How should Kraft handle Cadbury?

After months of deliberation, food group Kraft finally succeeded with its hostile bid for chocolate giant Cadbury last month. In Asia, the potential of the combined operation is huge. But from a marketing perspective, Kraft must tread carefully if it is to make the most of its new acquisition.

In Asia, the two firms have complementary geographies. Cadbury’s business is focused in India, a market Kraft has barely penetrated, and in Australasia. But it has had minimal success in China, a market where Kraft has been growing quickly.

So how should Kraft’s Asia-Pacific team approach its new acquisition? The two companies have quite different cultures. Kraft strikes a balance between regional co-ordination under Asia-Pacific VP marketing Shawn Warren, and locally specific products and campaigns. It has a mixture of regionally aligned agencies (JWT, for example) and local appointments.

Cadbury, however, is far more decentralised. Australia tends to follow markets in the West, and in 2008 Cadbury Dairy Milk (CDM) was relaunched in a similar fashion to its UK revamp in 2007. But its India operations handle their own marketing out of Mumbai with little regard to London (the famous ‘Gorilla’ ad never appeared there). There are even India-specific products such as upmarket CDM Silk and also CDM Shots, small packs which sell for two rupees and are designed to take the brand into smaller towns.

In India especially, Kraft should be careful not to interfere too quickly with a brand that is now “deeply embedded” in the culture, according to Santosh Desai, CEO at Future Brands. It has almost a 70 per cent share of India’s chocolate market, and recent marketing has been focused on expanding the entire chocolate category.

Desai says that Cadbury has consistently proved itself to be one of India’s most innovative advertisers. “Cadbury is seen as one of the few marketers that gets it right,” he says. “The first thing for Kraft is to look at Cadbury with respect, with a view to understanding things, not changing things.”

“The key people at Cadbury India have been there for more than 10 years,” agrees Samrat Bedi, VP client servicing at Ogilvy & Mather Mumbai, Cadbury’s Indian agency. He points to the way Cadbury has shifted its marketing focus from children to adults. “They know where they want to be in another 10 years.”

China represents a very different proposition. Cadbury trails Mars’ Dove brand, which Jonathan Chajet, Interbrand’s China MD, says has succeeded in portraying itself as a lifestyle brand. Kraft’s success with Oreo (China sales have quadrupled in the last four years) means that here the two organisations are likely to align much more quickly as they target distribution and marketing in lower tiers. Chajet argues that Kraft will adopt a portfolio strategy, taking the Cadbury brands that have gained traction and push them into China’s emerging urban centres.

Indeed, the quirky ad style Cadbury is famed for in the West might not pay off in China. As one agency source who has worked with both companies comments: “The last thing that China needs is a gorilla playing the drums. The chocolate category, much like coffee, needs a disciplined approach to grounding the product in a relevant set of occasions to build relevance.”

There are plenty of questions ahead for Kraft. Will it slim down the Cadbury portfolio? How will it set up its marketing across the region as it integrates the two firms? How will it avoid a culture clash? So far, there are no answers - agencies from both sides expect some reorganisation but as one source says, “we’re just waiting and watching at this point”.

But if Kraft can negotiate these issues successfully, the outcome could be a far stronger entity in Asia.
As Chajet concludes: “Cadbury is good at making a high-quality product. It is also good at relationships. Kraft is about speed and aggression and marketing spend. The two can work well together.”

 

Industry comments:

Roland Bernhard
Partner
Prophet

“When you take over a business like Cadbury, it’s not because you want to kill its brands. The trick is to align or streamline things that are not visible to the customer, such as sourcing goods. Kraft has done a lot of acquisitions where the brand experience was kept intact, such as Jacobs coffee in Germany. It would be well advised to compare best practices and see what it can learn from Cadbury in areas such as communications strategy.”

Tim Riches
CEO
Singapore
FutureBrand

“Cadbury is strong in chocolate in India and has a strong play in gum in Japan. In Southeast Asia, can Kraft use its food brand network to leverage impulse in chocolate, candy and gum? The combined business would be formidable if deployed cleverly to realise the diverse opportunities offered by our region, but it would seem to need careful consideration, market-by-market and category-by-category. The powerful product brands need to be focused within a good strategy.”

This article was originally published in the 11 February 2010 issue of Media.