NORTHFIELD, IL -- Kraft Foods chief executive Irene Rosenfeld explained the reasons behind the the company's planned split-up of its grocery and snack businesses, saying the two business units can grow faster by operating separately.
Last month, Kraft announced plans to split into a global snacks business that includes Oreo cookies and Cadbury candies, which it acquired in 2009, and a North American grocery unit with brands like Oscar Mayer and Philadelphia Cream Cheese. | SEE STORY
Speaking at a Barclays Capital investor conference on Sept. 7, Rosenfeld said the timing is ideal for the split-up because of the improved performance Kraft-owned brands are showing across the globe.
She said the separate companies would have different growth profiles that will be better served by individual operating models. One model will allow the snack company to focus on overseas growth, while the other will position Kraft's domestic grocery business to manage itself for steady cashflow and dividend payments.
The high-margin North American business is expected to be best suited to operating in a packaged food industry where growth has stagnated, with sales up just slightly in 2010 after growing at about 5% from 2007 to 2009.
"If you believe there is a 'new normal' of slower consumption growth in North America -- and we do -- certain capabilities will be even more important in the future," Rosenfeld said.
The fast-growing global snacks unit will be positioned to take advantage of developing markets overseas, which generate approximately 42% of Kraft's revenue, by redeploying capital to support future growth, according to Rosenfeld.
Rosenfeld also said the consumer response to price increases has gone as expected, largely due to Kraft's stepped-up marketing and introduction of new products.
"We feel quite confident with the response we've seen to our pricing actions," Rosenfeld said. "Price elasticity has been essentially where we expected it to be."