Food Leader Kraft Sees Product Price Increases Up Profit

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(Image: Svilen Milev)
(Image: Svilen Milev)

BUSINESS

  • Kraft increases product prices to offset rising price of commodities (corn, other)
  • Kraft using Cadbury for overseas distribution
  • Kraft to split in two as of October; Kraft Foods Group Inc. to oversee business in North America, while Mondelez International Inc. to focus on snacks abroad

One of the world’s best-known food companies Kraft Foods Inc. has exceeded analyst predictions for second quarter profit by raising the prices of its food products as part of a larger strategy for the business’s future success.

Kraft increased product prices in an attempt to offset the rising price of commodities in light of this summer’s drought in the Midwest, which is expected to impact the cost of Kraft products for the rest of the year as corn prices rise.

Higher Kraft product prices were in effect during the second quarter, ending June 30.

The new pricing strategy also helped Kraft overcome the strength of the US dollar, which has affected the value of overseas sales. Kraft was also impacted by Easter falling earlier than it did in 2011.

The price increase is part of a larger Kraft strategy that involves saving money by using Cadbury, which Kraft purchased two years ago, for overseas distribution and focusing on its “power brands”. Kraft owns several widely recognized brands such as Oreo, Jell-O, Planters, Oscar Mayer and Kool-Aid.

The first half of 2012 is running ahead of expectations, and if the pace continues through to the end of the year, Kraft plans to reinvest the profit back into the company. Kraft Chief Financial Officer David Brearton told the Business Recorder: "We would expect to reinvest any upside in the second half."

Net income for the second quarter was $1.03 billion, with revenue at $13.29 billion.

Kraft’s Planned Split: October 2012

Meanwhile, great change is coming to Kraft in October, when it plans to split into two companies in an attempt to better push into emerging markets. The North American business will become Kraft Foods Group Inc., while the overseas company will be named Mondelez International Inc., which will focus on snacks.

The North American business is the more profitable of the two; sales increased to nearly $6.40 billion in the second quarter, while overseas sales grew to close to $4.25 billion.

The new Kraft Foods Group will begin trading on the New York Stock Exchange on October 2 under the ticker symbol KRFT. A board of directors is already in place for both companies.

Key Statistics - Global Savory Snack Foods Industry (source: MarketLine)

  • Between 2009-2014, the savory snacks market will increase 28% globally; in 2014, its value is predicted to be over $87 billion.
  • Between 2009-2014, the savory snacks market will increase 18% globally; in 2014, its volume is predicted to be 9.3 billion kilograms.
  • The largest segment of the savory snacks market worldwide is processed snacks, which accounts for nearly 42% of the total market value.
  • Slightly more than 44% of the savory snacks global market value comes from the Americas.

By Melina Druga for
Melina Druga is an American writer and editor. She is the author of Enterprising Women: Practical Advice for First Time Entrepreneurs.

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