CEO and chairman Irene Rosenfeld said at yesterday’s Citi 2013 Global Consumer Conference that actions in the next 3-5 years will be “how the winners will be determined” in emerging confectionery markets.
Around 40% of the company’s $35bn sales in 2012 came in emerging markets. The Kraft Foods snacks spin-off now plans to invest $100 million this year, $200 million in 2014 and up to $300 million in 2015 to foster further growth.
Rosenfeld said of emerging markets: “As GDP per capita grows it drives consumption of chocolates, biscuits and other snacks; that’s a great recipe for sustainably high growth rate.”
China: Land of biscuit opportunities
She said: “The essence of our $1 million business in China is a biscuits business with Oreo, with the cornerstone and we just keep plowing money into Oreo.”
Mondelez geographic priorities
Mondelez plans to bolster advertising behind Oreo to help it move into new Tier 3 and Tier 4 cities, which includes prefecture and county towns outside the biggest cities in the country. It is also gearing up to launch Golden Oreo and sees opportunities for the Oreo brand at Chinese New Year.
Last year, Mondelez launched Stride Gum in China. Rosenfeld said China was the second largest gum market in the world and was growing at a high double-digit rate.
She added: “We also have a very strong candy business in China. We don’t talk about it much, but it's a product called Eclairs. It's a milk chocolate candy and it's a couple hundred million dollars and we see tremendous continued growth in that franchise.”
Other emerging markets
Mondelez is also eyeing growth other emerging markets.
“In India for example, despite adding a 150,000 outlets to our coverage by the end of the year, we'll still only be covering one million out of the 7 million outlets that sell confectionary products,” said Rosenfeld, adding that Oreo had scope to move into Southern India.
“In Russia, we are expanding in to Siberia and other states and in Brazil, we are building distribution in the fast growing North-Northeast region,” she continued.
The company will focus marketing efforts on Lacta brand in Brazil, behind Jacobs in Russia and South Africa and on Tang in Asia and the Middle East. Cadbury Dairy Milk will be centerpiece in India.
The company also sees opportunities to bring proven platforms to new markets. “So things like bubbly chocolate with a smashing success in the UK, we rapidly took it to France, to Russia, to Brazil and now we are taking it to the balance of our strong chocolate markets,” said Rosenfeld.
“Another big focus of ours has been digital. Obviously in these emerging markets, the cell phone, mobile phone penetration is enormously high and the opportunity to access our consumers and develop our relationship is a big deal to us.” Mondelez has already devoted 10% of its marketing budget on digital media this year.
Competition from Nestlé and Hershey
”Competition in these [emerging] markets will intensify in the near-term,” said Rosenfeld.
Nestle has earmarked Africa and the Middle East as a future growth engine and plans to triple the business in this region by 2020. Hershey also placing a big bet on China, which it hopes will become its number two market behind the US in the next 5 years.
Supply chain reinvention
Some of Mondelez’s investment in emerging markets will be funded by supply chain improvements mainly in Europe and North America. The firm previously announced a $925m restructuring program that is understood to be about $125m complete.
“We need to reinvent our supply chain network,” said Rosenfeld.
She said this meant installing new production lines and adopting a Six Sigma technique (a manufacturing method developed by Motorola in the Eighties). The firm has hired and trained about 70 Lean Six Sigma experts to optimize its production lines.
Mondelez has already developed a modular production line for Oreo that can now be deployed globally. It also plans to apply its Milka manufacturing practices to Cadbury Dairy Milk, for which the conversion cost is currently three times higher “due to the complexity of the legacy Cadbury network”.
This will result in a margin of about 13% by 2015.