Investing in Immigrants - Defenders of American Icons

By Nick Slepko - July 12, 2012 | Tickers: KO, KRFT, MCD, PEP, WMT | 0 Comments

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[continued from "Investing in Immigrants - Going Long on Immigrants Since 1776"]

The serial retailing of the Feldbergs was actually inspired by a much older door-to-door cheese salesman from Canada who immigrated to Chicago to launch his business along with his four brothers.  The brothers went on to develop what is now known as Kraft Foods (NASDAQ: KRFT).  The 103-year old company has continued to acquire foreign brands around the world, twelve of which net more than a billion apiece like Britain's Cadbury, France’s LU, and Germany’s Jacobs.  Tang for instance is a product whose sales had leveled out in North America, but which Kraft’s multinational marketing team has been able to turn into explosive growth in international markets where they offer a range of flavors totally alien to their original target audience.

Unfortunately, Kraft’s foreign finesse may have run into a snag as its new name for its snacks division, Mondelez, sounds similar to a homoerotic pornographic slur in several Slavic tongues.  It is unlikely this gaffe will be as popular in mixed company as the urban legends that have sprung up about Chinese translations related to Coke (NYSE: KO) – “Bite the wax tadpole” – or PepsiCo (NYSE: PEP) – “Brings your ancestors back from the dead.”  The two brands now have Chinese characters far more complementary to America’s roman’icized Chinese name (meiguo – “beautiful country”) with Pepsi reading “a hundred ways to good luck,” and Coca-Cola proclaiming “allowing the mouth to rejoice.”  (Or so they’ve been told.)

Cross-cultural misunderstandings aside, it is worth noting in the context of America’s immigration debate that both of America’s iconic beverage titans have been ably led from Atlanta, Georgia and Purchase, New York in recent years by foreign-born CEOs (with distinct cosmopolitan accents) from Turkey (Coke’s Mukhtar Kent) and India (PepsiCo’s Indra Nooyi).  Both CEOs seem to draw inspiration from McDonald’s (NYSE: MCD) – the global giant founded by sons of Irish immigrants, and then led to success by the son of Czech immigrants (it too also owes its early success to a beverage – the milkshake).  Nooyi’s focus on health content and fitness trends, and Kent’s 2020 Vision doubling scheme based on the MickeyD’s “Plan to Win” both make them more like the intellectual heirs to retiring CEO Jim Skinner whose replacement, Don Thompson, could either be the next Mayor McCheese or a Ronald McDonald when his first quarterlies start rolling in later this year.

Another thing that the two cola champions have in common: The Coke-Pepsi global battle helps both move more total product than they otherwise would alone.

Under their tenures as CEOs (which both assumed roughly at the beginning of the global recession – Nooyi in 2006, Kent in 2008), both have surpassed their predecessors not only in profit, but also by managing to employ more Americans, to pay more in taxes, and to expand their worldwide reach.  However, both have achieved their accomplishments with different strategies, so while the duopolists’ share prices moved in tandem until mid-2010, Coke’s has quadrupled in comparison to Pepsi.  While it can be said that the beverage makers are mostly in the business of marketing at this point and clearly Coke has done a better job of it among investors in recent years, the fundamentals of both businesses are sound and Nooyi may actually be making better long-term core decisions in R&D and discerning how to get ahead of emerging trends – even PepsiCo’s announced layoffs in February were more about adapting to changing opportunities – and less than a quarter of those targeted were US workers.  (Her detractors for that move are also likely to believe the attack ads on Bain Capital – but as she is a contributor to Mitt’s competitor, don’t feel too sorry for her.)

Meanwhile Coke, which is a much simpler organization by comparison, has concentrated mostly on expansion at the margins and working through minor problems that had festered under previous administrations – though Kent has done some house cleaning of his own by replacing about 80% of the company’s senior managers.  Moreover, investors should not forget how Nooyi spent her earlier years at the PepsiCo helm working out deep structural issues that Coke had long since squared away – and that was after she spent her pre-CEO years on several deals that have kept PepsiCo in the game throughout the previous decade.  So, while Kent rightly deserves to be regarded as one of the more amazing CEOs this century, he has had a lot more capital (in every sense of the word) to work with.

Kent himself took over from the able Irish-Zambian Edward Neville Isdell (born in Northern Ireland he immigrated to Northern Rhodesia early on), but they were both in fact building off the Coke CEO credited with establishing the global dominance of the brand, Roberto Goizueta.  Detractors of Nooyi’s even and steady progress should also recall that the larger than life Goizueta also introduced New Coke to the world – Nooyi has yet to commit anything so “career-ending.”  Moreover if her heir apparent, Brian Cornell, were to ascend it would likely be a disaster.  As an outsider in a firm overflowing with talent, his experience running the embarrassment that is Sam’s Club has not been the best training for a truly global, consumer-friendly, marketing-obsessed operation like PepsiCo.  It will also likely be difficult for him to find someone to subsidize PepsiCo in the same way Sam’s has depended on Wal-Mart (NYSE: WMT).  PepsiCo is competitive with Coke, Sam’s is not even on Costco’s radar anymore.  When compared with Costco, Sam’s fails in every way that matters. From having more locations, but less revenue to having double the employees, but less than half the productivity, one would hope that Sam’s could at least pull off better prices and a higher-level of service – turns out, not so much.

Like Nooyi and Kent, Coke saint Goizueta was born abroad – and he often recounted that when his family left Cuba they landed in America with $40 and 100 shares of Coca-Cola stock.  The Goizueta family is considered the wealthiest Hispanic/Latino family in the United States, and continues to be one of the most reliable philanthropic givers in the Atlanta community – a community built in no small part by Coca-Cola’s success.

The second wealthiest Hispanic/Latino family in the US, the Unanue family, has built up Goya Foods – a company that would find an excited public should it ever choose to IPO.  Beginning as a Moroccan sardine importer, the Secaucus, New Jersey company has come to dominate international Latin American cuisine as the entire hemisphere continues to urbanize, climb the economic ladder, and seek out the modern conveniences that most North Americans now take for granted. 

Yet, immigrants and first generation success is not confined to finance, retail, and consumer goods.  They have had their biggest impact on manufacturing and even today are integral to advanced manufacturing and the tech sectors.

[continued in "Investing in Immigrants - Manufacturing Needs Foreigners"]

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