Mondelēz International

Mondelēz International

Formerly called	J. L. Kraft & Bros. Co. National Dairy Products Kraft Foods Inc.
Type	Public
Traded as	NASDAQ: MDLZ
Industry	Food processing
Predecessor	Kraft Foods Inc. (1903–2012)
Founded	December 10, 1923 (1923-12-10) in Chicago, Illinois
Founder	Thomas H. McInnerney
Headquarters	Deerfield, Illinois, United States
Area served	Worldwide
Key people	Irene Rosenfeld, Chairman and CEO
Revenue	$33.2 billion (2014)[1]
Operating income	$2.75 billion (2014)[1]
Profit	$2.18 billion (2014)[1]
Total assets	$72.56 billion (2013)
Total equity	$32.37 billion (2013)
Website	www.mondelezinternational.com

Mondelēz International (/ˌmoʊndəˈliːz/)^[2] is a multinational confectionery, food and beverage conglomerate based in the United States which employs about 107,000 people around the world. It consists of the global snack and food brands of the former Kraft Foods Inc after the October 2012 spin-off of its North American grocery operations. The Mondelēz name, adopted in 2012, was suggested by Kraft Foods employees and is a combination of the words for "world" and "delicious" in Romance languages.^[3][4]

Mondelēz International manages snack brands worldwide, including cookies and crackers (Oreo, Chips Ahoy!, TUC, Belvita, Triscuit, Club Social, Barni and Peek Freans); chocolate (Milka, Terry's Chocolate Orange, Côte d'Or, Toblerone, Cadbury Dairy Milk and Pavlides Lacta), and gum and candy (Trident, Dentyne, Chiclets, Halls, Stride and Cadbury Dairy Milk Eclairs). The company, headquartered in the Chicago suburb of Deerfield, Illinois,^[5] manufactures chocolate, biscuits, gum, confectionery, coffee and powdered beverages. Mondelēz International's portfolio includes several billion-dollar brands such as Cadbury (acquired in 2010) and Milka chocolate, Toblerone, Nabisco and Oreo cookies, LU, Tang powdered beverages and Trident gum. The company, with an annual revenue of about $36 billion, operates in more than 80 countries.

Mondelēz Canada holds the rights to Christie Brown and Company, which consists of brands such as Mr. Christie and Dad's Cookies. Its head office is in Mississauga, Ontario, with operations in Scarborough and Montreal.

History

Origins

Mondelēz International is rooted in the National Dairy Products Corporation (National Dairy), which was founded on December 10, 1923, by Thomas H. McInnerney.^[6] The company was formed to execute a rollup strategy in the fragmented United States ice cream industry, and with acquisitions it expanded into the full range of dairy products.

McInnerney operated the Hydrox Corporation, a Chicago ice-cream company. In 1923 he went to Wall Street to ask investment bankers to finance his plan to consolidate the United States ice-cream industry. McInnerney initially encountered resistance, with one banker disparaging the dairy industry. He persevered, convincing a consortium (including Goldman Sachs and Lehman Brothers) to finance a rollup strategy.^[7] As a result, National Dairy was formed with the merger of McInnerney's Hydrox with the Rieck McJunkin Dairy Company of Pittsburgh. The company was listed on the New York Stock Exchange, with its initial public offering of 125,000 shares oversubscribed.^[6]

National Dairy grew quickly through a large number of acquisitions; typical of a rollup strategy, acquisitions were primarily for National Dairy stock instead of cash. The company acquired more than 55 firms between 1923 and 1931, including:

Kraft

Kraft Foods logo, used on Kraft products

Born in Stevensville, Ontario in 1874, James L. Kraft emigrated to the United States in 1903 and began a wholesale door-to-door cheese business in Chicago. His first year of operations was "dismal", when he lost $3,000 and a horse. However, the business took hold and Kraft was joined by his four brothers to form the J. L. Kraft and Bros. Company in 1909.

In 1912, the company established a headquarters in New York City to prepare for international expansion. By 1914 31 varieties of cheese were sold across the US, and Kraft opened a subsidiary cheese factory in Illinois.^[8] In 1915 the company developed pasteurized processed cheese, which did not require refrigeration and had a longer shelf life than conventional cheese.^[8] The following year Kraft began national advertising and made its first acquisition, a Canadian cheese company.^[8]

In 1924, the company changed its name to the Kraft Cheese Company and was listed on the Chicago Stock Exchange.^[8] Two years later, it was listed on the New York Stock Exchange. Kraft then began to consolidate the US dairy industry through acquisition, competing with National Dairy and Borden. Acquisitions included:

In 1928 Kraft acquired the Phenix Cheese Company, manufacturer of Philadelphia cream cheese, and changed its name to Kraft Phenix. The following year, The New York Times reported that Kraft Phenix, the Hershey Company and Colgate were considering a merger.^[9]

By 1930, Kraft Phenix controlled 40 percent of the US cheese market in the US and was the country's third-largest dairy company (after National Dairy and Borden). That year the company began operating in Australia, after a merger with Fred Walker and Company.^[8]

National Dairy acquisition of Kraft-Phenix

At the 1930 acquisition National Dairy had sales of $315 million, compared with $85 million for Kraft Phenix. National Dairy management ran the company. After the acquisition the company was known as National Dairy until 1969, when it was renamed Kraftco.^[10]

Although the company's sales were historically dairy products, its product lines began to diversify from dairy products to caramel candies, macaroni-and-cheese dinners and margarine. During the 1950s, it began to move away from low-value-added-commodity dairy products such as fluid milk.^[11]

In 1933, National Dairy began advertising on radio. Two years later Sealtest ice cream was introduced as a national brand, replacing the company's regional brands.^[8]

During World War II, the company sent Britain four million pounds of cheese weekly.^[8] Around this time, Thomas McInnerney and James L. Kraft died; in the late 1950s National Dairy further diversified, acquiring Metro Glass in 1956.^[8]

In 1947 the company sponsored an hour-long drama-anthology series, Kraft Television Theatre. The product advertised on the program, MacLaren’s Imperial Cheese, was selected because " ... [it had] not only had no advertising appropriation whatsoever, but had not even been distributed for several years". According to internal documents of J. Walter Thompson (the advertising firm which conceived the marketing test), "Although there was no other advertising support for it whatsoever, still grocery stores could not keep up with the demand."^[12]

During the 1960s Kraft introduced fruit jellies, fruit preserves, marshmallows, barbecue sauce and Kraft Singles, individually wrapped cheese slices.^[8] During that decade the company expanded, acquiring Dominion Dairies of Canada in 1961 in its first effort to expand into fluid milk and ice cream outside the United States.^[13]

National Dairy becomes Kraft

In 1969, National Dairy changed its name to Kraftco Corporation: "Expansion and innovation have taken us far afield from the regional milk and ice cream business we started with in 1923. Dollar sales of these original products have remained relatively static over the past ten years and, in 1969 accounted for approximately 25% of our sales."^[14] The company moved to Glenview, Illinois in 1972;^[8] four years later its name changed to Kraft as part of a reorganization, emphasizing its trademark.^[8]

Dart merger

In 1980 Kraft merged with Dart Industries, manufacturers of Duracell batteries, Tupperware plastic containers, West Bend home appliances, Wilsonart plastics and Thatcher glass, to form Dart and Kraft.^[8] During the decade the company offered mixed results to its shareholders, as new acquisitions in the food business (such as Churny cheese, Lender's Bagels, Frusen Gladje ice cream and Celestial Seasonings tea) slightly offset its lagging nonfood business (Tupperware and KitchenAid). Dart and Kraft spun off its nonfood business (except Duracell) into a new entity (Premark International) and changed its name back to Kraft. Premark was bought by Illinois Tool Works in 1999. In 1988 Kraft sold Duracell to private equity firm Kohlberg Kravis Roberts, which included it in a 1989 initial public offering.^[8]

Philip Morris acquisition and merger with General Foods

Kraft Foods factory in Banbury's Ruscote estate. It has been a major employer in the town since 1965.^[15]

At the end of 1988, Philip Morris purchased Kraft for $12.9 billion. The following year Kraft merged with Philip Morris's General Foods unit (manufacturers of Oscar Mayer meats, Maxwell House coffee, Jell-O gelatin, Budget Gourmet frozen dinners, Entenmann's baked goods, Kool-Aid, Crystal Light and Tang powdered beverage mixes, Post Cereals, Shake 'n Bake flavored coatings and other packaged foods) as Kraft General Foods. Product development slowed after the merger, due to the company's size.^[8]

In 1990, the company acquired Jacobs Suchard (a large European coffee and confectionery company) and Freia Marabou (a Scandinavian confectionery maker) to expand overseas. Three years later it acquired RJR Nabisco's cold-cereal business (primarily Shredded Wheat and Shreddies cereals), selling the Breyers ice-cream division to Unilever and the Birds Eye unit to Dean Foods. In 1994 the company sold its frozen-dinner unit to Heinz, and the following year it sold its food-service unit.^[8]

In 1995, the company changed its name to Kraft Foods and sold its bakery division (except Lender's Bagels, which was sold to CPC International the following year), its candy division and its table-spreads division. Log Cabin Syrup was sold in 1997.^[8]

Business moves

In 2000, Philip Morris acquired Nabisco for $18.9 billion and merged the company with Kraft Foods.^[8] Four years later it sold its sugar confectionery division to the Wrigley Company, divesting Milk-Bone and some grocery brands in 2006 and Cream of Wheat, its juice drinks and Fruit2o in 2007.

Investor Nelson Peltz bought a three-percent stake at Kraft Foods, and explored revitalizing the company^[16] by acquiring the Wendy's fast-food chain or selling Post cereals and Maxwell House coffee.^[16] In July 2007, the company bought Groupe Danone's biscuit and cereal division (including the French biscuit brand Lefèvre-Utile) for $7.2 billion.^[16][17] Although PepsiCo's planned hostile takeover of the French company two years earlier had sparked protest, Kraft's announcement was received differently (in part, because Kraft agreed not to close French factories and to keep the merged divisions' headquarters near Paris for at least three years.^[16]

In February 2008 Berkshire Hathaway, run by investor Warren Buffett, announced that it had acquired an eight-percent stake in Kraft (then worth over $4 billion); Buffett's business partner, Charlie Munger, had also invested over $300 million in Kraft. According to the holding company's 2010 annual report, Berkshire Hathaway owned 5.6 percent of Kraft Foods' outstanding stock.^[18] On September 22, 2008, Kraft replaced American International Group on the Dow Jones Industrial Average.^[19]

Yvonne Hiller, a Kraft employee angered over a suspension, shot three co-workers (killing two) in the Philadelphia factory where she had worked for 15 years on September 10, 2010.^[20] In March 2011 the company introduced MiO, a sugar-free, noncaloric liquid flavoring product.^[21] Although it had no artificial flavors, unlike its competitors it had artificial colors, sweeteners and preservatives.^[22]

Cadbury purchase

On September 7, 2009 Kraft made a hostile £10.2 billion takeover bid for the British confectionery group Cadbury, makers of Dairy Milk and Bournville chocolate.^[23] On November 9 the company's bid (then £9.8 billion) was rejected by Cadbury, which called it a "derisory" offer.^[24] Kraft renewed the offer on December 4.^[25] It had significant political and public opposition in the United Kingdom and abroad, leading to a call for the government to implement economic protectionism in large-company takeovers.^[26] On January 19, 2010, Cadbury approved a revised offer from Kraft which valued the company at £11.5 billion ($19.5 billion). Some funds for the takeover were provided by the Royal Bank of Scotland, the British partially state-owned bank.^[27]

The Cadbury purchase was part of the long-term strategy of Irene Rosenfeld, CEO and Kraft chairman since March 2007, who developed a three-year turnaround plan to increase Kraft Foods' profits.^[28] Rosenfeld wanted to develop new markets and expand Kraft's product range when she became chairman. It was assumed that the purchase of Cadbury would help Kraft products in new markets, such as Brazil and India, because of Cadbury’s presence in those markets.^[29] India is one of its most resilient markets, with 20-percent sales growth and a 30-percent increase in profits.^[30] Kraft believed the Cadbury purchase was necessary because of the likelihood of a Nestle-Hershey merger, and it could generate annual savings of at least $675 million by the end of the third year.^[31] Rosenfeld saw the Kraft-Cadbury merger as the "logical next step in our transformation toward a high-growth, higher-margin company" to build a "global powerhouse in snacks, confectionery and quick meals."^[32]

The Cadbury purchase gave Kraft 14.8 percent of the global candy and gum market, and the company wanted to avail itself of Cadbury distribution in the developing markets of India, Brazil and Mexico.^[33] As incomes rose in those developing countries, Kraft hoped that products such as Oreos would become impulse buys for children.^[33] Mars was second in the confectionery market with 14.6-percent share, followed by Nestle with 7.8 percent.^[34]

At the time of the purchase the chocolate and sugar industry had been growing at a 15-percent annual pace for the previous three years, and was valued at $113 billion.^[35] Although its Cadbury purchase was considered odd because Kraft did not have a foothold in the confectionery market, the company noted its production of confectionery foods such as Toblerones and baked snacks such as Oreos. Cadbury also owned chewing-gum brands, such as Stride, Trident, Dentyne and Chiclets.^[36] Cadbury chairman Roger Carr explained his approval of the takeover: "We believe the offer represents good value for Cadbury shareholders and are pleased with the commitment that Kraft Foods has made to our heritage, values and people throughout the world".^[37]

Cadbury sales were flat after Kraft’s acquisition. Despite the Cadbury takeover's helping to boost sales by 30 percent, Kraft's net profit for the fourth quarter fell 24 percent (to $540 million) due to costs associated with integrating the UK business after the acquisition.^[38] Kraft spent $1.3 billion on integration to achieve an estimated $675 million in annual savings by the end of 2012.^[39] Kraft increased prices to offset rising commodity costs (for corn, sugar and cocoa) in North America and Europe. According to Rosenfeld]], "We expect it will remain weak for the foreseeable future". Taking into account integration costs, the acquisition reduced Kraft's earnings per share by about 33% immediately after the Cadbury purchase.^[38]

On March 17, 2010, Kraft Foods said it was "truly sorry" for its closure of Cadbury's Somerdale Factory. Senior Kraft executive Marc Firestone made the public apology to MPs at a parliamentary select committee hearing.^[40] In March 2011 Kraft closed the plant, listing the site for £50 million and outsourcing production (which the company had promised not to do) to Poland. Although former Cadbury workers demanded an apology for the plant's abrupt sale, Kraft CEO Irene Rosenfeld did not explain the company's action.^[41] Kraft uses the Cadbury brand in emerging markets to expand its product range, planning to invest $150 million in South African manufacturing plants over three years in April 2011. President Sanjay Khosla said, "South Africa is a priority market for us, where we focus on power brands like Cadbury chocolate".^[42]

Sale of frozen-pizza division

On March 1, 2010, Nestlé purchased Kraft's North American frozen-pizza division for $3.7 billion. Although Kraft stipulated a one- to three-year buyback option, it did not exercise the option. The sale included the DiGiorno, Tombstone and Jack's brands in the United States; the Delissio brand in Canada, the California Pizza Kitchen license and manufacturing facilities in Medford and Little Chute, Wisconsin. In 2009 the business, with 3,400 employees, had a net revenue of $1.6 billion.^[43]

Kraft Foods Group and Douwe Egberts

Former Kraft Foods logo

In August 2011 Kraft Foods announced plans to split into two publicly traded companies, one snack-food and the other grocery.^[44] The company changed its name to Mondelēz International, specializing in snack foods, in October 2012 and a second company (Kraft Foods Group, specializing in grocery items) was split off.^[45] Kraft Foods Group later merged with Heinz to become Kraft Heinz. In 2014, the company announced a merge of its coffee business with the Dutch firm Douwe Egberts;^[46] the company would be named Jacobs Douwe Egberts. This actually happened on July 6, 2015.^[47]

Controversies

Trans-fat litigation

In 2003, a California lawyer sued Kraft for using trans fat in Oreo cookies.^[48] When Kraft Foods announced a trans-fat-free reformulation of Oreos after the lawsuit was filed, it was dropped. The company denied that the change was made in response to the lawsuit, noting that the reformulation had been planned long before the lawsuit.^[49]

In 2010 two California residents, Evangeline Red and Rachel Whitt, filed a class action lawsuit against Kraft Foods for claiming that certain products are healthy when they contain trans fat. Kraft denied any wrongdoing, saying that all packaging claims are true and legal, after the plaintiffs claimed that Kraft mislabeled Vegetable Thin and Ritz crackers as "made with real vegetables".^[50]

Teddy Grahams, varieties of Ritz Crackers, Honey Maid Grahams, Premium Saltines, Ginger Snaps, and Vegetable Thins contained trans fats, with Kraft presenting the products as healthy with phrases such as "wholesome choice", "sensible snacking" and "made with real vegetables". The plaintiffs argued that the claims violated the California Unfair Competition Law, Consumer Legal Remedies Act and False Advertising Law.^[51][52]

The lawsuit cited scientific consensus on the health effects of trans fats, which cause coronary heart disease^[53] and has been linked to type 2 diabetes^[54] and some types of cancer.^[52][55] According to the American Heart Association, there is "no safe level" of trans fats in the diet.^[56]

Based on trans fats and other unhealthy ingredients in Kraft products, the lawsuit argued that:^[52]

• Health claims such as "a wholesome choice" (on Teddy Grahams) and "sensible snacking" (on several products) are false.
• "No cholesterol" claims are misleading, because they imply that the snack is good for cholesterol levels when trans fats are worse for cholesterol health than dietary cholesterol.
• Claims such as "made with real vegetables" or "real ginger and molasses" are misleading, because the products contain less of those ingredients than trans fats.
• Although Teddy Grahams packaging claimed to be a "good source of calcium, iron and zinc to support kids' growth and development", the claim was deceptive because its trans-fat content outweighed the minerals' benefit.
• Phrases such as "whole wheat" and "graham" implied health benefits the products do not possess.
• On each package, some individual claims may be true but add to the deceptive message of overall healthfulness.

Kraft denied any wrongdoing, and its response briefs emphasized that its claims were technically true. Vegetable Thins were "made with real vegetables", and the company argued that the statement could not be considered misleading. Kraft used a similar argument for claims such as "good source of calcium, iron and zinc to support kids' growth and development" and "whole wheat".

About several packaging claims, Kraft argued that the statements could not be proven true or false; for example, the word "wholesome" is subjective. Promotional statements too vague to prove or disprove (known as puffery) are not actionable under law; Kraft argued that "wholesome," "sensible" and "smart" are puffery, and could not be found misleading or deceitful.^[57] The class action received $11,000 of its requested $1.8 million.^[58]

Political campaign

In 2012, Kraft contributed $1,950,500 to a $46 milli annett balling on political campaign known as "The Coalition Against The Costly Food Labeling Proposition, sponsored by Farmers and Food Producers" ^[59] The organization was founded to oppose Proposition 37, a California citizen's initiative mandating the labeling of foods containing genetically modified ingredients. As a result, there were calls for a boycott of Kraft products.^[60]

Environmental record

For years Kraft purchased paper for its packaging from Asia Pulp & Paper, the third-largest paper producer in the world which was called a "forest criminal" for destroying "precious habitat" in Indonesia’s rain forest.^[61] In 2011, when Kraft cancelled its contract with Asia Pulp & Paper, Greenpeace executive director Phil Radford commended the company for "taking rainforest conservation seriously".^[62]

Wheat futures price-fixing allegation

The US Commodity and Futures Commission (CTFC) alleged that Mondelēz International and its former subsidiary, Mondelez Global, bought $90 million (£61 million) of wheat futures with no intention of taking delivery. According to the CTFC, the purchase raised the price of the commodity and earned the company $5.4 million.^[63]

Recalls

In September 2000, up to $50 million worth of taco shells were recalled by Kraft from supermarkets and Taco Bell restaurants. The shells contained genetically modified corn, which was not approved for human consumption by the Food and Drug Administration, and the recall was the first of a genetically modified food. The corn was supplied to a plant from which Kraft bought the shells.^[64]

In April 2009, Kraft Foods recalled products containing pistachios after the discovery of salmonella at one of its Illinois manufacturers. Kraft pinpointed as the source a California pistachio grower, which initially recalled over 2,000,000 pounds (910,000 kg) of nuts before broadening the recall to much of its 2008 crop.^[65][66] A Washington Post editorial credited the "aggressive food safety system at Kraft Foods" with effectively addressing the danger.^[67] In September 2011, Kraft recalled over 130,000 cases of Velveeta Shells and Cheese microwaveable cups because of possible wire bristles in the cups.^[68]

References

External links

• Official website
• Mondelēz International on Facebook
• New York Times article about Mondelez name and rebranding
• Kraft Foods Canada
• Mr. Christie brands