The first thing I thought of when I read this was there must be a tidy tax dodge in it for them:
Kraft Foods said on Thursday that it would spin off its North American grocery business from its global snacks group, a decision that comes 18 months after it bought Cadbury, the European candy maker.
The company said the snacks business would focus on âfast-growing developing markets and in instant consumption channels,â while the North American business would continue to develop the brands distributed through more traditional grocers.
I have no faith in any institutions anymore.
MikeJ
So your first thought when reading about a business deal was, “hey! I bet they’re just in it for the money!”
Astute.
gex
That or they anticipate some liability down the road for the snack food industry (sort of like tobacco). They market to kids, they make their products more and more addictive, and they’re killing us, albeit slowly.
NonyNony
Funny, I read this:
And thought “Welp, we know Sachs will make a killing on this deal. I wouldn’t hold much hope out for Kraft’s long-term shareholders though.”
I have no faith in a completely different group of institutions.
MikeBoyScout
“instant consumption channels”
Damn! I wish I’d have come up with that consultant BS line.
If consumption channels is neither trademarked nor copyrighted, I’m claiming it.
Dexter
What is an “instant consumption channel”?
Violet
The purchase of Cadbury was so controversial in the UK. The Cadbury employees were really upset about it and the British public were afraid their chocolate would be ruined. American chocolate doesn’t have the best reputation. Interesting turn of events.
MattF
Yeah, right– Global Snacks and Goldman Sachs. The Onion will get its Pulitzer any day now.
Villago Delenda Est
WTF does “fast growing developing markets and instant consumption channels” even mean?
Is an “instant consumption channel” a restaurant? Or a vending machine?
Omnes Omnibus
@Violet:
Bars of sugar with a little bit of cocoa? That reputation?
different church-lady
Instant consumption channels? WTF is an instant consumption channel? And do human beings actually talk like this?
Violet
@MikeBoyScout:
Here’s the real consultant BS:
What does that even mean? I think you could get a buzzword bingo with that sentence.
Violet
@Omnes Omnibus:
Don’t forget the palm oil. And stabilizers.
Odie Hugh Manatee
@Villago Delenda Est: “Is an âinstant consumption channelâ a restaurant? Or a vending machine?”
It’s a new distribution method they are coming out with where they pump their shit directly into your veins, bypassing all middlemen.
different church-lady
@Violet: Orwell had it backwards: duckspeak comes in when you add more useless words to a sentence, not take them out.
MattF
@Omnes Omnibus
No… the problem is that American chocolate (Hershey’s, mainly) really does taste different from other chocolates. Americans are used to the flavor, but if you’re not, it tastes sour at best and sick-making at worst.
different church-lady
@Violet:
I bet there’s also a chemical in there to keep the bar from sticking to the wrapper and another to keep it from melting on a warm day, etc. etc. By the time you put all that stuff in the vat there’s no room left for cacao.
Belafon (formerly anonevent)
Something similar is happening where I work, and it’s investor driven. Divide the company into small parts, that way one division doesn’t weigh down the profit making ability of other divisions.
gene108
Instant consumption channel = industry speak.
Every big business has its industry speak and if you don’t work for that business you have to stop and ask that person what they are talking about.
People in these big businesses, have no earthly idea not everyone understands their industry speak.
The only thing worse is dealing the DoD stuff and all the bloody acronyms they have for everything, which forces you to run to the Google or whatever manual they stuck you with that has a list of acronyms and rules and regulations.
Anyway, I doubt this is a tax dodge. I don’t know the advantages of doing this. Kraft is in a very limited space as a business, because they get competition from larger competitors like P&G, who have non-snack products to allow them other channels to grow.
If I had the energy, I might dig around and see what Kraft gained by buying Cadbury, in terms of markets and what they are gaining by spinning off this new entity.
I doubt it is a tax dodge. It probably has to do with remaining competitive in the market.
Davis X. Machina
@Dexter: Convenience stores, etc.
The Moar You Know
Good lord, just went through their Wikipedia article. Kraft has undergone more M&A activity than anyone I’ve ever seen.
They may be doing this just to be more manageable. Too many brand names under one roof.
Karen in GA
“Fast growing developing markets.” Is it true that corporate executives (in general, not just Kraft) don’t think long-term? Or is it that they just don’t think long-term here?
I think they’re putting plenty of thought and planning into where their companies will be in 10, 20 years’ time; they just won’t be in the US or Western Europe. They’re pretty much done with us.
Don’t mind me. Just bitter this morning. No reason (beyond the usual).
slag
Join the fuckin’ club. I recently came to this conclusion after seeing Harry Potter when someone asked me to explain what Horcruxes were again, and I started with, “So think of Lord Voldemort as a giant shell company…”.
Served
@Violet: Revolutionizing paradigms outside of boxes!
Ordovician Bighorn Dolomite (formerly rarely seen poster Fe E)
@Violet:
Whatever it takes–European chocolate absolutely destroys my stomach. One small taste and I get to confront my impending mortality for a few hours.
Hershey bars on the other hand don’t seem to have any ill effects. And how do they feel about Nestle? I’m pretty sure that’d get lumped in with “American Chocolate” but is actually Swiss, and is also my favorite (also very “belly friendly!”)
Villago Delenda Est
@gene108:
Being someone who spent many years immersed and fluent in DoD speak, I recall once warning my family that if they could not understand what I was saying, they should just stop me and ask me to translate it into ordinary conversational English. I was well aware that I spoke in jargonish shorthand much of the time and being away from the Green Machine for a few weeks was not enough time to decompress.
NonyNony
@Karen in GA:
No they aren’t – they’re looking at short term (5 year or less) growth opportunities. Growth opportunities for an old company like Kraft in the US are few – where would the new markets be? In order to get into a new market in the US you have to develop a new product – and that’s hard work that costs money. Getting into China or South America or Africa is all about just getting the same product you sell on the US shelves onto their shelves. It’s low-hanging fruit – easy growth opportunities that push up the numbers and make the company look attractive for investors.
That’s all any American CEOs think about – short term growth opportunities to pump the stock values up. Why should they think about anything else? They know they aren’t going to be helming the company in 30 years, and a chunk of their salary is in stock options. So why not pump the stock, exercise those options, leave when the company is riding high and pass the hot potato to the next guy when he takes over? When you hire a mercenary to run your company, you shouldn’t be surprised that he doesn’t give two shits about prospects for your company that are longer-term than the length of time he expects to hold onto your stock.
R-Jud
@Omnes Omnibus: “It’s sour,” is the complaint I hear about Hershey’s.
“The new snacks company will combine units in Europe” was the chilling clause in the NYT article for me. Bournville (where Cadbury’s first, main factory is) is just a little way up the road from me. Some of our neighbors work/ have worked there. Many people in our street were also MG Rover employees. This won’t be welcome news around here.
Just Some Fuckhead
Don’t be fucking with my Kraft Mac ‘n Cheese, John.
Roger Moore
@The Moar You Know:
Are they any worse than any of the other consumer goods conglomerates like P&G or Unilever? Have they done any more M&A than some of the industrial groups like GE or ThermoFisher?
Linnaeus
Over at Daily Kos, here’s Eric Cantor on airlines pocketing the taxes they’re supposed to be collecting for the government: “I guess that’s what business does.”
Violet
@Served:
Conceptualizing synergy to productize skill sets!
@Ordovician Bighorn Dolomite (formerly rarely seen poster Fe E):
You may have an issue with the phenylethylamine in chocolate. It’s known to cause gastric problems. Since American chocolate uses less of it, it might be okay for you.
My relatives in the UK are well aware that Nestle is a Swiss company. I don’t think it gets lumped in with “American chocolate”.
burnspbesq
Kraft press release
Makes sense. Smaller, more focused companies are easier to run than big, sprawling conglomerates, and there aren’t a lot of synergies between the two brands. Not clear whether this will be a win for Kraft shareholders, who have been doing rather well of late. Certainly a win for investment bankers, lawyers, and accountants, who made money putting Kraft and Cadbury together and will make money taking them apart.
As far as taxes, if this is done properly it should be a non-event for tax purposes. No recognition of gain, but no step-up in basis.
Roger Moore
@Villago Delenda Est:
I think you can argue the jargon issue either way. Incomprehensible jargon is bad because it’s incomprehensible, but at least it’s obviously jargon. It can be even worse when people use ordinary words in a very technical way that makes people misunderstand them. Misunderstanding can be worse than incomprehension because it’s less obvious and thus less prone to correction. The real culprits are bullshit artists who use dense technobabble to conceal how mundane their ideas are.
Judas Escargot
@Villago Delenda Est:
They clearly intend to leverage their cross-market multibranding mindshare to effectively synergize across national and cultural borders to ensure access to markets with more advantageous consumer mindsets (and therefore higher potential for profitability for long-term growth).
(Translation: Third-world countries have fewer pesky regulations, and all those poor brown folks want Yummy American Candy. Worked for RJ Reynolds et al).
“Instant consumption channels” makes me think of a vending machine that takes $2T platinum coins, actually…
drunken hausfrau
Like its once parent company, Philip Morris, it is always about liabilities… look for the liabilities…
Me? My money is on the grocery side of things for more risk. chocolates and snacks are fairly risk free — easy money, as long as they don’t ruin the chocolates.
But groceries… hmmm… let’s just take a look: velveeta, lunchables, oscar meyer packaged meats, cream cheese, etc. So many possible ways things could go wrong… listeria in the deli meats? salmonella or e coli in the lunchables, killing school children? artery clogging fats in the mac & cheese? Class action lawsuit by obese people? or diabetes patients?
Kraft grocery “food.” Is it food?
Sly
@Dexter:
MBA-Speak for “food that you can immediately eat after you buy it.” Basically, anything that can be sold in a vending machine. They’re spinning off a snack company because they think it’ll help them sell more junk food to people in Asia.
Or, in the language of non-humans, Kraft is componentizing its core competencies in order to programatically operationalize its transition towards a global snackfoods paradigm.
Roger Moore
@Judas Escargot:
I think that one of their points is actually that they aren’t realizing synergies between their grocery and snack brands. The idea used to be that you wanted a complete line of products so you could use your market power in one segment to bully distributors into carrying the rest of your product line. Now they’re apparently seeing that the snack distribution system is splitting from the grocery distribution system so they can’t use their snack lineup as an entree into the grocery business or vice versa. If that’s true, it makes more sense to split the two businesses so each can follow its own optimum path without being weighed down by the other side and its attendant bureaucracy.
Sly
@Judas Escargot:
While recognizing the continued potentiality of traditional brand identities, so as to preserve the existing value chain, and harmonize it with expanding market opportunities in order to create a strategically holistic solution. This simultaneously increases Kraft’s value proposition and disintermediates burdensome performance management systems.
Net-net? Win-win!
waratah
I have been hoping they would bring Cherry Ripe bars to the U.S. Rich dark chocolate and cherrys. Yum!
Just Some Fuckhead
@waratah:
That sounds awesome!
waratah
@Just Some Fuckhead:
They are, has to be Cadbury, any other I have tried with chocolate and cherrys are not close. I have been ordering from internet sites that sell Australian food. They are nearly always sold out of Cerry Ripe
Myles
It’s probably more likely that they wanted out of the grocery business because the margins in the grocery business are pretty low.
slag
@Sly:
Perfect!
bart
I think they are trying to protect some of their non candy related businesses.
The writing is on the wall. Candy is going to be illegal or heavily taxed in a few years – for the children of course.
Paul in KY
@slag: After figuring out how important those things were to Voldemort (book, sword, amulet, etc.) I came to the conclusion he was very overconfident or reckless to have them in such easy places to find.
I’d have placed my horocruxes on the moon.