Summary
Cadbury has become the target of intent of Kraft, so Kraft might grow their top line. Cadbury has made itself a confectionary pure play. It divested its beverage business to follow this path. It currently accounts for 10% of the $150 Bn global market and by most analysis, ranks third behind Mars and Nestle. While this would appear to give them the potential for growth, those prospects might not come as easily as anticipated in a very segmented market place.
Analysis
Cadbury has the stated intent of becoming the largest confectionery player globally, and to maintain their present growth and earnings rates. To do this they must overcome the maturity of the markets they derive the majority of their business from and grow at an even greater rate in emerging markets. They have outlined their strategy to do this as making acquisitions to supplement their portfolio in a "bolt on approach".
Presently the forecast for growth in the BRIC markets is 5% (to $26B). Other emerging markets will growth at faster rates but from smaller bases and over longer time lines. Another impediment to this approach is beyond the top ten companies the rest of the market is a fairly large number of small players. In the list of the top 100 companies the cut off is $70M. The #11 company has $1.1 Bn in revenue and you hit the millions of dollar mark at #17. The top company in what might be considered emerging is #12 the Ulker Group (owner of Godiva) in Istanbul ($1.5Bn) followed by #14 Arcor in Buenos Aires ($1.3Bn) and #16 United Confectioners in Moscow ($1Bn).
As everyone else, Cadbury needs to make a significant impact on the BRIC markets. At present China only represent 1% of the chocolate market and the other products only slightly higher. A 50% increase in consumption (from 1 lb of chocolate to 1.5) yields significant revenue increases. India is at about the same levels with Brazil and Russia being closer to the mature markets.
What should Cadbury do?
- Acquire companies that have significant business and capacity in China, India and the rest of Asia - Lotte, Barry Callebaut or Crown
- Make an acquisition in Latin America such as Arcor
- Continue to expand their present product lines into these areas especially gum
- Move into the fastest growth segment - better for you products (beyond the heart health aspects of chocolate). Develop product lines or buy companies in these markets (Cliff Bars) to grow revenue in mature markets as well as emerging markets
- Go upscale in mature markets for higher margins with premium unique products. Some have approached this by licensing high image names for new products.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
