CHICAGO — Mondelez International, Inc. is laser-focused on sustaining and accelerating profitable growth. To that end, the Chicago-based company has made it a priority to double down on its core categories of chocolate and biscuits.
Over the past year the company has put its money where its mouth is, reaching an agreement in late April to acquire the Ricolino confectionery business of Grupo Bimbo SAB de CV for approximately $1.3 billion as well as adding Chipita SA, a leader in the Central and Eastern European snack-size cakes and pastries categories, earlier this year. In 2021, Mondelez acquired Grenade, a UK performance nutrition company; Gourmet Food Holdings, an Australian food company in the premium biscuit and cracker category; and Hu, a well-being snacking company in the United States.
As part of its shift in focus Mondelez this week announced plans to divest its developed market gum and global Halls businesses.
In a May 10 Investor Day presentation, executives at Mondelez provided additional color on the company’s plans to make chocolate and biscuits a bigger part of its business.
“Chocolate and biscuits are attractive and historically durable categories in both developed and emerging markets, and they still have significant headroom in terms of penetration and per capita consumption,” said Dirk Van de Put, chief executive officer. “Our revenue from these two core categories combined grew nearly 6% on average over the last three years compared to a decline in our revenue from other categories, in part due to the COVID-related disruption of the gum category.
“Over the past 10 years, we have been reshaping the business from approximately 60% chocolate and biscuits to almost 80%. And our long-term vision is to generate 90% of revenue through these two core categories. As we continue reshaping our portfolio, we will drive value through targeted acquisitions that expand our presence in chocolate and biscuits by filling geographical gaps and extending into underrepresented segments and price tiers.”
While acknowledging he doesn’t have an exact time frame, Mr. Van de Put said Mondelez expects to reach the 90% target in the next three to four years.
Mr. Van de Put said the majority of Mondelez’s key markets are skewed to a single core category. In the United Kingdom, India and Australia, the majority of revenue comes from chocolate, he said, while in Southeast Asia revenues are almost exclusively from biscuits. He said the company is working hard to address this imbalance by leveraging its brands and establishing distribution as well as strategic transactions.
As an example he pointed to Australia, a region Mr. Van de Put said primarily has generated revenue from chocolate.
“The 2021 acquisition of Gourmet Food doubled our share in biscuits by enabling us to expand into premium crackers,” he said.
Mr. Van de Put said Mondelez also plans to play more across the full continuum of biscuits and baked snacks by extending its presence into a much broader range, including cakes, pastries and snack bars.
“For example, our LU brand, already the well-established No. 1 cookie in France, offers a growing range of prepackaged soft cakes and pastries,” he said. “Or under our Milka platform, the iconic European chocolate brand, which has expanded into new snacking occasions like cookies and brownies, and we’ll partner with Chipita to move into croissants and pastries. While we primarily play in mainstream price points, we see strong opportunities to better penetrate opening price points, while trading consumers up to premium price points.
“In emerging markets, we are currently underrepresented in low-priced products like small-sized single chocolate bars with less than 10% share. We are continuing to introduce new offerings that allow more consumers to access our products and increase the penetration of the chocolate category. We are similarly underrepresented in the premium price tier across both developed and emerging markets. Increasing our premium focus, we’re launching our largest premium offering, Toblerone, into this space as well as developing local offerings and acquiring strategic assets such as Hu.”
Adding to Mr. Van de Put’s broad-stroke comments on chocolate and biscuits, Gustavo Carlos Valle, executive vice president and president of North America, drilled down into Mondelez’s specific plans to expand his leadership in biscuits. I have identified four key growth drivers for the company, led by plans to expand Oreo by $1 billion over the next three years.
“We expect to build on Oreo’s significant brand strength and heritage and grow global share by 1 point, taking us from 7% to 8% over the next three years,” Mr. Valle said. “To get there, we will substantially expand geographically reach outside Oreo’s current core markets of United States and China. We will also aim to reach the $100 million-plus revenue threshold in four additional markets, bringing the total to seven by both strengthening traditional distribution and investing in digital commerce. We have a clear strategy to drive growth in Oreo by strengthening the core, capitalizing on emerging opportunities and meeting distinct consumer needs.”
Mr. Valle said Mondelez also is innovating a wide range of new Oreo formats and textures such as themes, minis, gluten-free, coated and wafers to meet new and emerging consumer needs. The company is also taking the brand beyond the traditional cookie category and expanding into areas like cakes.
A second growth driver will revolve around robust plans to grow the company’s “jewel” biscuits brands.
“Our local jewel brands such as LU in France and Belgium, Ritz and Tate’s in the US, ORO in Italy and Kinh Do in Vietnam today account for more than 50% of our biscuit revenue,” Mr. Valle said. “We have a strong portfolio of these local jewels consisting mostly of everyday good recipes that consumers love and trust. Families all over the world turn to these brands for comfort and nostalgia. A kitchen or pantry in much of the world will feel incomplete without at least one of these brands. We have made solid progress taking this brand from nearly flat several years ago to well into low-single-digit growth range in past years.”
Mr. Valle said Mondelez will seek to accelerate the local “jewel” brands into mid-single-digit range through three drivers: activating the core through creative marketing and sales initiatives; enhancing and sharpening the brand purpose by incorporating consumer desires such as more sustainable source ingredients; and selectively innovating to expand the brands into adjacent segments such as cakes, pastries and wafers.
“Wafers are an especially compelling example of how we are extending local jewel brands into new formats that are culturally and locally relevant,” he said.
A third growth driver for Mondelez will be geared toward accelerating performance in its chocobakery business, which Vinzenz P. Gruber, executive vice president and president of Europe, described as “a highly attractive business and a segment where we have unique advantages in being able to combine our iconic and leading chocolate brands like Milka and Cadbury in a large and well-established biscuit segment.”
Mr. Gruber said Mondelez has been able to grow its chocobakery business to nearly $500 million in revenues from next to nothing in a short period of time. Part of the company’s growth agenda is to drive geographic expansion with Cadbury in a number of developed and emerging markets as well as Lacta in Latin America. In select markets where Mondelez doesn’t have a chocolate presence the plan is to build out and lead with the company’s Chips Ahoy! franchise, he said.
The final element in Mondelez’s growth strategy is expanding in the fast-growing baked snack segment.
“Baked snack is an attractive market valued at more than $85 billion, which consists of two main snack formats,” Mr. Gruber said. “Cake and pastries, a $70 billion-plus market growing at 4.5% CAGR and snack bars, a $17 billion market that is also growing fast. With the cake and pastry segment, pastries like croissant designed for mid-morning occasions account for about 45% of the market. Meanwhile, cakes consumed more in the afternoon breaks make up the remaining 55%.
“Mondelez currently holds the third share position in this fragmented space. And our leading chocolate and biscuit brands, combined with our recently acquired capabilities in fresh bakery and pastries, uniquely positions us to compete and build significant share in this large segment. With the snack bar space, we have a fairly limited presence today, roughly 3% share. But we see strong opportunities to expand both organically and through recent acquisitions. This highly incremental, fast-growing category addresses consumers’ growing demand for snacks that help address physical, mental and emotional well-being.”
Mr. Gruber said expanding its presence in the packed cake and pastry market represents a highly attractive and highly incremental opportunity, covering new occasions.
“Our approach to this space will be grounded in a set of core brands with quality recipes that are country relevant,” he said. “Within the cake segments, we will continue building our choco cake offerings, such as Milka brownies and muffins, while leveraging other local brands like LU.
“On the pastry side, we will leverage the technology and distribution capabilities we acquired with Chipita to expand our presence in croissants and create delicious new chocobakery offerings.
“In snack bars, we are building out this business through M&A and organic expansion. We recently acquired Grenade, the No. 1 UK energy and protein bar, and its strong well-being credentials give us good foothold among young Atlantic consumers.”
Mr. Gruber identified the Give & Go business, acquired in April 2020, as one of the truly great assets in Mondelez’s baked snacks lineup.
“This business has been winning through a differentiated customer value proposition, with strong innovation, commercialization capabilities and leading category insights,” Mr. Gruber said. “It also has the most comprehensive range of products of any in-store bakery supplier, which simplifies both the purchasing and supply chain for retail partners. And importantly, for retailers, it allows them to increase profits by reducing in-store labor and waste, while offering brands and products that consumers really love. This business has demonstrated significant growth over the past several years, growing high single digit on average and approaching $600 million. And importantly, it also delivers solid profitability, which is the same whether we are offering one-off branded options like two-bite brownies or Kimberly’s Bakeshoppe or whether it’s under one of our retail partners’ brands.”
Later in the call, Mr. Van de Put was asked about the rationale for making acquisitions in fresh baked snacks and whether Mondelez feels the need to be a market leader in the geographies in which it’s making acquisitions.
“You don’t have to be the market leader, but you do need to have the right size of production capacity… and distribution capacity, which allows you then to deliver that product at the highest quality at the right price,” he said. “That is critical. You don’t need to be the market leader overall, but you do want to be the leader in certain segments of that fresh bakery, which allows you to have bigger plans.”
Using Chipita as an example, Mr. Van de Put explained: “Chipita is a completely different situation (than Give & Go). That’s a separate shelf in Europe. … Cakes and pastries are in a separate shelf. It’s a very big shelf. And Chipita is a key player in many markets in Europe and Eastern Europe, particularly East and Central Europe. And so for us, it’s important to have a presence there in that market to learn how to be there, but it offers us an extension of our brands into that shelf basically. So we don’t need to be the market leader. It happens to be that Chipita is a market leader, but that’s not the intent. The intent is to bring our other brands into that shelf. And the vehicle was an existing brand that’s very strong, which helped us a lot.”