Kraft Foods announced this morning that it’s splitting into two separate publicly traded companies — one around its North American groceries business and the other its global snacks business.Although unexpected, this split is the natural conclusion to a restructuring started by incoming CEO Irene Rosenfeld in 2006.
Having left her post after a successful tenure as the CEO of PepsiCo’s Frito-Lay, Rosenfeld was tasked with turning Kraft around, which would prove no easy feat. As the ailing food giant’s competitors became increasingly global, Kraft struggled in emerging markets. Its brands were old and stale, and it was weak in developing new, trendy products.
It would take a complete overhaul of Kraft to fix its problems and start growing once more. organisation, culture, operations, marketing, branding, product portfolio — everything had to change.
First, she had to re-organise the company to prepare for growth. Rosenfeld and her team completely flipped Kraft’s internal organizational model, decentralizing its decision-making and empowering division heads outside of corporate headquarters.
More changes came swiftly for the world’s second largest food company. Nearly 90% of Kraft’s stock was owned by Altria Group until 2008, when it decided to spin off its shares. The company unveiled a new corporate logo in 2009, looking to develop a new brand identity.
Then, in 2010, Kraft made its biggest transformative move. It spent months trying to purchase British confectionery company Cadbury, which it finally managed to acquire in a deal worth about $19 billion. The deal wasn’t met well by many, and Kraft instantly had its detractors. The most important of those was legendary investor — and Kraft shareholder — Warren Buffett, who railed on the deal, proclaiming that the board acted irresponsibly. He would later cut part of his holding.
Despite the criticism, the deal was consistent with Rosenfeld’s long-term strategy. She had spent four years preparing, transforming the company’s structure and culture, revamping its marketing and fixing its R&D woes, but only so much could be done organically. It was time for a blockbuster.
Revenue expectedly surged to $49.2 billion in 2010, up from $38.8 billion the year prior, on the back of the plethora of new product lines and supply chain improvements that Kraft had gained from the Cadbury deal. Net income spiked to a record high of more than $4 billion.
But it became quickly evident that Kraft was having issues with its identity. It had abruptly become the world’s largest snack company, but at its heart Kraft was still in the groceries business. It now had a pair of enormous, yet distinct, product portfolios. The company had wandered too far away from its core business and consumers.
Did Rosenfeld and her crew foresee this when they started on the path to growth half a decade ago? Perhaps. But even if they didn’t, the second they got the folks at Cadbury to sign their company over, the Kraft split may have been guaranteed.
UPDATE: MarketWatch just interviewed Rosenfeld. She confirmed that Kraft has been thinking about a split since 2007.
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