The Australian impact of the Kraft-Cadbury deal

  • January 21, 2010
  • Daniel Palmer

As UK consumers throw their arms up in despair at Kraft’s takeover of a British icon, we take a look at the impact of the $21 billion deal in Australia…

Market power

Kraft and Cadbury are both among the top 15 food grocery suppliers in the country with a combined portfolio of brands that will have a significant portion of the confectionery, biscuit, processed cheese and spreads sectors. A limited amount of overlap, however, has meant that Australia’s competition watchdog has given the yet-to-be-confirmed deal the all clear.

chocolate swirl - Cadbury

“The ACCC concluded that the proposed acquisition was unlikely to result in a substantial lessening of competition in the relevant market,” they advised last month. “The ACCC considered that the proposed acquisition would result in a marginal increase in concentration and that the merged firm would continue to be constrained by other significant suppliers of chocolate confectionery in Australia.

“The ACCC also considered that the merged firm would be unlikely to have any increased ability or incentive to leverage its strong brands such as ‘Vegemite’ or ‘Cadbury Dairy Milk’ to foreclose competition in related markets.”

Kraft – the owner of brands like Oreo, Vegemite, and Philadelphia – was listed by Nielsen as the country’s 14th largest food supplier to the grocery sector in 2008 while Cadbury was the second largest in the same year. Cadbury’s demerger of their beverage division Schweppes has since cut sales but they still remain the largest player in the confectionery sector, reap greater profits than Kraft in the region and have a considerably larger workforce in Australia.

Indeed, it was the sale of Schweppes in Australia that arguably set them up as an ideal takeover target. The $1.185 billion sale to Asahi last year meant that the British firm had successfully sold off their beverage assets making them a pure-play confectionery company ripe for an offer from a global giant.

Jobs impact

The combined firm, likely to have around $1.3-$1.4 billion in annual sales within Australia, is unlikely to orchestrate sweeping changes in Australia.

Cadbury spokesman, Daniel Ellis, told the ABC that it was business as usual for the time being.

“We’re continuing to make all of our block chocolate at Claremont and we’ll continue to do so,” he said. “Today we’re holding briefings with our employees just to let them know that it is business as usual and as soon as we have any more information we will be communicating with them as our first priority.”

Cadbury announced plans to improve productivity at their Australian plants in 2008, plans that would lead to just shy of 200 permanent employees in Australia being made redundant by the end of 2010. Unions are concerned that Kraft may shed more positions but the Tasmanian Government has weighed in – arguing that the deal should be seen as an opportunity.

“I would support any move by Kraft to expand the Claremont operation which is an important employer in Tasmania,” the state’s Minister for Economic Development, Michael Aird, said. “This should be considered an opportunity, not a threat.”

“There are examples of takeovers which have benefited Tasmanian operations,” he added pointing to Lion Nathan’s acquisition of Boag’s as a leading example.

Mr Aird said the government would seek to discuss the impact of the takeover on local operations with Cadbury management at an “appropriate time”.

In terms of marketing, however, there is no overlap in the agencies used by the firms, meaning that media agencies are nervously bracing for a likely reshuffle. Ironically, Cadbury’s former head of marketing in Australia, Michael Magee, left the confectioner last year to take up the lead marketing role at Kraft Australia. And it hasn’t exactly been smooth sailing, with the iSnack 2.0 debacle – or stroke of genius, depending on your own point of view – still at the forefront of many minds if twitter responses to the takeover are any guide.

Deal progress

Cadbury shareholders must vote on the Kraft offer by February 2, with the deal expected to get investor support despite uproar in the UK about yet another iconic British brand being sold to a foreign firm. The likelihood of a counterbid by Hershey appears slim at best and Kraft has now received regulatory approval from key competition authorities, including those in the EU and Australia.

Key brands:

Kraft Foods: Vegemite, Philadelphia, Nabisco, Oreo, Kraft, Toblerone, Milka, Ritz, Captain’s Table, Cote d’Or, Terry’s
Cadbury: Dairy Milk, Roses, Cherry Ripe, Picnic, Freddo, Natural Confectionery Co., Pascall, Crunchie, Boost, Old Gold

Key facts:

- Cadbury is the world’s second largest confectioner with annual sales of around A$10 billion

- Kraft is the world’s second largest food group with annual sales of A$46 billion

- The combined group will have 40 confectionery brands with annual sales of $100 million or more


Bookmarks

Reader Comments

Australian Food News reserves the right to edit or not publish comments of a potentially offensive or defamatory nature. Comments will not be published if name and email address has not been provided (name and email will be withheld if requested).

The opinions expressed below are those of Australian Food News readers and do not necessarily reflect those of Australian Food News.

One Response to “The Australian impact of the Kraft-Cadbury deal”

  1. Brian Hardman on February 7th, 2011 5:29 pm

    I have been waiting for some months for some indication when Kraft are going to pay for the shares held in my name.

    I forwarded the documents sent to me to your headquaters in America as requested, !! no reply has been recieved, could you please advise what the problem is in settling payment??

    Yours Sincerely
    Brian Hardman

You must be logged in to post a comment.