Kraft & Cadbury - Cultural IssueDocument Transcript
copyright : http://strategicorner.comKraft’s Acquisition over Cadbury: Cultural Root Issue Taking a decision to take over Cadbury, Kraft initially aimed to grow a profitablegrowth as a part of its long-term strategy. Kraft is going to broaden the range of productsas their expansion target. Before the take over, Kraft already had many big brands allaround the world; the purchase, at the end of the day, equipped Kraft a big strength onchocolate area. This seemed really promising as Cadbury has market advantageespecially in India and Brazil (Wikipedia Kraft Foods, 2011). Everything is good on paper. However, there is still an issue that waits to befaced: cultural shock. The purchaser is a real American company which was created inthe modern industrial era of the country. Forty of its brands are at least a century old(Wikipedia Kraft Foods, 2011). On the other hand, Cadbury is so British. Older thanKraft, it was founded in 17th century in England with so many homeland tradition andsense-of-ownership (Wikipedia Cadbury, 2011). These two things created a shock inpersonality between the parties. Most important aspect inside the companies is alsoaffected: the workers.Kraft’s History Kraft was founded in 1903 which starting to use “Kraft” element in 1909 withname J.L. Kraft and Bros. Company. The company at that time was a join James L. Kraft
with his other four brothers. The company used to sell cheese, until 1915 it invented abreak through of pasteurized processed cheese (Wikipedia Kraft Foods, 2011). Thispatent gave many sales to Kraft. The next phase of the company was starting in 1924 with a new name KraftCheese Company. Kraft started to acquire many dairy companies to strengthen theirposition in the market. Kraft bought ensured many sectors that have to do with cheesewas on their reach so that they could be more efficient. In 1927 Kraft started to broadenthe wings internationally. After that, through some strategic partnering, Kraft changedname twice to Kraft-Phenix Cheese Company in 1928, Kraftco in 1969, Kraft, inc in1976, and finally Kraft General Foods, Inc in 1989. In the latest year mentioned, Kraftmerged with Philip Morriss General Foods unit after Philip Morris Companies purchasedKraft for $12.9 billion one year before. Kraft owns long list of brands which some of them are very popular. Some ofsuccessful brands are Jacobs, Maxwell House, Milka, Nabisco (Oreo), Oscar Mayer,Philadelphia, Trident, and Tang. In chocolate bar, Kraft already has Toblerone brandwhich was acquired in 1990 from Jacobs Suchard. Overall, Kraft divides its brands intofive main sectors: snacks (30.6% of its revenue), beverages (19%), cheese (18%), grocery(16.6%), and convenient meals (15.8%) (Finding Universe Kraft Foods Inc CompanyHistory, 2011). Cultural root of Kraft could be tracked back from its history. There are someunique characteristics of the company that can be seen clearly: Kraft is a company withability to participate to the society, but in same time a company still gaining benefit fromit. An experience from world war tells the story. In World War I, Kraft supplied cheese to
the US Army. Continued in World War II, Kraft helped to ease wartime shortages infood. Postwar, their advantage in time of war benefited the company: formula of newproduct development and advertising in wartime helped build the company later (FindingUniverse Kraft Foods Inc Company History, 2011). This was ensuring them to still owntheir advantage in learning through hard time. To adapt and to compete by vanishing their competitors are another traits whichKraft owns. At the record, Kraft (and its embryo), at least, already made 13 acquisitionsand 7 strategic partnering movement just to ensure the position in the market (FindingUniverse Kraft Foods Inc Company History, 2011). All of these movement that Kraft hadmade, show a convincing proof that Kraft is a company with great flexibility foradaptation to any cultures and changes.- 1916 : Kraft acquired Canadian Cheese company- 1927 : Kraft acquired A.E. Wright- 1928 : Kraft acquired Phenix Cheese- 1928 : Kraft acquired Southern Dairies- 1928 : Kraft acquired 10 "cheese dealers"- 1928 : Kraft acquired Henard Mayonnaise Co- 1929 : Kraft acquired D.J. Easton- 1929 : Kraft acquired 2 mayonnaise companies- 1929 : Kraft acquired 10 cheese companies- 1929 : Kraft acquired International Wood Products- 1929 : Kraft acquired Gelfand Manufacturing- 1930 : Kraft is acquired by National Dairy Products (acquired)- 1953 : General Foods (which later merged with Kraft) acquires Perkins Products- 1980 : Kraft merges with Dart Industries- 1981 : General Foods acquires Oscar Mayer & Co.- 1985 : Philip Morris Companies Inc. acquires General Foods- 1988 : Kraft is acquired by Phillip Morris- 1989 : Phillip Morris combined Kraft with General Foods to form Kraft General Foods, Inc.- 1995 : Major restructuring melds Kraft and General Foods into Kraft Foods, Inc.- 2000 : Philip Morris buys Nabisco Holdings for $18.9 billion and combined into Kraft
Now Kraft is very strong in the market. Around the globe, in 140 countries, it runs117,000 employees. With 83.9% ownership of Phillip Morris Companies Inc., it achieves$49.2 billion revenue in 2010 (Finding Universe Kraft Foods Inc Company History,2011).Cadbury’s History Cadbury began in 1824 together with John Cadbury as a seller in Birmingham. Itis said that from the beginning of the business, Cadbury had a particular motivation.Believing that alcohol was a main cause of poverty, John hoped his products of (coffee,tea, drinking chocolate and cocoa) might serve as an alternative (Englishteastore CadburyHistory, 2011). Then John did ‘merger’ with his brother, Benjamin, and they formedCadbury Brothers of Birmingham; the company start to sell 11 kinds of cocoa and 16kinds of drinking chocolate. Taken over by sons, Cadbury grew and was trying to focus on chocolate (cocoaessence) while stop selling tea. Cadbury manufactured its first milk chocolate in 1897. By1899, their factory in Bournville employed 2,600 people and Cadbury was incorporatedas a limited company (Englishteastore Cadbury History, 2011). In 1905, higher proportion milk in chocolate, called Dairy Milk chocolate, waslaunched. By 1913, it became the companys best selling product. Fruit and Nut wasintroduced as part of the Dairy Milk line in 1928, soon followed by Whole Nut in 1933afterwards (Wikipedia Cadbury, 2011).
Being big food producer, Cadbury involved itself into World War I participationsupporting their country. Not only supplied food to soldiers, but also it sent more than2,000 of Cadburys male employees going to war. In the World War II, Cadbury alsohelped the government by converting parts of its factory into workrooms to manufacturewar equipment (Englishteastore Cadbury History, 2011). Cadbury St. John’s Ambulanceunit helped people during air raids as well.Back to business talk, Cadbury merged with drinks company Schweppes to formCadbury Schweppes in 1969 (Wikipedia Cadbury, 2011). Schweppes is a classicbeverage brands which was produced by Schweppes Company (established since 1783 inGeneva). However in 2007, the company did demerger and split the business into twounits: main chocolate & confectionery market and US drinks business. The US drinksbusiness, since 2008, has been renamed as Dr Pepper Snapple Group Inc.The Acquisition Decision: What is the effect? In order to broaden the position global confectionery leader, especially strengthenthe power in emerging market, Kraft made bids to buy Cadbury. It is an obviousinfluence of Kraft’s CEO, Irene Rosenfeld, long term strategy (Wowelle Irene RosenfeldsStrategy is Packing More Nutrition into Kraft, 2010). Kraft £9.8bn initial takeover bidwas rejected by Cadbury on November 9, 2009. Several months later, on January 2010,Kraft gave valuation at $19.5 billion (£11.5 billion). Cadbury approved the revised offer. On the paper, the decision seems ideal. Brand wise, 186-old-years Cadbury is avery strong and long presence brand in the chocolate industry – a good opportunity for
Kraft to develop. Apart from that, with sales of Cadbury growth of 20% and profitsgrowing at 30% in a competitive market, it is no surprise that one-quarter of Kraft’s $50billion in sales is coming from emerging markets because of Cadbury. Another thing,Kraft believed that it could take advantage of the strong Cadbury distribution in India,Brazil and Mexico. Sometimes the brightest blue-print also has slight deviation in theimplementation. A general truth is reflected from an analyst’s statement towards Kraft-Cadbury acquisition: “it will take some time to make these businesses truly combine andoperate as one” (Steuber Kraft, Cadbury not such a sweet deal? 2010). Although KraftQ1 revenues soar by 26 percent after Cadbury acquisition (Foodnavigator Kraft Q1Revenues Soar by 26 Percent after Cadbury Acquisition, 2010), it at the end of the dayfailed to achieve the 2011 revenue target (Dailymail Kraft Exodus Cadbury Fears Grow,2010). Kraft targeted revenue $50 billion in 2010, while Wall Street gave lower $48.27(Steuber Kraft, Cadbury not such a sweet deal? 2010). Finally, Kraft passes the WallStreet by achieving $49.2 billion but still fails to pass on its own target. The biggest issue is on cultural shock especially among their employees. Numbersof exodus were done by former workers. A total of 120 out of 170 managers andexecutives have quit since Kraft took control of the 186-year-old company. Most of themare ‘brain power’ of the company. They were coming from advertising, creative, designand marketing specialists (Dailymail Kraft Exodus Cadbury Fears Grow, 2010). One ofthe big losses is Mark Reckitt, who was Cadbury’s chief strategy officer and who is themost senior executive left from the company within Kraft, is leaving in July. TamaraMinick-Scokalo, a former Cadbury executive who currently heads Kraft’s European
chocolate business and Ignasi Ricou, who ran Cadbury’s gum and sweet operation inEurope, are also leaving the company (Marketing Magazine Two Senior CadburyExecutives, 2011). Overall, 6 out of 17 seniors’ position in Cadbury have left thecompany since the acquisition (FT.com Kraft Hit by Exodus of Cadbury Executives,2010). Another reaction was nationalism sentiment. People (and consumers) in UK arefeeling hard to accept the-so-British-company was sold to other people. Some felt such ahumiliation to be bought by other country. Many of them sounded a boycott for Cadburyunder Kraft through street demonstration or cyber social networks. The effect is alsotaken place among consumers. The main problem is emphasized in culture. Both companies are coming fromdifferent root which have different perspective and condition. How they compete andhow they retain consumers are not the same. From the Cadbury workers, Kraft feels sostiff and bureaucratic. The number of layers and amount of people that have to beinvolved to make a decision are many. Beside there is opinion, the CEO, Irene Rosenfeldacts authoritarian (FT.com People Still Chewing on Kraft Culture, 2011).
Theoretical Cultural Comparison & Acculturation Frameworks A comprehensive summary of both companies combined culture is needed in order to understand their behavior. Goffee and Jones through their paper explain the description of a culture. To elaborate what is the culture of Kraft and Cadbury, four relevant variables of them will be used. Those variables are: networked, mercenary, fragmented, and communal. Networked is about how the people inside the company treated. A friendly feel among workers is the indicator. On the other hand, mercenary has further function; mercenary measures how far the purpose of the relationship. Both fragmented and communal say a contrast symptoms. Fragmented talks a lot about individualism- how individual right is recognized. While, communal much talks about social and communalism of work atmosphere. So, sixteen variables are derived from those four variables. Cultures Variables Characteristic Kraft CadburyNetworked - Flexibility - Participation - Informal Approach Mercenary - Idealistic - Destroying competition - Hardwork - Material reward Fragmented - Support individual creativity - Individual environment - Preserve different culture Communal - Teamwork - Loyalty - Friendship - Community value - Family atmosphere
Can be summarized that Kraft and Cadbury are in opposite way each other in terms ofcharacter: 1) Kraft people values more multi-culturism, while Cadbury prefer the more exclusive British heritage. It is aligned consistently with what Kraft or Cadbury has done along the history. 2) Kraft is fine to destroy its competition by acquiring them; it would force Kraft to accept many different cultures. In contrast, Cadbury was not familiar with such approach to compete; therefore Cadbury was still relatively unchanged. 3) In terms of social atmosphere, Cadbury is more family-feel than Kraft. One another thing is flexibility to work in the company. 4) Kraft is far more bureaucratic than Cadbury. Based on all elaboration so far, to be strict, separation model is the best model toadopt for Kraft-Cadbury acculturation. A framework titled Acculturation in Mergers andAcquisitions (1988) defined separation as a mode of acculturation involves attempting topreserve ones culture and practices by remaining separate and independent from thedominant group. Thus, if the mode applied, there will be minimal cultural exchangebetween Kraft and Cadbury. Each function is independent.
The conclusion to apply separation mode is coming from the characteristics of thecompanies involved. From the perspective of acquired company, which is Cadbury,people inside want to preserve their own culture and them also perceive Kraft asoutsider-buyer. So, separation is theoretically chosen.
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