Mondelez Doesn't Look So Appetizing
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Investors expected a Kraft (NASDAQ: KRFT) spinoff, but what they didn't expect was Kraft naming the spinoff Mondelez. Kraft picked an unusual name that does not refer to its other brands and seems likely to confuse shoppers. The spinoff's name even includes a special character, as the second e in Mondelez has a bar over it, which could affect the spinoff's press coverage. It's possible to add special characters while using word processing software, but adding the special character is more inconvenient with other text input tools. If some sources write the bar over the second e and others just write the plain letter e, it could be more difficult for an investor to research the company.
The health food trend could provide some explanation for the new brand. Although Kraft markets some healthy snack foods, the company sells many sweet treats like Cadbury chocolate and Oreo cookies. These products attract customers because of their convenience and taste, not their health benefits. Kraft sells many snacks that contain large amounts of sugar, salt, and preservatives, which may have given it a negative image in the minds of some consumers.
If Kraft created a new brand to establish a healthier image for its spinoff, then it doesn't seem like the decision will help Mondelez very much. Although Kraft uses its own brand to promote some of its food products, such as Kraft Lunchables, many customers know its other products better by their own brand names, as nobody calls Oreo cookies Kraft Oreos. Mondelez doesn't even plan to use its new brand to market its food to customers, as Bloomberg BusinessWeek reports that the Mondelez brand won't be shown prominently on packages. Kraft proudly displayed the Kraft logo on its products before, so this is a major warning sign.
Kraft created the spinoff to provide better growth opportunities for its shareholders, which seems like a reasonable decision. The spinoff focuses on selling snacks in nations where grocery shoppers' budgets are rising rapidly. Many companies improved their growth figures by increasing their investments in other nations in response to flat earnings in the United States, so this decision wasn't unusual. Kraft's 2011 annual report shows that its developing countries segment recently experienced strong revenue growth, as its sales were $8.77 billion, $11.6 billion, and $13.4 billion in 2009, 2010, and 2011. Kraft's overall revenue also improved, as its sales for the last three years were $38.8 billion, $49.2 billion, and $54.4 billion.
Kraft's decision to call the spinoff Mondelez is not final. The company still has time to come up with another name before it makes the formal separation, and Kraft shareholders can still veto the proposal. With the amount of negative attention Kraft's decision has attracted, the company's managers will face a lot of pressure to come up with a better name.
The Associated Press reports that Sara Lee has its own (NYSE: SLE) spinoff plan, which seems similar to Kraft's plan. Like Kraft, Sara Lee sells a wide variety of food products. The Sara Lee spinoff also focuses on a narrower product line, coffee and tea, and separates the company's American operations from its overseas business. Sara Lee did come up with a much better name for its spinoff, D.E. Master Blenders 1753. While Kraft's spinoff name is tricky to pronounce and doesn't promote any of its products, the name Sara Lee selected refers to a coffee brand with a long history, Douwe Egberts, which shows that the company has experience producing quality drink blends.
Sara Lee demonstrates a better way for a food company to establish a new brand for a spinoff, which shows that its managers are paying attention. Sara Lee's spinoff should produce good results for the company's investors. Kraft can still come up with a better name than Mondelez, but with the presence of other warning signs such as Kraft's decision to make the spinoff's name less visible on food packages, the spinoff may not meet expectations.
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