Food Companies

Ownership of many brands that grace the shelves in stores grocery stores which are foreign-owned may soon change hands with major corporate changes under way. Given the harsh economic reality of a strong $A and rising processing costs in Australia, the reshaping of global food company portfolios is a danger time for food processing jobs.

US-based Kraft Foods, which turns over about $50 billion in revenue, recently stunned the corporate world with plans to split in two. Kraft is still digesting the hotly-contested purchase of Cadbury made in 2009. Kraft will give birth to two companies - a North American grocery products business - which makes up about a third of its overall sales turnover - and a global snacks maker. The timing is interesting, but gives an insight into how the global landscape has forced a redesign of one of the biggest food groups in the world, which itself was spawned from a split several years ago. Those that rallied in defence of the takeover of Cadbury 18 months ago are claiming "told you so".
There has always been a lot of debate about the best way to build large, successful multinational food companies. That question alone – and the deals that been spawned from the issue – have kept planeloads of consultants busy for years.

Some say that it is better to be “diversified” or to operate as a conglomerate with a stake in many food sectors to protect against exposure to specific sectors of the economy or geographic regions. The likes of Kraft, Nestle, Unilever and General Mills follow this model and, between them, dominate supermarket aisles whether in developed or developing economies. The strong presence in most aisles of the supermarket offers strong bargaining power with retailers and, in Australia especially, can resist the expansion of "private label".

Others would say it is better to remain “narrow” and focus on some core strengths and skills. The likes of Kirin Holdings (which owns brewing, juice and milk businesses in Australia) and Coca Cola stick closely to a “drinks” focus yet, when venturing into food which they have each done recently, it hasn’t been so happy.
In recent years these large multinational groups have seen varying success - resisting the tough times in developed western markets, while riding some spectacular growth in emerging economies.

But the varying growth rates in the world's economy and risks of volatility are causing some to rethink of the shape of their vast food conglomerates.

Kraft isn’t the only food group to question its future structure. A spate of "unbundlings" will possibly create new companies and keep the advisory houses feasting in huge fees. Sara Lee (with frozen food units under a cloud in Australia), Pepsico and possibly others are working on plans for either a breakup or the sale of major units. There are common intentions behind these changes. The aim is to ensure things are made simpler for investors to understand and to ensure managers are able to gain better focus. Time will tell if that theory holds before we see the next fad emerge.
Food processing units involved in several food categories in this country will be examined as part of those changes, at a time when the variables in play (consumer spending, the strong currency, labour costs, and rising ingredient prices) don’t make this a happy hunting ground for food processors.