Mondelēz has big plans for smaller platforms

by Josh Sosland
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belVita has become one of the company's most successful product platforms.

BOCA RATON, FLA. — Innovation platforms that, from modest beginnings, generate hundreds of millions of dollars in sales, are at the heart of growth strategies at Mondelēz International, Inc., said Irene Rosenfeld, chairman and chief executive officer.

In a Feb. 17 presentation, Ms. Rosenfeld described past, current and what she expects will be future success following this template. She spoke at the 2015 annual conference of the Consumer Analyst Group of New York at the Boca Raton Resort and Club in Boca Raton.

Even with long-established powerhouse brands generating annual sales of $34 billion, new products account for a significant part of the company’s business, Ms. Rosenfeld said.

“Over the last few years, innovation has accounted for about 13% of our revenue,” she said. “That includes platforms such as belVita biscuits, and Bubbly chocolate bars. belVita has been one of our most successful global innovation platforms in the last five years. We’ve taken belVita from a small, LU biscuit brand in France at the time of acquisition and transformed it into a global platform that leverages the benefits of proprietary technology to sustain energy throughout the morning. We launched belVita in the U.K. in 2011 and created a new mainstream biscuit occasion at breakfast. We then introduced it in other European markets and in North America in 2012, where it’s grown into nearly a $200 million business. Today belVita is sold in 54 countries and generates $650 million in revenue. It’s grown about 35% (annually) since 2011.”

Bubbly chocolates have driven category expansion and growth of the company's core chocolate products.

Bubbly is the aerated chocolate platform at Mondelēz. Available in more than 50 countries, Ms. Rosenfeld called it “another success story,” generating sales without simply cannibalizing existing chocolate business.

“Nearly everywhere Bubbly is sold, it delivers incremental sales by driving both category expansion and growth of our core chocolate products,” she said. “Bubbly is a prime example of how we leverage one product format and offer it successfully under a variety of iconic brand names. Today Bubbly is a $200 million platform, sold under Cadbury Dairy in the U.K., Milka in Germany, Lacta In Brazil, and Alpen Gold Russia.”

Newer in the company’s new product pipeline is Marvelous Creations, an innovation platform Ms. Rosenfeld said Mondelēz is now in the process of taking global.

“The concept is simple — a tasty mix up of chocolate with bits of candy,” she said. “We initially launched Marvelous Creations in 2012, under Cadbury Dairy Milk in Australia. We were generating about $40 million in sales. Just like Bubbly, Marvelous Creations proved to be highly incremental, so in 2013 we launched it in the U.K. under Cadbury Dairy Milk and in Germany under Milka. Last year we introduced it in Canada and Russia. So far this year, we’ve launched it in South Africa and Egypt. We expect to roll out Marvelous Creations in other countries in the coming years and anticipate it will become a $500 million platform for us by 2018.”

Ms. Rosenfeld said Mondelēz earlier this year implemented a consistent category-led model in all of its regions.

“Now that it’s in place, we’ll be able to move even faster in bringing proven ideas to market,” she said. “Specifically, the operating model will improve our ability to rapidly adopt best practices across regions, to accelerate growth of our power brands and innovation platforms, and simplify and standardize processes to drive speed and reduce costs.”

Innovation was one of several levers Ms. Rosenfeld described at Mondelēz as keys for growth at the company. Other steps include the discontinuation of low-margin product lines and ongoing simplification of stock-keeping units. She said these efforts will result in near-term sales declines, estimated at 1 percentage point in 2015.

At the same time, she said the company’s focus on its so-called “power brands” is crucial if the company is going to maximize growth longer term. The brands accounted for 62% of Mondelēz net revenue in 2014.

“Over the past few years they have grown on average about twice as fast as the overall company,” Ms. Rosenfeld said. “Power brands also carry higher operating margins that are at least 100 to 200 basis points above non-power brands. For these reasons, we put most of our advertising support behind them (about 80% of spending in 2014).”

Similarly, Ms. Rosenfeld described how the company’s merger and acquisition activity will fuel growth. She said the company’s major coffee joint venture, still subject to regulatory clearances, will mean snacks will account for 84% of Mondelēz sales, up from 75% at present. More importantly, she said shedding coffee from the operating portfolio of Mondelēz will allow the company to “optimize capital allocation by better focusing our resources on our core snacks businesses.” At the same time, Mondelēz “will be able to participate in the future growth of the coffee category with our minority interest in the j.v.,” she said.

Acquisition targets are selected with the objective of strengthening Mondelēz’s positions in categories and countries, Ms. Rosenfeld, citing Kinh Do in the latter category. The pending acquisition is expected to close at mid-year, she said.

“With about $175 million in sales, Kinh Do is one of the largest snack companies in Vietnam, a fast growing market of 90 million consumers, more than half of whom are under 30 years old,” she said. “In addition to leveraging Kinh Do’s iconic brands and leading positions in biscuits and moon cakes, we’ll invest to introduce our power brands into their distribution network covering 130,000 outlets.”

While most Mondelēz acquisitions going forward will be in emerging markets, Ms. Rosenfeld said the company would “continue to seek opportunities to fill portfolio gaps in developed countries.”

Along those lines, she discussed the pending acquisition of privately-held Enjoy Life Foods, a move announced just one day before her presentation.

“With sales of about $40 million, Enjoy Life is the market leader in the ‘free-from’ snacking category, that is snacks that are free of eight of the most common food allergens,” she said. “The move is consistent with our strategy to expand into fast growing, on-trend, better-for-you areas. While we expect to operate this business on a stand-alone basis, we’ll use our consumer resources to improve marketing and packaging, leverage our sales and distribution network to make Enjoy Life products more widely available across the U.S. and look for new opportunities to expand internationally.”
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