A year ago this month, Kraft Foods split into two separate companies. Today one of those companies, Kraft Foods Group, serves the domestic grocery market, managing such mainstay food and beverage brands as Oscar Mayer, Philadelphia, Jell-O, and Capri Sun. The other, Mondelēz International, possesses more global ambitions.
Mondelēz International—the name was coined by Kraft employees to suggest “delicious world” in French and other Romance languages—is a snacking behemoth. The company runs some of the world’s most popular cookie, cracker and chocolate brands (including Oreo, Nabisco, and Cadbury) and holds nearly ten percent of the world’s snack revenue.
But the decision by then-Kraft Foods CEO Irene Rosenfeld to split the company has not been without its detractors. So when Rosenfeld, now CEO of Mondelēz International, visited the Kellogg School of Management this Monday as part of the school’s Brave Leader Series, our faculty were all ears. In an intimate meeting, Rosenfeld, Dean Blount, and a number of faculty members discussed the split—as well as the challenges of marketing snack foods to an international, and increasingly health conscious, consumer.
Read on to hear what Thomas Hubbard, Meghan Busse, Kelly Goldsmith, and Alexander Chernev took away from the visit about Mondelēz International, leadership, and consumer-focused marketing.
|Thomas Hubbard, Elinor and H. Wendell Hobbs Professor of Management|
Thomas Hubbard, Senior Associate Dean of Strategic Initiatives and Professor of Management and Strategy: Not too many CEOs have the insight and courage to break up their own companies, even when doing so unlocks value for customers and shareholders. At the very least, breaking up means that they themselves will end up as CEO of a substantially smaller enterprise.
But the breakup of (the old) Kraft Foods into Mondelēz International and (the new) Kraft Foods Group is not only an example of courageous leadership, it’s also an example of insightful leadership, connecting the company’s organizational structures more closely with its strategies. Even though deli meats, Jell-O, crackers, and chocolate are all sold in grocery stores—and are all part of the same “industry”—the capabilities necessary to support these businesses successfully are very different.
Different sales and operation capabilities are necessary, as deli meats and Jell-O are distributed through warehouses, whereas crackers and chocolates are distributed directly to stores. Different innovation capabilities are required as well; innovation in crackers and chocolate can be more oriented around new, perhaps transitory, versions of the same product. Finally, management capabilities differ as well, with crackers, chocolate and other snack foods having far more growth potential, especially in developing markets, than the old Kraft’s American “middle of the store” products like Mac & Cheese.
Investing in significantly different capabilities appears to be difficult within the same firm, as it leads to conflicts in skill requirements, incentives, and organizational orientation. The Kraft Foods/Mondelēz International breakup created value by eliminating these conflicts and allowing each business to be optimally organized to win in its space.
An old lesson in business is that an organization’s structure must fit its strategy. Irene Rosenfeld and her colleagues at the old Kraft saw this, and their investors and customers have benefited during the year since the breakup.
|Meghan Busse, Associate Professor of Management & Strategy|
Meghan Busse, Associate Professor of Management and Strategy: In the core strategy course at Kellogg, we teach students to think of competitive advantage as arising from a set of assets (including physical assets, intangible assets, and “know-how”) that enable firms to perform a set of activities. If the activities the firm chooses to engage in are well-chosen for the particular economic context in which the firm operates, the firm will be able to generate competitive advantage.
Tom’s comment illustrates one way in which the activities required to successfully operate the old Kraft Foods grocery business and the old Kraft Foods snack business are too different to fit harmoniously within the same company: the warehouse logistics of the grocery business do not complement the store-delivery logistics of the snack business; the information systems required by a North American grocery business are not the same as those required by an international snack business; and so on.
There is a second way in which the activities required by Mondelēz International and the new Kraft Foods Group are different. Mondelēz International is, as the name implies, focused on international growth. They’ve introduced flagship Mondelēz International brands such as Oreo around the world. They’ve also introduced new products specific to the tastes of different countries and acquired strong local brands. It is a strategy focused on top-line growth. Kraft Food’s North American grocery business is a more established business, with more modest growth potential. In order to drive Kraft Foods Group’s profitability, the focus must be much more on profit margins. These two different objectives also dictate different sets of activities for Mondelēz International and Kraft Foods Group —activities that don’t necessarily fit as harmoniously in one company as they do in two.
|Kelly Goldsmith, Assistant Professor of Marketing|
Kelly Goldsmith, Assistant Professor of Marketing: With brands in over 80 countries around the world, the brand teams at Mondelēz International must be sensitive to consumer needs, which means being aware that these needs vary. Take the case of the Oreo cookie. For decades, the Oreo cookie has been an iconic, sweet treat in Western markets. However, in China it was not well received. It was too big and it was too sweet. The flavor profile did not fit the preferences of Chinese consumers. As a consequence, the Oreo cookie, beloved by so many, faced rejection in this new market. How is an iconic brand like Oreo to respond? Rather than simply pulling the Oreo out of China, Mondelēz International tackled the issue head on, demonstrating their sensitivity to the needs of that market. They researched the preferences of Chinese consumers and, as a consequence, Oreos in China became smaller and less sweet. And they can also now be found in never-before-seen flavors, such as green tea. Chinese consumers were delighted, and now China is the second largest market for Oreos outside of the United States.
The takeaway from this example is that brands need to understand that although their current products may be built on an understanding of consumer needs, as new markets open up, those needs may change. In some cases, this will mean that even a brand’s most iconic products may need to change as well. The changes may be small, such as different brand names like the Cadbury “Bubbly” in the U.K. which is called “Lacta” in Brazil and “Milka” in Germany, or they may be fundamental to the product itself, as was the case with Oreo. Although the size and scope of the change may vary, the lesson remains the same: success is built on an understanding of consumers’ needs, and when it comes to acquiring new and diverse consumers, the brands that win will be ones that quickly identify those needs and determine how best to serve them.
|Alexander Chernev, Professor of Marketing|
Alexander Chernev, Professor of Marketing: To build on Kelly’s point, market entry is not just about bringing an existing product to a new market. It’s also about tailoring the product to local tastes. Mondelēz International took a radical approach in China, rethinking virtually every aspect of Oreos. They are now more chocolatey, less sweet, and sold in smaller packages to keep the price per pack down. Oreo fillings can now combine multiple flavors, creating orange–mango, raspberry–blueberry, and peach–grape flavored cookies. Moreover, in China, Oreos are not always round. They are available in different shapes that include a long, rectangular Oreo and even a straw-shaped Oreo.
For Mondelēz International, product innovation is a two-way street. The Oreo model in China has become the company’s model for all of its other products—a great example of how building a global brand can spur product and marketing innovation across markets. The rectangular Oreo is no longer found just in China. It is available in other countries, including Canada and Australia. And it is quite likely that with time an increasing number of flavors developed to fit the tastes of the Chinese consumer will come full circle, wending their way back to the US. For global brands, marketing and innovation is truly without borders.
Another key challenge facing Mondelēz International involves the growing global obesity trend and the concomitant health concerns. Indeed, many of the billion-dollar brands in the company’s portfolio—Cadbury, Cadbury Dairy Milk, Milka, LU, Nabisco, and Oreo—are in categories associated with indulgence. The challenge then is how to balance the profit motives that excite Wall Street with the interests of society at large, including consumers’ long-term well-being.
There are at least two strategies to address this challenge: enhancing the health benefits of products, and managing consumption quantity by reconfiguring the packaging. Both strategies are currently part of Mondelēz International's long-term view of providing “healthier indulgence” to consumers. Nabisco 100 Calorie Packs offer a good example of how to manage consumers’ calorie intake by reducing portion size (provided, of course, that people don’t over consume the low-calorie packs in the false belief that consuming a greater quantity of low-calorie packs instead of regular ones will promote weight loss).
From a marketing standpoint, it is particularly interesting that Nabisco 100 Calorie Packs was developed not just as a packaging format but also as a brand. This approach reflects an innovative form of branding that does not convey the quality of the underlying product but rather its quantity and packaging. Thus, Nabisco 100 Calorie Packs stands for a single-serve 100-calorie package version of many well-known snacks, including Oreo, Chips Ahoy!, Ritz, Honey Maid, Planters, and Wheat Thins. This is a good example of a marketing innovation that redefines the traditional reliance on brands as promoters of a product's qualities to brands as delineators of product size and packaging.