FDBusiness.com

Kraft Foods intends to spin-off of its North American grocery business to shareholders. The move will create two independent public companies – a high-growth global snacks business with estimated revenue of about $32 billion and a high-margin North American grocery business with estimated revenue of approximately $16 billion. The target is to launch the new companies before year-end 2012.

Over the last several years, Kraft Foods has transformed its portfolio by expanding geographically and by building its presence in the fast-growing snacking category. A series of strategic acquisitions, notably of LU biscuit from Danone and of Cadbury, together with the strong organic growth of its ‘power brands’, have made Kraft Foods the world’s leading snacks company. At the same time, the company has continued to invest in product quality, marketing and innovation behind its iconic North American brands, while implementing a series of cost management initiatives.

Having successfully executed its transformation plan, and 18 months into the Cadbury integration, the company has, in fact, built a global snacking platform and a North American grocery business that now differ in their future strategic priorities, growth profiles and operational focus.

Kraft Foods’ snacks business is focused largely on capitalising on global consumer snacking trends, building its strength in fast-growing developing markets and in instant consumption channels. The North American grocery business is investing to grow revenue in line with its categories in traditional grocery channels through product innovation and world-class marketing, while driving superior margins and cash flows.

Irene Rosenfeld, chairman and chief executive of Kraft Foods.

Chairman and chief executive Irene Rosenfeld explains: “We have built two strong, but distinct, portfolios. Our strategic actions have put us in a position to create two great companies, each with the leadership, resources and strong market positions to realize their full potential. The next phase of our development recognizes the distinct priorities within our portfolio. The global snacks business has tremendous opportunities for growth as consumer demand for snacks increases around the world. The North American grocery business has a remarkable set of iconic brands, industry-leading margins, and the clear ability to generate significant cash flow.”

Global snacks will consist of the current Kraft Foods Europe and Developing Markets units as well as the North American snacks and confectionery businesses. As an independent company, global snacks would have estimated revenues of approximately $32 billion and a strong growth profile across numerous fast-growing, attractive markets. Approximately 75 percent of revenues would be from snacks around the world, and approximately 42 percent would come from developing markets, including a diversified presence in numerous highly attractive emerging markets. The business would have a strong presence in the fast-growing and high-margin instant consumption channel. The non-snacks portion of the portfolio would consist primarily of powdered beverages and coffee, which have a strong growth and margin profile in developing markets andEurope. Key brands would include Oreo and LU biscuits, Cadbury and Milka chocolates, Trident gum, Jacobs coffee,and Tang powdered beverages.

The North American grocery business would consist of the current US Beverages, Cheese, Convenient Meals and Grocery segments and the non-snack categories inCanadaand Food Service. With approximately $16 billion in estimated revenue, this business would be one of the largest food and beverage companies inNorth America. Its portfolio would include many of the most popular food brands on the continent, with leadership positions in virtually every category in which it competes. ey brands would include Kraft macaroni and cheese, Oscar Mayer meats, Philadelphiacream cheese, Maxwell House coffee,CapriSun beverages, Jell-O desserts and Miracle Whip salad dressing.