Case Study #22: Kraft Foods, Inc. Puts in a Multi-Billion Dollar Bid to Get a Slice of the Confectionary Market

The second largest packaged foods company, Kraft Foods, Inc., announces a bid of $16.7 billion for Cadbury, PLC. This bid is rejected by Cadbury as the company says it is undervalued, but that doesn’t deter Kraft from going back to the drawing board to try again. Should this deal work, it will represent the largest acquisition for Kraft since its purchase of Nabisco for $19.2 billion in 2000 (Hughlett, Michael. “Kraft's $16.7 billion bid for Cadbury rejected”. Chicago Tribune, September 7, 2009).

Over the next few weeks, if not months, there will undoubtedly be more information about this deal. This strategy represents Kraft’s desire to acquire complementary assets, but it is based on the growing global market demand for sweets. Currently, Kraft has three chocolate product brands (Toblerone, Milka and Cote d’Or) and has a 4.5% share in the U.S. confectionary market (Hughlett). By acquiring Cadbury, Kraft will absorb more established chocolate and gum brands, and access to global markets that Cadbury aggressively competes in today. This strategy is market-and-business facing.


The continued growth of private label consumer goods is affecting the performance of consumer goods brands as customers become more controlled with their expenses. There are other reasons why retailers want to be more vertically integrated that are peripheral to customer frugality: “Trader Joe’s private label offering contributes powerfully to its brand proposition; approximately 85 or 90% of store offering is private label, there are about 2,000 SKUs in the portfolio, and sales per square foot are more than twice that of supermarkets and three times that of other specialty stores.” (Mullick-Kanwar, Meera. “The Evolution of Private Label Branding”. Brand Channel). For several consumer goods sold in a retail space, there are private label counterparts that are significantly lower in retail price. Assuming customer frugality is embedded into shopper mentality for an indefinite period of time, consumer goods companies have to re-examine the sales and profitability of the entire product portfolio. Consumer goods companies can reduce retail price only so much before these actions erode profitability, so they have to consider growing their strength in high-involvement goods, such as chocolate and gum, that aren’t in the core operational competencies of a retailer. According to the “Innovations in Confectionary” report published in June 2009 by Business Insights, key issues facing the global confectionary market are:

• Emerging markets: Growth in the confectionary market will largely take place in emerging markets. Turkey will be the highest growth market, followed by Croatia and Russia which are forecast to grow by 25% to 2012.

• Natural: Consumer demand for products that are free from artificial colors, flavors and additives and concern over the long term effects of artificial ingredients has driven growth in the confectionary industry.

• Heritage and provenance: For chocolate manufacturers a key growth opportunity is for premiumization through either high quality country of origin (or even single estate) ingredients or by focusing on the quality of production methods.

• Healthy and functional confectionery: Health continues to be a key innovation opportunity for confectionery managers in line with an ageing population and an obesity epidemic.

Even if retailers develop the operational capabilities to manufacture and sell chocolate and gum based on these issues, they may not be perceived to have the brand credibility that are owned by more established confectionary manufacturers.

A potential acquisition of this magnitude during a sluggish economic recovery implies Kraft’s commitment to grow its extend its brand in growing global markets while evaluating other products in its brand architecture.

My hope is that the companies collaborate on manufacturing and selling a frozen Cadbury chocolate PHILADELPHIA cheesecake. As I devour this fine creation, I can wash it down with a glass of private label milk.