More than just an odd chunk off the block

Cadbury brand owner, Kraft has kept true to character by putting profits before criticism in the knowledge that today’s consumers will put up with just about anything in a climate of fear and uncertainty.

Kraft has cut the size of many of its Cadbury brand chocolate bars – whilst keeping confectionary prices at pre-size reduction costs.

For example, a squatter version of Cadbury Dairy Milk bar has two less chunks, but still costs £1 at the till.

Toblerone has removed an entire ‘mountain’ from its bar.

Similar cuts have been applied to British brand favourites such as Mars, Snickers, Yorkie and Rolo.

· Rolo has been reduced from 11 portions to 10.
· Yorkie – 68g to 64.5g – a ‘chunk’
· Snickers is 7.2% smaller.
· Mars – 7.2% smaller.

Even the iconic Dairy Milk bar is now 120g from 140g. (Again its retail price has not been cut accordingly).

Kraft justified the slices by pointing to excessive charges for cocoa. (The commodity’s price rose to a six-month high, following reports of an export ban by the Ivory Coast – one of world’s key producers).

Last year the American company reneged on its promise not to close a Cadbury factory in Bristol.

Consumer Focus, an organisation that represents customer interests, told reporters, “Shrinking the size but not price of products could damage consumers’ trust in the brand they love”.

On the defence, Cadbury said, “… We believe our confectionary still represents very affordable treat.”

From a Brandforensics perspective, the trend is worrying. Brands including Dairylea, Pringles and Heinz have also used a comparable ploy.

The question now is just how far brands are willing to go to further gamble customer loyalty? How many more cuts, will consumers naively put up with before questioning the motives of brand ‘leaders’ that spend millions of pounds carefully nurturing imageries to suggest that they are people- before profits led organisations?

Years ago the British Prime Minister, Margaret Thatcher declared, “There’s no such thing as society. There are individual men and women and there are families.”

Today’s gates leading to the utopian ‘Big Society’ are draped with a banner which reads ‘austerity will give you purpose’.

Austerity Britain

Thin on excuses
Using obesity as central to its logic for justifying less for more, back in 2009, the Food Standards Agency said it wanted food and drink companies to start manufacturing smaller sizes, “which in time will become the standard”.
Arguably, that motive was noble.

However in today’s world of increasing divide between money-strapped consumers and certain bonus-bloated brand leaders, this ‘shared austerity’ could be viewed as little more than a propaganda ploy to create communal apathy.

In the short-term that is good for brands wishing to placate shareholders.

Long term it could spell trouble as it dawns on consumers that despite all the marketing hype, it turns out that only ones who really believe they are ‘worth it’ are the same organisations which keep on insipidly ‘swearing on their mother’s life’ that the public still has a choice and comes first – honest.

This may be just one example of brand conceit and arrogance that is simply too hard for any consumer to swallow or shareholders to profitably sustain.

Jonathan Gabay
www.jonathangabay.com
www.brandforensics.co.uk

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A nice cuppa of Chinese tea and biscuits

Chinese brand leader, Bright Food has become the front line contender, ahead of Campbell Soup, PepsiCo, Nestle and Kellogg’s for buying Britain’s biggest biscuit producer United Biscuits (UB).

The company employs 7,000 people and owns some of the UK’s best-loved food brands.

These include McVitie’s biscuits, Jaffa Cakes, McCoys, Twiglets, Hula Hoops, Phileas Fogg and McCoy’s crisps.

Reports suggest that Bright Food is planning a take over bid of £2billion for UB.

Unless jobs are at risk, the bid is unlikely to cause the same kind of long-term political consternations in the UK as when US conglomerate, Kraft took over Cadbury’s.

This is partly because the ‘ostensibly’ British company is already owned by two overseas private equity firms: Blackstone of the US and PAI partners of France. Four years ago they purchased the brand umbrella for £1.6billion, then put the business up for sale in July 2010.

Last year UB profits reportedly rose by 14 per cent to £223million. However, it also has £1.2billion of debt.

Coincidently Bright Food was established four years ago.  It generates annual profits of approximately £200million on sales of £4.3billion and has around 3,300 shops in China.

Just what the middle-class love – a nice cup of tea with a biscuit

The Chinese market is essential for any brand.  Top-end Chinese consumers have ‘snapped up’ luxury and cool brands like Apple (especially the iPhone4 and iPad) as well Louis Vuitton and Gucci.

Equally Chinese consumers have taken to lower-end western brands such McDonald’s, Wal-Mart and KFC.

That leaves a vast middle-class market of an estimated 120 million people (more than the number of households in the United States), which is set to double in size during the next decade.

One category of consumer foods brands that traditionally attracts the middle-classes is snacks including biscuits and other ‘treats’.  In the case of Kraft, Oreo cookies have already become an Eastern phenomenon.

If the Bright Food bid goes ahead, The prospect of a takeover of United Biscuits is likely to raise shares in rivals such as Mr Kipling cakes, Hovis maker Premier Foods and Fox’s biscuits maker Northern Foods.

According to Thomson Reuters data, a winning Bright Food bid on United Biscuit would signify the biggest outbound food and beverage industry purchase in Asia this year.

Brands that you thought were 100% British – down to the last crumb:

The Swiss company Nestle owns Kitkat.
• India’s Tata Group owns Tetley’s tea.
• Wedgwood was sold to an American private equity firm last year.
• The State of Qatar bought Harrods for £1.5bn in May 2010.
• Tate & Lyle was in 2010 to American Sugar Refining for £211m.

And still the British brand names crumble:

Boots

Established in Nottingham in 1849 by John Boot, Boots was first owned by a foreign company in 1920 when Jesse Boot sold it to the American United Drug Company. Part of Alliance Boots since 2006, Boots is now owned by the Italian tycoon Stefano Pessina and the American private equity firm KKR.

Cadbury

John Cadbury began producing and selling tea, coffee and drinking chocolate in Birmingham in 1824.Cadbury merged with drinks company Schweppes in 1960. In 2010 it was sold to American good giant Kraft for £11.5bn.

Rolls Royce cars

Charles Rolls and Henry Royce started manufacturing cars in Derby in 1906. In 1973, Rolls Royce Motors was bought by Sheffield engineering firm Vickers. In 1994 it was sold to German company BMW.

Bentley cars

In 1919, Walter Owen Bentley, a World War One captain in the Royal Naval Air Service, started building Bentley automobiles in Cricklewood, London.

The company was sold to Rolls Royce during the Great Depression in 1931 in a deal so guarded not even Bentley himself knew the exact identity of the buyer until the contract was sealed.

Since 1998, the firm has been owned by German carmakers Volkswagen.

Jaguar

Jaguar originally appeared as SS Jaguar (Swallow Sidecar Co, owned by William Lyons).  Mr Lyons  felt a Jaguar mirrored his car’s design and performance. ‘SS’ was dropped because of the resemblance to the SS Nazi party. In 1999, American conglomerate Ford Motors bought the company and then sold it in 2008 to Indian firm Tata motors for £1.7bn.

Mini

Following the 1958 Suez crisis, which affected fuel supplies, the British Motor Corporation introduced a new car to meet mounting demand for small German ‘bubble’ cars. The Mini launched in 1959.

The brand was sold along with Rover to German car maker BMW in 1994.

Walkers Crisps

Following World War Two rationing, Leicester based pork butcher Henry Walker sought an additional form of revenue: the un-rationed potato.  He was so successful at making Walkers crisps that his company kept on producing potato chips when meat was de-rationed in 1954.

Walkers was bought by Fortune 500 American firm PepsiCo in 1989.

Harry Ramsden

Harry Ramsden established his first fish and chip shop in a wooden hut in West Yorkshire in 1928. In 1999, the company expanded into motorway locations. In  2006 it was sold to Swedish firm EQT Partners as part of a deal worth £1,822 million.

Smarties/Aero/Rolo/Fruit Pastilles

In York, 1863, Henry Rowntree and his brother Joseph founded Rowntree’s. The company was responsible for iconic British Empire favourites like Smarties, Aero, Fruit Pastilles, Yorkie and Black Magic.

In 1988, Swiss mega-brand owner Nestle, bought the company for $4.55billion.

It dropped the Rowntree name from all packaging except Rowntree’s Cocoa and Fruit Pastilles.

HP Sauce

Nottingham grocer Frederick Gibson Garton invented HP sauce in 1895. He called it HP because of a rumour that a restaurant in the Houses of Parliament was serving it to MPs – hence the label on the bottle (which shows a picture of the Houses of Parliament).

HP sauce has been owned by the American food giant Heinz since 2005.

Jonathan Gabay

www.brandforensics.co.uk

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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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