Kraft Plans Grocery/Snacks Split

MARK HAMSTRA

NORTHFIELD, Ill. — Kraft Foods said last week it plans to spin off its North American grocery business and create two separate companies — one focused on the high-growth snack business and the other on its iconic grocery brands.

Irene Rosenfeld

The surprise move comes 18 months after Kraft acquired Cadbury, bolstering its snack and candy product lines. In a conference call with analysts, Irene Rosenfeld, chairman and chief executive officer, Kraft Foods, said the company had been discussing a split of its business internally for several years, and that it made sense to do so now in part because it would impact the company's strategy for completing the integration of the Cadbury business.

“The big idea for us is to recognize that these are two very different portfolios that we believe can benefit with a focused mandate, and that will then drive resource allocation, capital location and ultimately the metrics by which we would encourage investors to evaluate these two companies,” she said in response to a question about the reasoning for the split.

The snack business, with annual revenues of about $32 billion, will focus on global consumer snacking trends in developing markets, while the $16 billion grocery business, with such brands as Kraft macaroni and cheese, Oscar Mayer meats, Philadelphia cream cheese and Maxwell House coffee, would continue to seek growth through innovation and marketing.

The snack business will include the current Kraft Foods Europe and Developing Markets divisions, as well as the North American snack and confectionery businesses. Approximately 75% of revenues would be from snacks around the world, and approximately 42% would come from developing markets. The snack division will also include powdered beverages and coffee, and key brands would include Oreo, LU biscuits, Cadbury and Milka chocolates, Trident gum, Jacobs coffee and Tang powdered beverages.

Kraft said it is developing detailed plans to submit for further consideration by the board before final approval. It is seeking to launch the new companies before year-end 2012.