Kiwi feathers ruffled by chocolate change

http://www.odt.co.nz/news/dunedin/87625/kiwi-feathers-ruffled-chocolate-change

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By Mark Price on Tue, 29 Dec 2009

News: Dunedin

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Cadbury Australia-New Zealand managing director Mark Callaghan.

He was born at Queen Mary Maternity Hospital, grew up at Green Island and went to primary school in Caversham.

Now Mark Callaghan has Cadbury's top job in Australia and New Zealand, lives in Melbourne and finds himself frequently trying to explain the Kiwi psyche to his Australian colleagues.

"I've had a hell of a hard time over here defending my countrymen," Mr Callaghan, Cadbury's Australia-New Zealand managing director, told the Otago Daily Times as he reviewed a difficult year.

In May, the company created a furore in New Zealand by introducing palm oil to its chocolate and then, in August another minor furore by introducing softer Minties sweets.

Mr Callaghan said he did not change the Minties formula, only the way the sweets were made, causing them to feel "a little different".

"And you know what? It got on the front pages of the newspapers. Do you know what my Aussie colleagues were telling me about Kiwis at that point? `You guys are nutso. Get a life. Was it a bad news day or what?' So I've had a hell of a hard time over here."

Mr Callaghan, who has worked in New Zealand, Australia and Britain, believes New Zealanders are resistant to change.

"We come from a small country where lots of things are going against us and we take a lot of this change quite personally.

"The way I like to look at myself and my colleagues in New Zealand is that we are a very balanced lot. We have two massive chips on each shoulder."

Mr Callaghan estimated changing Cadbury's chocolate recipe to include palm oil and then changing it back again in the face of public dissatisfaction, cost the company millions of dollars.

"I don't have a figure. It's not something I was ever going to want to go and look up. But it's certainly millions of dollars."

Mr Callaghan said the decision to use palm oil was a response to increased costs, including a doubling of cocoa prices over two years.

He said two factors drove up the price of cocoa.

One was competition for cocoa from United States investment funds moving out of the sharemarket and into commodity markets during the recession, and the other was increased demand for chocolate as the recession bit.

The result was a "massive impact" on Cadbury's profitability.

Mr Callaghan said the Australia-New Zealand operation got "an instruction from upon high" to change the recipe - replacing some cocoa butter with palm oil.

"We did the testing to make sure the consumer was happy with the taste and then went about it. And then, the rest is history."

Consumers in New Zealand, concerned about jungle in Borneo being cleared to make way for palm oil plantations, would not buy the new chocolate and eventually Cadbury went back to the old recipe.

Mr Callaghan stands by the company's stance that the palm oil it was using came from sustainable, non-rainforest sources.

"We really worked our buns off to stick to our values. Our Quaker values are pretty dear to our heart. But it didn't matter. Consumers didn't listen; weren't interested.

"We felt a little bit hard done by but . . . you've got to take it on the chin."

Considering reverting to the old recipe created a "massive debate" within Cadbury.

The final decision was made by Cadbury chief executive in Britain, Todd Stitzer.

Australian consumers did not think the taste was "that bad", were "comfortable" about the company's source of palm oil and "did not react in any way, shape or form at all like the Kiwis".

Mr Callaghan acknowledged changing the recipe was a mistake and now the company was paying to earn back consumer trust.

"We've got a long, hard row to hoe to build back Kiwis' trust . . . and I'm probably having to pay for it a little bit at the moment."

He was not concerned if Cadbury's prices made it hard for chocolate maker Whittakers, which drew public attention to the palm oil recipe.

"It's called competition. When I lost some of my trust, I had to play a little bit harder than I normally would have."

mark.price@odt.co.nz

Cadbury staff to taste Kraft style

http://www.odt.co.nz/search/apachesolr_search/cadbury+kraft

By Mark Price on Wed, 7 Apr 2010

News: Dunedin | Cadbury | Kraft

Workers at Dunedin's Cadbury chocolate factory will get a taste of the management style of the new owners when negotiations over a new collective agreement begin in the next few weeks.

The 186-year-old British chocolate company was sold to United States food giant Kraft, for $27.4 billion, in February.

Otago Service and Food Workers Union spokesman Neville Donaldson said yesterday the current agreement with Cadbury expired in August and the union had initiated the process that would lead to negotiations with the new owner.

Mr Donaldson said the negotiations would enable the union to raise some issues with Kraft, including job security, the relevance of previous agreements with Cadbury and the likelihood of further restructuring.

There was concern among workers about the future of the plant, which has just gone through a major upgrade as a result of a decision made by the previous Cadbury management.

"Now we've got Kraft . . . a whole new group of people who look at things significantly differently."

He believed there were "a lot of arguments" for the Dunedin plant to have a future, "but whether they are arguments Kraft are prepared to consider or listen to is another matter".

Mr Donaldson said he had been in contact with the new Dunedin operations manager, Peter Lennox, who had replaced long-standing operations manager John Booth.

Mr Lennox was unavailable to speak to the Otago Daily Times yesterday and is travelling to Kraft's Cadbury headquarters in Melbourne today.

A Kraft spokesman in Melbourne did not return calls to the ODT yesterday.

Kraft's ruthlessness means tough task for Rosenfeld

http://www.ft.com/cms/s/0/5bfb2412-3d27-11df-b81b-00144feabdc0.html

Kraft's bold ambition means tough task for Rosenfeld

By Elizabeth Rigby

Published: April 1 2010 03:00 | Last updated: April 1 2010 03:00

Irene Rosenfeld's leap into the big league was underlined this week when the chief executive of Kraft Foods overtook her counterparts at PepsiCo and Coca-Cola to become one of the best-paid heads in consumer goods in the US.

Having spent recent months slogging it out to secure Cadbury, Ms Rosenfeld has been richly rewarded. She was awarded $26.3m last year for "exceptional" leadership during Kraft's $19.1bn takeover of the British confectioner, as well as for Kraft's improved performance on completion of a three-year turnround plan.

Now she has the potential to turn the maker of Oscar Mayer meats and Oreo cookies from the biggest US food producer into a "global powerhouse".

The company she has led since 2006 now boasts a 14.8 per cent share of the global confectionery market, just ahead of Mars with 14.6 per cent.

More than half of its revenues now come from outside the US - the figure was 43 per cent before the Cadbury deal. Most crucially, a quarter of sales come from developing markets such as China, Brazil and India, against a fifth pre-Cadbury.

A bigger Kraft is now bolder in ambition. Ms Rosenfeld has set her long-term revenue growth target at 5 per cent, against 4 per cent before the merger.

She expects growth in earnings per share to reach 9-11 per cent, compared with 7-9 per cent before the deal, and has also promised $675m of annual cost synergies by the end of the third year after completion (although the deal also comes with $1.3bn of reorganisation costs).

But in spite of Ms Rosenfeld's enthusiasm over the tie-up, the unwieldy food group remains unloved.

Kraft has lagged behind its peers during Ms Rosenfeld's turnround, underperforming food products in the S&P 500 by 8.5 per cent from the beginning of 2006 to the middle of 2009. Since September, when Kraft announced the Cadbury deal (using a big tranche of its shares), it underperformed the S&P 500's food producers by 5.4 per cent.

"This is a very large company in a lot of different categories and geographies," says David Driscoll, analyst at Citigroup. "Kraft wanted to achieve faster growth rates than it has been able to achieve so far. Are investors irritated that management thought they could do better than they did? Yes. Did they think they would get the franchise better than they did? Yes."

In spite of having made strides towards "rewiring" Kraft for growth by investing in marketing, new products and better ingredients, Ms Rosenfeld has struggled consistently to increase sales above its 4 per cent target while also hitting earnings-per-share targets.

But she has delivered on sales, with a compound annual growth rate of 5.5 per cent in the three years to the end of 2009. Underlying growth in earnings per share has come in at just 2.3 per cent, according to Deutsche Bank estimates.

On a diluted earnings-per-share measure, performance rose at 6.1 per cent over the three years - missing Ms Rosenfeld's range of 7-9 per cent, though she did hit 7 per cent in 2009.

It leaves many pondering how Ms Rosenfeld can now deliver more ambitious goals following the deal.

"If you look at the company in total, the sales growth objective of 5 per cent plus [of the merged group] is too aggressive," says Eric Katzman, analyst at Deutsche Bank.

The execution risk of the deal is also increased because it was a hostile approach - very different from Ms Rosenfeld's friendly $7.6bn acquisition of LU Biscuit from Danone in 2007.

Missteps over Cadbury's Somerdale plant near Bristol - which Kraft said it would keep open only to reverse its decision within days of doing the deal - have caused unnecessary upset in the UK.

However, she has at least managed to get Cadbury's operational heads to stay on in the enlarged company.

As she integrates Kraft, Ms Rosenfeld may also face pressure from activist shareholders such as Nelson Peltz's Trian Group to dispose of some of the slower growth businesses, possibly including the Kraft cheese brand itself.

Shareholders will urge more focus on the high growth combination of chocolate and biscuits that has been strengthened by the Cadbury deal.

She has already tested the patience of some, with Warren Buffett, Kraft's biggest shareholder, critical of the deal. The billionaire investor is unhappy that Ms Rosenfeld sold Kraft's successful DiGiorno pizza business to Nestlé for $3.7bn to help finance the bid, while he has also complained that undervalued Kraft stock was "a very expensive currency" to be used in an acquisition.

But Mr Buffett also thinks Ms Rosenfeld is a "good operator". Her supporters say investors should keep their eye on the bigger prize. With Cadbury under its arm, Kraft is becoming more focused on confectionery and snacks, with more than half of its turnover now in these areas.

"She has transformed it into a niche company in emerging markets and it is going into chocolate that doesn't have much private label competition so now the five-year and 10-year terms get better and better," says Mr Driscoll.

Additional reporting by Jonathan Birchall in New York