reos and Easy Mac are getting a divorce. That's how Steve Schaefer at Forbes explains Thursday's decision by pantry-stocking juggernaut Kraft Foods to split into two different companies. Why is the company breaking up? Here, a brief guide:
What's going on here?
Kraft says it has diverging goals for its many, many brands — among them, snacks like Cadbury and Trident, and grocery-store mainstays like Oscar Meyer and Maxwell House. So the company is splitting into two publicly traded companies. One will focus on pushing snack foods in rapidly expanding emerging global markets, says Duane D. Stanford at Bloomberg. The other will be a North American grocery business, which will manage Philadelphia cream cheese, Jell-O and other premium household names.
What's fueling the decision?
The split confirms that "growth in the U.S. is slow and getting slower," says Schaefer, while emerging markets continue to grow at a rapid pace. By splitting the company, Kraft can continue to market its Oreos, Cadbury chocolates, and other snack foods in international emerging markets where the company has begun building a "global snacking platform." And spinning off grocery-store brands into a separate company will allow Kraft to concentrate on keeping its iconic products at a "price premium," which would keep Kraft "humming even in times of mediocre growth."
How big will each company be?
The "growth-challenged" grocery entity will account for about $16 billion in annual revenue, says Rob Cox at Reuters. The global snacks business will be twice as big, with about $32 million in revenue, three-quarters of which comes from outside the United States.
And this is a good idea?
Seems like it. This same strategy worked well for Sara Lee Corp. and Fortune Brands earlier this year. And for Kraft, the two companies will no longer be competing for marketing and distribution resources, as each will have its own budget. Wall Street seems to like the plan: News of the breakup sent Kraft shares climbing on Thursday.
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