Sunday, 29 March 2015

Screw around with Kraft



What do you call something who is passed from hand to hand ? Used goods ? Probably something worse ? Well, that is what we have to call Kraft these days.

With a touch of slight (?) exaggeration, you could say that the land of mom and apple pie, could be stretched to include Kraft too ! Read on to see the list of brands this company owned at one time or the other, and even the Professor - he of the class war against processed foods - would have had one of those some time or the other. Its a quintessentially American company. And yet the way it has been sold and bought and sold and bought again makes somewhat depressing reading.

As is usual with many of the well known companies, there is always a visionary entrepreneur in the beginning. There was a James L Kraft. He was born in Canada, but emigrated to the Chicago in 1903 and started selling cheese from a horse drawn cart. In 1916 they developed a new process for pasteurising cheese, enabling it to be shipped long distances and patented it. Then came World War I, the need to provision the army and Kraft took off. In 1928 came Philadelphia cheese. In 1930 it merged with National Dairy, then the leading ice cream company in the US and became a full fledged Dairy Products company. 1926 saw Breyers, a famous ice cream brand;  1935, Sealtest, another iconic ice cream brand.  It grew and grew and became a globally recognised company and one of the giants of the food industry.

Then came 1980 and the barbarians. Wall Street types seem to have a peculiar fascination for Kraft and it become the favourite darling of deals. In 1980 a merger was engineered with Duracell and Tupperware. Immediately thereafter it sold all the non food businesses including Tupperware, but retained Duracell. In 1988 it sold Duracell to private equity firm KKR. In that mad winter of 1988, when dizzying deals were done, Kraft itself was acquired by Philip Morris (the largest tobacco company in the world) . Philip Morris merged Kraft with its General Foods business (of Maxwell House, Jell O, Kool Aid and Tang fame ) and created Kraft General Foods.  In 1990 they bought Jacob Suchard a big European coffee company and also the owner of Toblerone. In 1993 came Shredded Wheat. In 2000, Philip Morris acquired Nabisco and merged it with Kraft. Into the fold came Oreo, Chips Ahoy, Ritz, etc. In 2001 Philip Morris IPOed Kraft and it became an independent company again. In 2009, Kraft acquired Cadbury. In 2011 it split itself into two companies - the North American Kraft and the global Mondelez. And then last week, Warren Buffett and 3G bought out Kraft and will now run it together with Heinz which they already own.

Whew. That is a dizzying pace of changing of hands. How can a business survive this level of buying, adding, stripping and selling all the time. I wonder what the suppliers, consumers and employees make of all this. Businesses need some stability. Wall Street types doing financial engineering, don't do much for the long term health of the business.

There is one saving grace. Warren Buffett is not a wheeler dealer. He holds for the long term. Maybe Kraft will get some stability now.

20 comments:

  1. So, he's back ... about time ;)

    Of the products listed in the graphic, if one night all of them (except Milka) were eliminated, the world's health will significantly improve!

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  2. Anne in Salem29/3/15

    Welcome back!

    I wonder how much all the financial shenanigans affect the non-management employees. Sure their medical insurance provider might change, and the name on the pay stub may change, but does anything day to day change? The mac 'n' cheese, the cookies, the chocolate still need to be boxed, regardless of the entity that owns the name.

    My brother is an electrical engineer. After earning his masters, he was hired by NCR. His division has been bought and sold similarly to Kraft's experience such that he has worked for 6 different companies (AT&T, Hyundai, Symbios, et al) in 25 years. He has overseen plant closures and openings and been transferred abroad as ownership changes. He is sufficiently high in management now that the transitions are stressful, but the bottom line remains - get the product out.

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  3. @Ravi - Thank You

    @Sriram - At least one brand gets your vote ?? That was one brand more than what I expected :)

    @Anne- Oh No - everybody suffers from these sort of changes in ownership. Strategies change abruptly when owners change. Product lines are discontinued, supply chains are reorganised, businesses are withdrawn from some geographies, etc etc. A factory that was doing well and producing above targets might suddenly find itself being closed because the product line is discontinued, or they have chosen to withdraw from a country. Take the Somerdale factory of Cadbury's in the UK - an iconic manufacturing unit in that country. When Kraft was acquiring Cadbury, their Chairman publicly told the UK that the factory will remain open. Her minions even told the UK government that (she refused to appear before them). Days after the acquisition was completed Somerdale was closed.

    This happens all the time. When it happens to an underperforming factory (like the Detroit car makers) at least it is understandable, even if no less painful. When it happens to a factory that is doing well, that is when the blow is very very hard to take.

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  4. rotfl :D:D thala is back and in roaring form. I would've named the title as witch/which Kraft..aana enakku intha mathiri content suttu poattalum ezhutha varaathu :) imagine the person who owns sticker printing rights for that company. Logo adichay latchaathipathi aairupaan :D

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    Replies
    1. Only you can make a comment like this Gilsu. Witch Kraft ..... My sides are bursting with laughing.

      Actually the ticker printing thought is exactly right. Everybody involved in the name change - board makers, sticker and stationery printers, lawyers, government have all made tons of money during all this change of hands.

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  5. I hope with WB taking over there is some stability to the company. I wonder how a veteran employee must have coped with so many changes. He or she can write a book on how to successfully manage a change of ownership or maybe start independent consulting on their own

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    Replies
    1. Yup - each change is different and tough. I suspect there would be very few "veteran employees" left.

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  6. Ramesh, good to see you in your realm back again.

    As an employee i have been through an acquitision ( yeah you could call it that ) and I know the turmoil i have been through. this is beyond my comprehension. I am not sure how much a customer will be affected, in any case, he is the king and he will be taken care of, but the others, especially the employees should be going through really tough times. If there are long termers, they should have become immune to it by now.
    God bless Warren Buffet for the potential stability he might bring in.

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    Replies
    1. Thanks Vincy. You would know this better than most - the HR function bears the brunt of the issues. Its become a way of life now, but Kraft seems to represent an extreme case - hence the title of this post.

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    2. Coincidentally, I saw Kraft sauce in a Walmart at Cary, USA. And I was thinking of your post. been travelling these days, a lot.

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    3. Write a travel blog; write a travel blog :):)

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  7. I underwent four involuntary changes of employer - Stratus to Ascend, Ascend to Lucent, and Lucent to Alcatel-Lucent. In each case the logic of the merger may have been clear to those who did the deal (and they also made the most money out of it) but the employee engagement at the bottom left a lot to be desired. Changes in culture, work practices, revenue recognition rules - all of them change. And then in engineering companies there is the big game of product rationalisation which invariably involves factory closures. Every employee has to figure out his or her own strategy for survival. I was lucky - I gained each time but it could well have been otherwise for no fault of my own other than being in the wrong place at the wrong time. In retrospect I am not even sure if all of this was in the general shareholder interest.

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    Replies
    1. Yeah I know - your comment on whether all this really added value is very true. After all the majority of M&A deals actually destroy shareholder value. So ..........

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  8. One of the few HBR articles worth reading actually proved this, and found that in most cases the only reason the M&A happened was due to the ego of the CEO

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    Replies
    1. You are still reading HBR !!!!! :) To the CEO's ego, add bankers' ego and fees.

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  9. I joined a startup that Intel bought, so experienced my first change very early on. Going from a small, startup environment to a large corporation was not easy....hated it in the beginning. I was then part of two pathfinding projects that were cancelled mid-way, and 80% of the team was let go each time. As Ravi said, I was lucky, but could have easily been on the other end. So many changes constantly happened during that time - especially high level org changes which made no sense most of the times. Managers changing directly impacted me and my peers, and there were times when right before the yearly review, my current manager at that time would call me into a conference room and ask me what he'd like to say about me to the management (he'd know nothing, and usually, that's not a good situation to be in).

    It still continues to this day, but affects me less as I've been in a stable org under great leadership which minimizes the impact at my level. I think it kills productivity of the team, and only increases the time to market for products. So definitely not in general shareholder interest.

    Now on the Kraft product line, not a single one gets my vote :)!

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    1. Yes, your experience is similar to many others. Some amount of M&A is good, but when a company is tossed around from hand to hand, its very difficult for employees to cope all the time.

      Oh come on - surely at least one product in the Kraft line has to be a favourite. You aren't a rabid tree hugger :):):)

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  10. like they say concentration by market share they also have to come up with some size based restrictions. local and distributed production for what is inevitably local and distributed consumption would go a long way in solving many of our economic evils. Kumar

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    Replies
    1. Agree - there are significant diseconomies of scale, especially in categories like Food which are inevitably local. But the management school fixation with scale makes sure that the march towards big, standardisation and centralisation seems almost inexorable.

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