Dubai: It may have left an aftertaste in some quarters, most notably in UK's government circles, but as far as Kraft Foods is concerned last February's takeover of Cadbury has been nothing short of delectable. Now, the US food major is rolling out the grand strategy to make sure the wider audience feels the same.
In the Middle East and Africa, the process has already seen the completion of the leadership structure to seek out new growth areas for the combined Kraft Foods and Cadbury business. Overseeing all this from a uniquely vantage point is Sanjay Khosla, executive vice-president and president of the developing markets at Kraft Foods.
The Cadbury acquisition — struck at $19.6 billion (Dh71.98 billion) and in turn creating the world's second largest food company after Nestle — now presents an opportunity for Kraft Foods.
"KFDM organic revenue grew nearly 13 per cent on average annually; reported operating income grew more than 24 per cent on average annually (2006-2009)," said Khosla.
The developing markets were the growth engine with $13 billion.
"We are a little ahead of the track in terms of integration," said Khosla, who was in Dubai for a short visit last week.
"After the acquisition of Cadbury, our categories, brands and markets have become even more powerful, especially in snacks which is an area of focus."
Apart from the direct and immediate benefits that will accrue to Kraft Foods' topline numbers, Khosla foresees the same happing to the "quality" of future results.
"Over the last three years, gross margins have gone up as we invested in quality, in innovation, and in the sales infrastructure in places like the Middle East."
For the Middle East and Africa operations, a person from Cadbury was confirmed to be the regional head of the merged operations, while the "leadership team" was built from a mix of staffers from Kraft Foods, Cadbury and even from outside.
"Getting diversity on the table is a big source of competitive advantage — that was the first step I took," said Khosla, who joined Kraft Foods in early 2007 and is based at the global headquarters in Chicago. "There's still a long way to go in integration, and for that it really doesn't make a difference whether you come from Kraft Foods or Cadbury or Danone, the biscuit marker which Kraft acquired in 2007.
"We are encouraging people to act like entrepreneurs within a clearly defined framework."
Following the takeover in February, there was some heartburn in circles that it could mean changes in the many distribution arrangements Cadbury has had in the region over decades. Khosla agrees such sentiments are inevitable.
"In any integration there is uncertainty; there were questions asked about whether this American company would start changing Cadbury," Khosla added.
"But you take the best out of both companies and in many cases it has worked out extremely well.
"We made a statement [after the acquisition], we will appoint leaders and leadership teams in each of the markets in the first 90 days. We did this to remove uncertainty from the system.
Building on success
"If something is working in the management of these [Cadbury's] brands and their distribution, we would like to build on that rather than change it. There is not just one way of doing business, but build on past successes whether it comes from Cadbury or Kraft Foods.
"There were some great things working in the Cadbury business, whatever has been working our intention is to make it work better."
And what of things that don't?
"In any portfolio, there will be things that will not work; some things we are looking at," Khosla said. "These are not things unique to Cadbury, it's equally applicable to the Kraft Foods portfolio."
On the manufacturing side, Khosla does not foresee major changes happening to Cadbury's existing assets. "Frankly, we need enough capacities to cater to Kraft's growth agenda," he added.
"One of the things we will do is invest behind Cadbury brands like CDM [Cadbury Dairy Milk] chocolate and Trident [gum], much than was done in the past. It will show good dividends [as] these are very powerful brands built over generations."
But even then some changes could happen if such a need is seen as part of Kraft Foods' three-year old strategy to adapt its products to suit individual markets or regions. This was done to perfection in turning things around for Tang, which had been underperforming until two years ago.
Local flavours
"What we did globally was leverage the R&D capability and some of the branding work, while locally we introduced local flavours [for Tang]." Khosla said. "In this part of the world there was the berry flavour and a unique tropical flavour.
As a result of keeping the balance between local and global, Tang last year grew 30 per cent in the developing markets, and in the first-half of the year pretty much sustained the growth. Tang is almost over $700 million in developing markets, and you can see the potential we realised from the brand over the last two years.
"This balance — between being hopelessly local and mindlessly global — is equally applicable to chocolates, candy, biscuits.
"One of the things we decided to do with immediate effect is invest more behind the power brands of Cadbury's, much more than was envisaged in the annual budget. We are here to invest and we have the capability to invest."
The famed Kraft Foods appetite for more shows no sign of abating.
Dubai Its global reach and minute understanding of market movements have helped Kraft Foods stay ahead of commodity inflation pressures, according to Sanjay Khosla. This, he attributes to what he calls the company's "innovation agenda".
"We have really ramped up in the last three or four years our innovation agenda, which other than bringing technically relevant products to consumers addresses price points," he said. "This is done by getting products in sachets at price points that are applicable to consumers, especially in the developing markets. That helped us improve our gross margins despite commodity inflation, and be in a situation where we have organically grown the business 13 per cent in revenue terms and 24 per cent in operating income.
Some of the new products brought out in the developing markets were based on when we could get into the markets and well in advance of commodity inflation."
