on the growth plans that they have planned. But in Kraft it is just not possible. “Delivering results is just what matters.” says an employee who had quit the company after the acquisition. But this has not come with problems associated with cultural integration. Many employees were not happy with this aggressive approach of Kraft since Cadbury was very successful yet with its
relaxed work environment. Four important senior executives left the company in 2010-11, including the finance, legal services and marketing heads. One reason widely accepted by employees is that while Cadbury relied greatly on inputs from the managers of the country of operations to formulate strategies, Kraft imposes a high-level strategy on its subsidiaries. Kraft has rigid decision making processes in place and stringently wants them to be followed," says a former executive of Cadbury. Also Cadbury allowed local employees a high degree of autonomy in decision making, Kraft does not believe in decentralizing the decision making to its subsidiaries. Cadbury, UK only gave broad guiding strategy from the UK, and gave us a lot of freedom" says a former manager. Employees of Cadbury also add that before the takeover the company was very agile, taking pricing and promotional decisions at the ground zero level without having to wait for approvals from the top managers. Approvals for marketing and advertising budgets at Cadbury were cleared without much problems in a few days; After the merger they say ,it takes more than a month, and not without many plans and charts to convince the top management. "Before, it was swift decisions, but today the number of layers we have to go through for approvals is too tedious," says an employee of Cadbury. Internal strain has developed because of the step-motherly treatment shown to Cadbury brands. Investments in Oreo and Tang, the two new brands that were introduced in India are more than revenues generated by these brands. Bubbaloo, the chewing gum brand introduced by Cadbury has been neglected, and is even expected to be closed down. Employees feel Kraft does not understand chocolates and confectionery business at all.
Integration and success: Cultural fit between a takeover company and the acquired is one of the most underplayed areas of analysis prior to the closing of a deal. The comparative approach of cultures of both the companies is presented below. Clearly the table shows the contrast the organizations have in the areas of social relations. Cadbury is an organization which believes in personal relations and non-material motivation of its employees, Kraft is more of material rewards and target oriented organization. orga nization.
Kraft View While for Kraft the change in culture is for good as it would help Strengthened Brand, gives a drive higher performance in turn leading to higher revenue, effective control of the organization, Efficiencies through alignment of procedures and processes and alignment of goals towards the larger global strategy.
Cadbury View Cadbury on the other hand has been forced take over after declining Kraft's initial offer. Adding to the complexity was that the dialogue (which was very hostile at times) between the two companies was played out in the news for weeks together prior to inking of the deal. The management at Cadbury felt that they would be dealt with high handedly by Kraft and the culture and brands that they have developed within Cadbury are no more going to be the same again. Cadbury fears damaged heritage, risk of jobs and benefits to their US employees, weakened brands and the trust deficit which was wide open. This would have high burnout and low moral performance among the Cadbury managers. Types of Culture
Characteristic Traits
Cadbury Kraft
Participation
Friendship & Networking
Networking throughout the organization
Helping others
Performance and effectiveness
Hard work
Material reward
Destroying competition
People working alone
Few links with colleagues
Aiming for goals outside organization
Communal
Deep friendships
relationships
Shared values of sociability
Family atmosphere
A passion for the business
Sense of value in work
Networking
Mercenary culture
Fragmentation
Success so far One of the crucial advantages for Kraft from the acquisition - is the entry it gave to India's enormous market. It had made an initial entry a decade ago, but with mispriced products and without a sales network it failed to establish and made an exit. But now, with Cadbury’s brand reputation and network, the picture is different. Along with Tang, it has launched its Oreo brand biscuit in India. It has another 10 top global brands in waiting line to be launched.
Oreo After its launch in India in March March 2010, its share of the Rs 13 thousand-crore biscuit market, occupied by Britannia ,Parle and Sunfeast, is a mere 0.7 per cent, according according to Nielsen, but given Cadbury’s distribution network and Oreo price which is priced well below the Good Day of Britannia and Dark Fantasy of Sunfeast, Su nfeast, it is very promising.
Core Chocolate business The rapidly growing Rs 300 million chocolate markets, growing at a CAG of 15 to 20 %, will be very important for the success of Kraft- Cadbury. However th e international competition is set to heat up the market, with global g lobal brands like Ferrero Rocher and others making inroads, while Indian brand Amul and Nestle, too, remain in the fray.
The Expensive Kraft Split While though Cadbury argued to stop a takeover by persuading its investors that value comes from focus, Kraft on the other hand h and supported its bid by saying value is from scale. However within nine months of the take over the company has decided to split its business into two separate entities. But this is seen as an total wastage of money not because of the split alone but the timing of the split. Many of the top managers who have been part of Cadbury in UK and elsewhere left the organization due to restructuring. But with the split and new originations, there is a need to hire some of such top managers back to run the two entities. This could have been avoided had the decision to split the business had been taken earlier and retained the best of the talent at Cadbury.
The Way Ahead Brands and positioning Cadbury has many heritage brands in all the countries it operates. Some of the Cadbury brands are very much part of the British culture. Hence, while aligning with Kraft’s Kraft’s global strategy some of its brands might lose their brand equity and hence a loss of assets.
Understanding the Emerging markets Kraft purchase of Cadbury was to break into emerging markets, and it will enough time and effort for Kraft to learn the nuances of working in those markets.
The inevitable-revenues focus Because Kraft had to take heavy loans to buy Cadbury, it must be focused on revenue and profits at least in the short term. Some tough decisions could be on the table.
Kraft's -Leadership Open and honest relationship with Cadbury is essential to keep the trust deficit at bay. This gives Cadburys managers and employees a realistic understands the needs of the company, helping them to make informed decisions about future prospects. Defection of talented pe ople can only be stopped through trust bridging. Kraft will have to face an immediate challenge as Cadbury's top talent will leave and no one knows the running Cadbury better than those who had a role in its success. Kraft also has the set in place a road map for integration and strategy ahead for Cadbury. The plan should provide guidance on the performance of top managers, the effectiveness of work units and processes, and the m anagement of organizational change management.
Cadbury's-Leadership Integration after an acquisition is difficult for any organization, even under the best of circumstances. After the deal is closed, it's important for the top managers of Cadbury to publicly embrace the acquisition by focusing on the benefits of the acquisition. Management at Cadbury has to take steps to demonstrate their openness to the merger. This might be in the form of meetings, companywide emails, and even positive internal quotes about the acquisition in the media. Cadbury has to imbibe the pride in its accomplishments that it has achieved over the years. Cadbury became an acquisition target because it has been the leader in its business.
