Kraft considering confectionery sell-off

Related tags Confectionery business Nabisco Kraft foods

Kraft Foods, the biggest packaged foods producer in North America,
is thought to be mulling the sale of its confectionery business,
including the Altoids and Life Savers brands, as part of a move to
focus on a smaller number of stronger brands. And with the
company's latest results revealing further declines from the sugar
confectionery business, the sale looks ever more likely.

The sale, which is yet to be confirmed by Kraft, is likely to attract a number of major confectionery companies, including compatriots Hershey and Wrigley, as well as British group Cadbury Schweppes. But the brands are not likely to come cheap - press reports suggest they are likely to attract a price tag of at least $1 billion.

Despite Altoids' British heritage - the brand was created by a London-based company called Smith & Company in the 1780s but eventually became part of the Callard & Bowser company, itself now a unit of Kraft's Suchard confectionery business - it is not particularly well known outside the US, where the brand was introduced in 1918.

Like a number of other leading packaged goods producers - notably Unilever - Kraft is keen to reduce the number of brands in its portfolio and focus only on those with the best geographical reach and growth prospects, and neither Altoids nor Lifesavers fit that particular bill.

That said, with sales thought to be in excess of $600 million (Kraft does not give sales breakdowns by brand so any figures are, of necessity, estimates), the two brands are still likely to be of interest to larger groups with a confectionery focus seeking to strengthen their position in the US market.

There is no suggestion, yet, that Kraft will consider a complete withdrawal from the confectionery market - it also owns the Suchard chocolate business, with brands such as Milka and Toblerone - but its snacks business is certainly more focused on savoury brands such as Chips Ahoy and Ritz or on biscuits such as Oreos.

Dropping the chocolate brands into the mix along with the sugar confectionery would certainly make the package more attractive to potential buyers, but with Suchard a prime example of the sort of international brand on which Kraft is looking to focus, such an eventuality seems remote, at least at the moment.

The one factor which could play a major part in Kraft's final decision over what brands to sell is, of course, the performance of the confectionery business as a whole. In the most recent quarter - the three months to 30 September - the US snacks business (which includes confectionery, savoury snacks and biscuits) was the company's worst performing unit, with revenues up just 0.9 per cent to $1.2 billion, despite a 3.5 per cent gain in volumes.

Kraft said that this disparity came from the very poor performance of its confectionery business (offset by solid growth from the snacks arm), where volumes "were down high single digits due to category softness, increased competition and difficult prior year comparisons"​.

Commodity price increases, higher marketing costs (primarily needed to 'reinvent' confectionery products in the light of the US obsession with low calorie and low-carb foods) and costs related to the withdrawal of a number of minor brands also took their toll.

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