Kraft split – but what happens to the cheese?

It’s a surprise move from US giant Kraft splitting the cash cow of the American Grocery brands from the high growth ‘snack’ brands targeted the later at developing markets, (including Europe). Clearly the split makes sense from an investment view point, and its easy to see that there are investors who want “steady dividends” generated from US grocery cash cows, and those who want rapid capital growth, which might be raised from emerging market ‘snack’ sales. And, shouldn’t the investor make the decision of what type of return he, or she, wants, rather than management deciding on the level of ‘risk’ to shareholder funds once the money has been invested? However, what about all of the advantages of size? Does this split mean, (just as consolidation is rife elsewhere in the food and drink sector) that Kraft have discovered that there are no ‘economies of scale’ in the food sector after all, and are we about to see lots of demergers unravelling all of the mergers to date? And where will cheese fit in? Kraft cheeses have been a staple in the market both inside and outside the USA, and Cheese could be ‘snack’ or a ‘grocery’…… By all accounts, Kraft have “taken their eye off the cheese ball” recently, with sales of Kraft processed cheeses suffering some heavy declines in the North American market over the past few years. Price increases needed to cover raw material costs will not have helped that, and there may be more to come. The exception in terms of performance is ‘Philadelphia’ which is a rising star and doing well both inside and outside the states and has recently launched in the big cheese market of France. The plan is for ‘Philadelphia’ to be part of the American grocery business and it is not clear if this will mean that it will reduce its presence elsewhere in the world. If so it will certainly create space in the Fresh Cheese market for others……