Mondelez international corporate strategy

 

Introduction

In the year 2017, Mondelez international was among the leading snack food makers in the world. It came into existence in the year 2012 when the Kraft corporate was reconstructing its business by buying and merging with other businesses such as Cadbury and was in the process of selling its North America pizza business. The Kraft corporate was also addressing the weaknesses that were affecting their major businesses. These changes that were being undertaken by the Kraft corporate between the year 2007-2010 helped in increasing the number of products the company was dealing with. Kraft became an independent corporate in the year 2007 and the results of the spin-off that was taking place in these two businesses was the formation of Mondelez international in 2012 that would deal with retaining the company’s snack business in the United States and also deals with retaining all the products and operations that were in Kraft foods former business.

With this spin-off the corporate redirected its strategies. Some of the new strategies included; to build a globally recognized snack enterprise, to maximize the profits of their already existing food and products brands and also to form a good culture that will result in to a profitable business growth and that will maximize the profits returned in the business, thus attracting shareholders. By the end of 2009 Mondelez international replaced most of its senior management staffs, in this same year it used $600 million in boosting its product. The company went further and changed its organizational structure. In the year 2017 Mondelez international had been able to achieve all the strategies it had put into place. It was able to maximize its profit globally since 76% of their profits came from outside the United States (Thain, & Bradley, 2014). It also had another major strategy that was to achieve synergies using cost efficient and saving methods in all its units in order to integrate its business plans.

Mondelez international was expected to achieve a very high growth in the industry. It would focus on the iconic, globally known products such as Oreo, Cadbury, Jacobs and Tassimo in international market. While it promoted regional brands that had potential of rising to be in the ranks of international market. The new company was also expected to use its resources well in order to increase the dividends given to the shareholders of the new company, and invest a considerable of money in promoting their brands and developing their products. When the Mondelez international came  into existence, they had the advantage of using external resources such as the stability of the economy at the time, rival businesses competing with them were not well established, their product brands were well established and they did not have abide by strict government  policies and lastly their snack brands were well recognized and many countries were consuming their brands therefore they had a wide already established market (Johnson, 2014).It also had internal resources such as a large number of employees and good management, it also had money and other resources such as brands, the company had a good already established culture in their disposal as it came into existence.

The corporate’s operating income was declining. The corporate only experienced an increase in their operation profits in the year 2014-2015 because of the $6.8 pretax gain that they had gotten after they exited its coffee business. The company operating income fell from $2.6 in 2016. Ackman an activist investor decided to invest $5.5 billion in the company in 2015. He believed that the corporate had two choices either to improve its management or to become acquired by a better performing rival. This slight fall in business did not mean that the corporate was not performing well. Since even after it exited its coffee business it retained a 43.5%equity interest in the new coffee business (Johnson, 2014). It later took 24.2% interest from the original shares of the new coffee company called JDE and used them to acquire ownership of stake in Keurig Green Mountain Inc, a company that dealt with coffee brewing and coffee brewing equipment’s manufacturing. 

 Mondelez international corporate acquired a United States based snack food company, enjoy life Foods for $81 million and it also acquired 50% of a Japanese coffee venture that was owned by the US based snack food company at a price of $ 225 million this took place in the year 2015 therefore, it is possible to explain why its operation profits were falling. It was falling because it was using these profits to acquire new brands. In 2016, it tried to acquire Hershey so that it could be the largest candy company in the world, although it did not succeed since this attempt was blocked by the nonprofit trust that was in control of Harshey. Mondelez international was able to utilize its resources fully despite experiencing a fall in their operating profit for four consecutive years.  It was able to acquire and put more brands in its name and despite exiting its coffee business it was still able to hold a stake to the new coffee business.  Therefore, it was able to fulfill the company’s corporate strategy (Johnson, 2014). Since Ackman increased his stake to 6.4% in the business in January 2017, and in this same year the corporate had managed to run operations in 80 countries and the products of their brands were being distributed to 165 countries

Mondelez international is a business facing stiff competition from rivals dealing in snack food production. It has put in place strategies to deal with this competition. Its different businesses have been able to compete well with the units of other businesses. The company organized its self into four segments based on the geographic distribution of its market. These four segments are; Europe, Asia, middle east & Africa (AMEA), North America & Latin America. To be able to deal with competition it placed products from different categories in each geographic segment. These products included biscuits, candy, gum, chocolate cheese, beverages and grocery (Thompson, 2013). These five products in these four segments experienced strong competition from rival businesses therefore, Mondelez had to use strong and efficient distribution chains and strong marketing skills in order to be able to avail their products in super markets, mass merchandisers, convenient stores drug stores and in retail stores and also to attract and retain customers.

In the North America segment the brand image and the reputation of its brands helps it gain a larger share of the market, and in order to build the image of their brands they have to incur a higher promotional cost in this segment. Operating income in this segment decreased by 2.4% between the year 2015-2016 because of a higher promotional cost. Throughout the other segments Mondelez international experienced changes in revenue. In Latin America in the year 2016 it experienced a 32.2 % fall in revenue, this was as a result of a decline in the amount of sales made and also unfavorable exchange rates. The exit of Mondelez from its coffee business also affected the sales in this segment. In this segment the operating income decreased by 44.1% in the year 2016, this was caused by a rise in the prices of raw materials (Thompson, 2013). The competitive strength of their business in north America is the brand image and reputation

In the Africa, middle east and Asia segment, the revenue decreased by $186 million in the year 2016 for the same similar reasons that caused decline of revenue in Latin America which were a loss in exchange rate loss related to the currency of countries such as Australia, India, Egypt and South Africa. The product consumers resisted the price increase of these products. Unlike North America the manufacturing cost of these products was low and therefore this segment experienced an increase in operating income by 30.1%, however, this segment was also affected by the decline in the units they sold and the exchange rates also affected the operating income of this segment in the same period of years. Mondelez international core is to build a globally recognized snack that will be dominant in all markets. It has been able to do this since perfectly since its independence in the year 2007. It has continued to carry out many acquisitions that have increased their market share. This spin off has a long-term effect of attracting shareholders. In Europe and in all the other countries where their market is developing availability of new products and diversity of products is their core competitive strength (Keenan, 2014). The North America segment makes a lot of profit compared to all other segments, therefore they have a higher profit margin.

In a 9-cell industry attractiveness/ business strength matrix North America which has approximately 6.75 industry attractiveness, 6.75competitive strength and a total revenue percentage of 46.30% will occupy half if the first and second box on the top of the first and second column. Europe with competitive strength of 5.05 and an industrial attractiveness of 5.85 and 60% revenue will occupy the middle box in the middle column in the middle row. The developing market which has a competitive strength of 5.25, industrial attractiveness of 6.55 and a total revenue of 29.10 % will occupy the middle box in the middle column. In the United Stated, which is the major consumer of their products the competitive strength of beverages is 4.85, industrial attractiveness is 4.5 and the total revenue is 5.50% it will occupy the middle column at the top of the second row. The competitive strength of cheese is 5.9, industrial attractiveness is 5.8 and a total revenue of 7% it will occupy half of the first column and second column and half of the first box and second box on the top row (Keenan, 2014). Grocery in the United Stated have a competitive strength of 6.85, industrial attractiveness of 7.05 and a total of 6.6% revenue it will occupy the same portion as cheese in the matrix, snacks in the unites states will occupy the same proportion as that occupied cheese and grocery

Mondelez international exhibits, a good strategic fit. All the brands which can also be referred to as business units share the purchasing power from suppliers. All the business unit under the Mondelez international share the same technology, therefore there is an opportunity for cost sharing in the Mondelez international. All the brand names under Mondelez international collaborate in order to enhance performance. They have a solid strategy and plan in place that guides then. They are competent as their chairwoman, Irene Rosenfeld comments in her speech. Mondelez international would have failed if all the brands under its name would fail to collaborate with each other therefore, the fact that Mondelez international is still in operation shows that these brands corporate to enhance the performance of Mondelez international (In Adhikari, 2018). All the business units under Mondelez share marketing power and, also share the channels of distribution and all brands under their mane share a direct or indirect customer service with Mondelez international.

The shareholders of Mondelez have greatly benefited from the spin-off of the company’s North America grocery business. One of the core strategies of Mondelez international after it became an independent company was to increase the dividends of their shareholder it is possible that Mondelez international was able to increase the dividends of their shareholders.  The results of the first quarter of 2017 showed stabilizing revenues and operating profit increased from $722 million to $840 million. An increase in profits means that the shareholders will be able to get more dividends. The senior management of the company believed that the company’s strategy to increase shareholders dividends was still in track.in December 2016 the companies share had spiked by 12%and by 2017 the shares had spiked again and the company was confident they would achieve their strategy (In Adhikari, 2018). Among their top strategy was to expand and diversify its acquisitions. Throughout history they have been able to do so. And becoming a large company with many brands under it has slowed its growth rate.

            Mondelez international is facing many strategic issues. These issues facing Mondelez international include their failed attempt to buy Hershey a chocolate making company that would have made them the world’s largest producers of candy. A merge they made in 2015 with Heinz food is working at a disadvantage for them since this company’s processed foods are losing grounds. Mondelez international has been facing pressure from some of their investors such as Ackman who is complaining about the company’s low growth rate. The main strategic issue affecting the company is the company’s slow growth and failure to increase their operating profits, this raises concerns and makes investors such as Ackman to place pressure on the company.  Shareholders of Mondelez international have benefited from spinning off their business (In Adhikari, 2018). Since the year 2007 they have gotten an increase on dividends because segments such as North America have been able to bring forth great profit margin and the United States has continued to consume their products and have been their best market.

It is advisable that Mondelez international focus on growing brands they have rather than acquiring new brands. They have enough brands under their name and their main strategy should be to ensure high returns from the already existing brands in order to raise more dividends for their shareholders.  They should also strategize on how they will spin-off those brand names under their name, but are not bringing profits they are just slowing the growth of the other profit bringing brands.  Spinning off these slowly growing brands would give freedom to already established brands and give them a better opportunity to operate efficient and maximize its profits therefore benefiting its shareholders. It is also recommendable for the business to improve their marketing and promotional strategies in countries where they are facing stiff competition in order for them to be able to deal with the competition. The company should also reevaluate its weaknesses and find ways on how they can cope and deal with the problems arising in the markets (Hitt, Hoskisson, & Ireland, 2015). They should also promote the developing segments so that they can establish a broader market in them.

Its is a company with laid out goals and shareholders have a high chance of getting higher dividends if they choose to invest in them. In 2015 they laid out their 2020 goals. Some of these goals were to reduce carbon emission and deforestation in producing products that are in their brands. The company would focus on efforts to reduce water usages and reduce the wastes that comes from their manufacturing and packaging. They were putting a new strategy of promoting the moderation of their products in place. They put in place a sustainability strategy among their many goals that they were looking forward to achieving. In 2017 when they were announced to be among the top world snack producers, they had achieved some of the strategies they had put in place. Despite the tough market conditions, they had been able to deliver top line organic growth and were able to expand their margins (Hitt, Hoskisson, & Ireland, 2015). It promises to remain focused to deliver long term profits to their shareholders which was the core strategy after the spin-off from its North America business.

Conclusion

            Kraft foods is a large company that resulted from a series of mergers. It became an independent company in the year 2007 and in 2012 after a spin-off of its North America business it was renamed Mondelez international. It put many new strategies in place, one of the core strategies was to maximize the profits of their shareholders. Mondelez international also focused in promoting their iconic brands in the international market while promoting the upcoming brands in the regional market. Mondelez international exited its coffee business, but still maintained a stake of ownership on the new coffee business. This spin-off was accountable for many of the changes that occurred in the operating profits of the business. In order to deal with competition, it has divided its market into four segments. In a 9-cell industry attractiveness/ business strength matrix North America segment ranged higher than all the segments. It has been able to maximize the dividends of the shareholders, although not fully because of its slow growth rate. It is facing many strategic issues that need to be confronted for them to be able to achieve the strategies they put into place after spinning of the North America grocery business. It is recommendable for the business to spin-off its slowly growing business so it can focus on the already established brands that will maximize their profits fully this will also facilitate a fast growth. It is also recommendable for them to identify the weaknesses of their products so they can work on them.

 

 

References

Hitt, M. A., Hoskisson, R. E., & Ireland, R. D. (2015). Strategic management: Competitiveness    & globalization. Stamford, CT: Cengage Learning.

In Adhikari, A. (2018). Strategic marketing issues in emerging markets. Singapore: Springer.

Johnson, R. S. (2014). Equity markets and portfolio analysis. Hoboken, New Jersey: Bloomberg Press: Wiley.
Thain, G., & Bradley, J. (2014). FMCG: The power of fast-moving consumer goods.
            Sarasota, FL: First Edition Design Publishing.

Keenan, T. P. (2014). Technocreep: The surrender of privacy and the capitalization of intimacy.
            Vancouver; Berkeley: Greystone Books.

Thompson, A. A. (2013). Crafting and executing strategy: The quest for competitive advantage; concepts and cases. Maidenhead: McGraw-Hill.