The sweet taste of success

To all intents and purposes, unless there is a last minute change, it appears that global brand giant, Kraft Foods has succeeded in a £11.9bn bid to buy one the UK’s best loved brands, Cadbury.

Kraft increased its bid from an initial offer of 771p a share back in September 2009 to 840p plus a dividend (the equivalent of 8581/2 p, including the fee).

If and once the deal goes ahead, it will lead to the creation of the world’s biggest confectionary group with sales of nearly £37bn (About 15 per cent of the market).

Kraft said it would own 40 confectionary brands with sales in excess of $100m.

Strategically it makes sense for Kraft Foods to take a bite out of Cadbury.  For example, in one segment alone: gum in aquiring Cadbury gum  brands Dentyne, Trident and Stride, will be close on the heals of the competitive Mars brand. (Mars acquired Wrigley in 2008.)

However, from a regional branding perception stance, in the short term at least, such a deal could spell trouble ahead for the Bourneville brand.

Licking the cream

Board members at Cadbury are reportedly expected to enjoy huge payouts if the deal is sealed. (The UK Guardian newspaper suggests that the Chief Executive alone is in line for a £12m cash and share reward (The Daily Telegraph estimates £20m).

Various financial advisors expect to pocket hundreds of millions. PR companies, bankers, lawyers and accountants have already reportedly cost the brand £2m per day in fees during the battle for the iconic brand.

Bonanza payout headlines come on same day that Mervyn King, Governor of the Bank of England, warned that UK families will see their standard of living fall over the next two years with salaries remaining frozen and inflation rises.

To make things worst, it is reported throughout the press that Kraft Foods has indicated that job losses were inevitable, especially at Cadbury’s West London office.

One paper reported cutbacks could affect 5,600 workers across the UK and Ireland.

From the nation which which brought you the man in red, a brand treat?

Grabbing our Curly Wurlies
The clash of profits versus doom, incensed the popular press such as The UK’s Daily Express to run front page headlines reading: SAVE OUR CHOCOLATE.

David Frost, director general of the British Chamber of Commerce asked:

“ Do we simply want to sell every UK brand to the highest bidder or do we see certain parts of it as being very fundamental to the future and for the future growth of the UK?”

The sentiment was echoed by Jennie Formby, Unite’s National Officer for Food and Drink:

“This is a very sad day for UK manufacturing. A successful iconic brand will be owned by a giant company with massive debt.”

Felicity Loudon, great-great granddaughter of the brand’s founder, John Cadbury described the takeover as a “horror story”.

Defending the bid, Irene Rosenfeld, Chief Executive of Kraft said:

“We have great respect for Cadbury’s brands, heritage and people. We believe they will thrive as part of Kraft Foods.”

Alluding towards, but not overtly pushing for national intervention for the brand, Prime Minister Gordon Brown said:

“We are determined that the levels of investment that take place in Cadbury in the UK are maintained.”

Lord Mandelson said:

“ I want my Crème Egg to be produced in this country. It’s perfectly produced and perfectly tasty”.

(He added that state intervention would set a “dangerous precedent”).

It’s all about the taste
One of the greatest fears for the brand is that in potentially moving some of the production of its iconic confectionary delights to other countries offering competitive workforces, taste could be affected.

Clearly, chocolate depends on milk – which could arguably vary in taste -depending on local farm regimes.

In the UK, Chocolate must contain at least 20 per cent cocoa solids. In the US only 10 per cent is stipulated.

Kraft Foods will be wise to pay attention to messing with a food and drink brand’s core ingredients.

Coca-Cola learnt the hard way. It attempted to launch ‘New Coke’ featuring a different taste than the original recipe. That had to be relaunched with the original recipe as ‘Classic Coke’ and eventually back to where it started in the first place.

Getting the brand  name right
Recent British confectionary brands loosing their original trade names for more globally marketable ones include:

Opal Fruits – now Starburst, Marathon – now Snickers and Treets – now M&Ms.

In America, Cadbury’s biggest-spending national (US)  brands: Trident, Stride and Dentyne are handled by JWT, New York; and McCann Erickson, New York.

According to AdAge, Kraft worked extensively with JWT Chicago, until 2007, when it began draining the agency of big brands such as Kraft Singles, Oscar Mayer, Grey Poupon, Ritz and Triscuit.

The branding lesson

From a Brandforensics point of view, Kraft is certainly not naive. If their acquisition goes ahead, it will give them deeper reach and distribution into lucrative markets such as India and Latin America.

Kraft capitalise on population and economic growth

Irene Rosenfeld from Kraft Foods explained:

“We’ve expanded our footprint in developing markets to capitalise on both population and economic growth trends.  This further creates opportunities over the long term as consumers trade up to more of our products.”

As for taste changing, it is doubtful that Kraft Foods will meddle.

America and the UK has long enjoyed ‘ a special relationship’.  For this deal to work, it must be as culturally responsible as it is financially prudent.

In terms of brand reputation any merger or acquisition involving an iconic brand must take into account that no money can ever replace a brand’s illustrious relationship with loyal consumers.

Equally with the right investment in terms of finance and sensitivity, every brand can always be developed further to satisfy a global taste for excellence.

For now at least, in terms of where this particular brand story ends- there will be more than enough speculation for people to chew over in coming weeks and months.

Jonathan Gabay
www.brandforensics.co.uk

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