The firm performed below expectations in its first full financial year and at the Consumer Analyst Group of New York (CAGNY) conference it laid out its growth strategy for North America, which accounts for 20% of the company’s total sales.
The North American business
Mark Clouse, president of Mondelez’s North America business, said: “Our first objective is to deliver sustainable revenue growth and outpace our competitors. This means growing at or above the category.”
Reported net revenues for Mondelez in North America increased 1.3% in fiscal 2013. The company’s sales were below the rate of growth in most of its operating categories.
In calendar 2013, the overall biscuit sector in North America grew value sales by 2.6%, chocolate and candy both grew 3.3%, while gum declined 2.8%, according to Euromonitor International data.
Mondelez’s North American business is predominantly driven by biscuits, followed by gum and candy, while chocolate represents only 5% of sales. $6bn of the firm's North America sales come in the US and the other $1bn in Canada.
Mondelez’s North American biscuit share is 45%, around 2.5 times greater than its nearest competitor. In gum the company is behind Mars’ Wrigley, while it is the number three candy player.
Plant closures and Mexican factory
One of Mondelez’s big moves to improve its fortunes in the mature North American market is to restructure its manufacturing base.
“Our supply chain is complex with aging equipment. In fact, most of our lines are from the 1940s and the 1950s. We're operating with smaller bakeries, so we have an opportunity to modernize our footprints,” said Clouse.
The company is building the world’s largest cookie facility in Salinas, Nuevo Leon, Mexico, due for the fourth quarter. The plant will support Mondelez’s power brands such as Oreo in the Americas.
“When it opens, it's going to have five lines entirely focused on growth with a potential for up to 14 for further growth and expansion,” said Clouse.
Mondelez recently announced plans to close its Philadelphia Bakery in early 2015 and it shut its Lakeshore plant in Toronto last September. The firm also plans to invest $130m at plants in New Jersey and Virginia.
“Across our North American asset base, we expect to install 16 new biscuit lines over the next five years,” said Clouse.
The company hopes product launches will help rejuvenate category growth in gum. The firm will launch Stride Sour Patch Gum and Trident Unwrapped, a soft chew in bottle packaging.
The firm reported successful launches in 2013 with Cadbury Bubbly in Canada, and Triscuit Brown Rice, which had over $50m in sales last year in North America.
Sales and distribution
Mondelez said that its North America business would improve adjusted operating income margin from 14.9% to between 18% and 21% by 2016.
“The last building block of our plan is to optimize our distribution model,” said Clouse. He said that the company had too many warehouses that were built for the old Kraft Foods.
“For example, we had more inventory than we needed in the Midwest, despite the fact that our business skews east, because that's where the warehouse space was.”
Mondelez has exited three of its Midwest distribution centers and will close one more in Q3 this year.
Direct store delivery
Clouse said that the company’s direct store delivery (DSD) operation had helped its US biscuit category grow market share.
“We firmly believe it's a distinct competitive advantage. DSD doesn't make sense in every circumstance, but given the category dynamics of biscuits, our portfolio, innovation and scale, it creates a compelling return for us.”
Around 85% of the firm’s US biscuit business is sold through DSD, which it claims allows products to reach the shelf quicker.