Kraft Foods Inc.

Kraft Foods Inc.(/ˈkræft/) was amultinationalconfectionery, food and beverageconglomerate.It marketed many brands in more than 170 countries. Twelve of its brands annually earned more than $1 billion worldwide:Cadbury,Jacobs, Kraft,LU,Maxwell House,Milka,Nabisco,Oreo,Oscar Mayer,Philadelphia,Trident, andTang.Forty of its brands were at least a century old.
The company was headquartered inNorthfield, Illinois, nearChicago.
Kraft was listed on theNew York Stock Exchangeand became a component of theDow Jones Industrial Averageon September 22, 2008, replacing theAmerican International Group.In August 2011, the company announced plans to split into a North American grocery products business and a faster-growing global snacks company.The snack company,Mondelez InternationalInc. is recognized as the old Kraft Foods Inc.'s legal successor, while the grocery company was namedKraft Foods,now a part ofKraft Heinz.
Kraft Foods traced its roots to the National Dairy Products Corporation, formed on December 10, 1923, byEdward E. Rieckand Thomas H. McInerney.The firm was initially set up to execute on arollupstrategy in the fragmented United Statesice creamindustry. Through acquisitions it expanded into a full range of dairy products. By 1930 it was the largest dairy company in the United States and the world, exceedingBorden.
McInnerney operated theHydrox Corporation, an ice cream company located in Chicago, Illinois. In 1923 he went to Wall Street to convinceinvestment bankersthere to finance his scheme for consolidating the United States ice cream industry. He initially found "hard sledding" with one banker saying the dairy industry "lacked dignity". He persevered and convinced a consortium includingGoldman SachsandLehman Brothersto finance a roll-up strategy.
As a result of his efforts, National Dairy Products Corporation was formed in 1923 in a merger of McInnerney's Hydrox with Rieck McJunkin Dairy Co ofPittsburgh,Pennsylvania. The resulting firm was then listed on theNew York Stock Exchangewith the offer of 125,000 shares having been oversubscribed.
The firm grew quickly through a large number of acquisitions. As is typical in a roll-up strategy, acquisitions were primarily for stock in National rather than cash. National Dairy Products Corporation acquired more than 55 firms between 1923 and 1931, with a few notable entities among those:
Born inStevensville,Ontario, Canada, in 1874,James L. Kraftimmigratedto theUnited Statesin 1903 and started awholesaledoor-to-doorcheesebusiness in Chicago; its first year of operations was "dismal", losingUS$3,000 and a horse. It then took hold and Kraft was joined by his four brothers to formJ.L. Kraft and Bros. Companyin 1909. As early as 1911, circulars and advertisements were in use by the company.
In 1912, the company established its New York City headquarters to prepare for its international expansion. By 1914, 31 varieties of cheese were sold around the U.S. because of heavyproduct development, expansion bymarketing, and opening awholly ownedcheesefactoryinStockton, Illinois.
In 1915, the company had inventedpasteurizedprocessed cheesethat did not needrefrigeration, thus giving a longershelf lifethan conventional cheese.The process waspatentedin 1916 and about six million pounds of the product were sold to theU.S. Armyfor military rations duringWorld War I.
In 1916, the company began national advertising and had made its first acquisition—a Canadian cheese company.
In 1924, the company changed its name toKraft Cheese Companyand listed on theChicago Stock Exchange.In the 1925,Marye Dahnkebegan her career at Kraft as the company home economist, the first woman for that sector of the food industry.
In 1926, Kraft was listed on the NYSE. The firm then began to consolidate the United States dairy industry through acquisition, in competition with National and Borden. Firms acquired included:
in May 1926 theKraft Walker Cheese Co.was registered in Australia. It was a separate company from Fred Walker & Co. but managed by the same staff.Fred Walkerwas chairman by 1930, and after his death in July 1935, Kraft acquired the company.
Later, in 1927, it established its London, United Kingdom, andHamburg, Germany, sales offices—its first forays outside North America. Sales for 1927 were $60.4m.
In 1928, it acquired Phenix Cheese Company, the maker of acream cheesebranded asPhiladelphia cream cheese, founded by Jason F. Whitney, Sr. and the company changed its name toKraft-Phenix Cheese Company.
In 1929,The New York Timesreported that Kraft Phenix,The Hershey CompanyandColgatewere looking at merging.In the same year, it was reported that National, Borden andStandard Brands(a firm that is now part of Kraft Foods) were all looking at acquiring the firm.
By 1930, it had captured forty percent of the cheese market in the U.S. and was the third largest dairy company in the United States after National Dairy and Borden.
At the time of the acquisition in 1930, National Dairy had sales of $315m compared with $85m for Kraft Phenix. National Dairy management ran the combined business. Following the Kraft-Phenix acquisition, the firm continued to be called National Dairy until 1969 when it changed its name to Kraftco.
Historically, all of the firm's sales came from dairy products. Its product lines began to diversify away from dairy products to caramel candies, macaroni and cheese dinners and margarines. From the 1950s onward, the firm began to move away from low value added commodity dairy products, such as fluid milk.This trend would continue for the firm, through neglect and divestiture, until the primary remaining dairy product produced by the firm would be cheese. As a result, the modern history of the firm emphasizes the cheese history.
In 1933, the company began marketing by radio sponsorship. In 1935, theSealtestbrand of ice cream was launched as a unified national brand to replace the firm's numerous regional brands.
During World War II, the company sent four million pounds of cheese to Britain weekly.
Product development and advertising helped the company to grow during the postwar years, launching slicedprocessed cheeseandCheez Whiz, a brand of process cheese sauce, in the 1950s.
During these years, Thomas McInnerney, National Dairy's founder, and James L. Kraft, Kraft's founder, died, and at the end of the decade, the divisions became less autonomous and even diversified to the glass-packaging business with the acquisition of Metro Glass in 1956.
In 1947, the company tested the marketing power of the emerging medium of television by producing an hour-long drama/anthology series,Kraft Television Theatre. The product advertised on the program, MacLaren's Imperial Cheese, was selected because "... [it had] not only had no advertising appropriation whatsoever, but had not even been distributed for several years." As described by internal documents ofJ. Walter Thompson—the advertising firm which conceived of the marketing test—the result was "although there was no other advertising support for it whatsoever, still grocery stores could not keep up with the demand."
In the 1960s, product development became intense, launchingfruit jellies,fruit preserves,marshmallows,barbecue saucesand Kraft Singles, a brand of individually-wrapped cheese slices.During this decade, the company also expanded in many markets worldwide.
In 1961, the firm acquired Dominion Dairies of Canada, marking the first effort by the firm to expand into fluid milk and ice cream outside the United States.In the same year it also acquired The Southern Oil Company inManchester, England.
In 1969, the firm changed its name from National Dairy toKraftco Corporation. The reason for the name change was given at the time: "Expansion and innovation have taken us far afield from the regional milk and ice cream business we started with in 1923. Dollar sales of these original products have remained relatively static over the past ten years and, in 1969 accounted for approximately 25% of our sales."At the same time, the firm transferred toGlenview, Illinois, in 1972.In 1976, its name changed toKraft, Inc.to emphasize the trademark the company had been known for and as a result of the fact that dairy, other than cheese, was now only a minor part of the company's sales. Reorganization also occurred after the name change.
In 1980, Kraft merged withDart Industries—makers of theDuracellbrand ofbatteries,Tupperwarebrand of plastic containers,West Bendbrand ofhome appliances,Wilsonartbrand of plastics andThatcherglass—to formDart & Kraft.
During the 1980s, Dart & Kraft offered mixed results to its shareholders, as new acquisitions in the food business—such as Churny premium cheeses,Lender's Bagels,Frusen Gladjeice cream andCelestial Seasoningstea—slightly offset the lagging nonfood business—Tupperware's decrease in sales andKitchenAid's (acquired soon after the merger) slide in market share—leading Dart & Kraft to spin off its nonfood business (exceptDuracellbatteries) into a new entity (Premark International, Inc.) while changing its name back to Kraft, Inc. Premark was bought byIllinois Tool Worksin 1999. In 1988, Kraft soldDuracellto private equity firmKohlberg Kravis Roberts, who then put it into aninitial public offeringin 1989.Gillettebought Duracell in 1996, and itself was acquired byProcter and Gamblein 2005.
At the end of 1988,Philip Morris Companiespurchased Kraft for $12.9 billion. In 1989, Kraft merged with Philip Morris'sGeneral Foodsunit—makers ofOscar Mayermeats,Maxwell Housecoffee,Jell-Ogelatin, Budget Gourmet frozen dinners,Entenmann'sbaked goods,Kool-Aid,Crystal Lightand Tang powderedbeverage mixes,Post Cereals,Shake 'n Bakeflavored coatings and numerous other packaged foods—as Kraft General Foods. Its aggressive product development was reversed after the merger, as it became slow in addressing issues on its product lines due to its size, and also company politics.
In 1990, the company acquiredJacobsSuchard(a European coffee and confectionery giant) andFreia Marabou(a Scandinavian confectionery maker) to expand overseas as its business was heavily dependent on the U.S.In 1993, it acquiredRJR Nabisco's cold cereal business (mainlyShredded WheatandShreddiescereals),Terry's of YorkfromUnited Biscuits, while selling itsBreyersice-cream division toUnileverand itsBirds Eyeunit toDean Foods.In 1994, it sold its frozen dinners unit toH.J. Heinzand in 1995, it sold its foodservice unit.
In 1995, it changed its name to the present name, Kraft Foods.The same year, it sold its bakery division (except Lender's Bagels, which was sold in 1996 toKellogg Company), its caramel & marshmallow divisions and its tablespreads division.Log Cabinsyrupwas sold in 1997.
On August 2, 1996, Kraft announced a deal withPepsiCoto market theTaco Bellbrand of grocery products.
By 2007, Philip Morris (now Altria Inc.) sold its stake in Kraft foods and the companies separated.
In 2000, Philip Morris (renamedAltriain 2003) acquiredNabisco Holdingsfor $18.9 billion and merged the company with Kraft Foods the same year.In 2001, Philip Morris sold 280 million Kraft shares via the third-largestIPOof all time, retaining an 88.1% stake in the company. In March 2004, Kraft acquired juice makerVeryfine.
In 2004, it sold its sugar confectionery division toWrigley,while doing minor divestitures—including itshot cerealsdivision (Cream of Wheat) toB&G Foodsin 2007,its pet snacks division (Milk-Bone) toDel Monte Foodsin 2006,juice drinks andFruit2otoSunny Delight Beveragesin 2007,its yogurt division toCoolBrands Internationaland some grocery brands in 2006.
In 2006, the company bought Southern European business ofUnited Biscuits, gaining several local brands such asGalletas Fontanenda.
InvestorNelson Peltzbought a three-percent stake at Kraft Foods and was talking with the executives on revitalizing the business,with options such as buyingWendy'sfast-food chain or selling offPostcereals andMaxwell Housecoffee.On January 31, 2007, after months of speculation, the company announced that its 88.1% stake would be spun off to Altria shareholders at the end of March 2007, giving each approximately 0.7 shares of Kraft for each share of Altria they owned. Kraft became an independent publicly held company.
In July 2007, the company boughtGroupe Danone's biscuit (cookie) and cereal division for $7.2 billion, including iconic French biscuit brandLefèvre-Utile.While two years earlier firestorms of protest had arisen over plans for AmericanPepsiCo'shostile takeover of the French company, Kraft's announcement was not met with the same protests, in part because Kraft agreed not to close French factories and keep the new merged divisions headquarters near Paris for at least three years.
In November 2007, Kraft agreed to sell itscerealunit toRalcorp Holdings, a major private-label food maker, for $2.6 billion in a form of a spin-off merger. This would add 50% to Ralcorp's sales, to $3.3 billion, and will be used for Kraft's debt payment, which was at $13.4 billion, in danger of a downgrade by Standard and Poor's.
In February 2008,Berkshire Hathaway,run by billionaire investorWarren E. Buffett, announced that it had acquired an 8% stake in Kraft then worth over $4 billion. Buffett's business partnerCharles Mungerhad also invested over $300 million in Kraft.  Berkshire Hathaway owned 5.6% of the outstanding stock of Kraft Foods, as reported in the holding company's 2010annual report.
On September 22, 2008, the company replaced the troubled insurance companyAmerican International Groupin theDow Jones Industrial Average.
On September 7, 2009, Kraft made a £10.2 billion takeover offer for the long-established British confectionery group Cadbury, makers of Dairy Milk and Bournville chocolate.On November 9, 2009, Kraft's £9.8bn takeover bid was rejected by Cadbury. Cadbury stated that the takeover bid was a "derisory" offer.Kraft renewed the offer under the same terms on December 4, 2009.The offer generated significant political and public opposition in the United Kingdom and abroad, even leading to calls for the government to implement a policy of economicprotectionismin cases of takeovers of large companies.On January 19, 2010, Cadbury finally approved a revised offer from Kraft, valuing the confectionery business at $19.5 billion (£11.5 billion). The funding for the takeover was partially provided by theRoyal Bank of Scotland, the British part-state-owned bank.
The Cadbury purchase was part of the long-term strategy ofIrene Rosenfeld, CEO and Kraft Chairman since March 2007, who developed a three-year turnaround plan designed to drive the profitable growth of Kraft Foods.Rosenfeld wanted to develop new markets and expand product range when she assumed the role of chairman. It was assumed that the purchase of Cadbury would help Kraft products develop in new markets such as Brazil and India because of Cadbury's current strong presence in those markets.India is one of its most resilient markets with sales growth of 20% and profits growing at 30% in a competitive market.Kraft believed the Cadbury purchase was also necessary because of the likelihood ofNestléandHersheyjoining together.Kraft also believed it could squeeze savings of at least $675m annually by the end of the third year.Irene Rosenfeld saw the Kraft Cadbury merger as the "logical next step in our transformation toward a high-growth, higher-margin company". She also justified the merger in order to build a "global powerhouse in snacks, confectionery and quick meals".
Following the purchase of Cadbury, Kraft commanded 14.8% of the global candy and gum market. Kraft argued that it could take advantage of the Cadbury distribution in developing markets of India, Brazil and Mexico.As incomes rise in these developing nations, Kraft hopes that products such as Oreo will become impulse buys for children.Mars, Inc.is second in the confectionery market with 14.6% share, followed by Nestlé with 7.8%.
At the time of the purchase, the chocolate and sugar industry had been growing rapidly at 15% over the previous three years and was valued at $113 billion.The purchase of Cadbury was considered strange because they did not have a strong foothold on the confectionery market, but at the time Kraft noted their production of confectionery foods like Toblerone and candy foods like Oreo. Cadbury also owned popular gum brands such asStride,Trident,Dentyne, andChiclets.Roger Carr, chairman of Cadbury, discussed his approval of the takeover by Kraft by saying, "We believe the offer represents good value for Cadbury shareholders and are pleased with the commitment that Kraft Foods has made to our heritage, values and people throughout the world."
Cadbury sales were flat after Kraft's acquisition. Despite the Cadbury takeover helping boost sales by 30%, Kraft's net profit for the fourth quarter fell 24% to $540m due to costs associated with integrating the UK business after the acquisition.Kraft spent a one-time $1.3 billion in integration costs to achieve $675 million in recurring annual synergy savings by the end of 2012 (estimated).
Kraft was forced to increase prices to offset rising commodity costs in North America and Europe. Kraft has had to contend with the higher cost of ingredients such as corn, sugar and cocoa. Kraft chief executiveIrene Rosenfeldsaid, "We expect it will remain weak for the foreseeable future." Taking into account integration costs, the acquisition knocked about 33% off Kraft's earnings per share immediately after the purchase of Cadbury.In March 2011, Kraft caused national outrage when they sold the site of a historic Cadbury factory it vowed not to close for £50 million after initially publicly promising the continuity of production within the UK in order to win over support for the deal from shareholders. Instead, production was immediately outsourced to Poland. TheSomerdale Factorywas closed just days after the takeover by Kraft Foods. Former Cadbury workers demanded an apology for the abrupt selling of the plant, but Kraft's CEOIrene Rosenfeldrefused to explain her actions.Kraft continues to use Cadbury brands in emerging markets to expand all of its products. In April 2011, Kraft set to invest $150 million in South Africa's manufacturing plants over three years.  PresidentSanjay Khoslasaid, "South Africais a priority market for us, where we focus on power brands like Cadbury chocolate."
On March 1, 2010,Nestléconcluded the purchase of Kraft's North American frozen pizza business for $3.7 billion. Kraft left the door open to repurchase with a buyback option not before one year and not after three years for the original sale price of $3.7 billion. Although not likely if Kraft were to want to repurchase they would have to come up with cash only and no stocks. The sale includedDiGiorno,TombstoneandJack'sbrands in the United States, theDelissiobrand in Canada and theCalifornia Pizza Kitchentrademark license. It also includes two Wisconsin manufacturing facilities inMedfordandLittle Chute. The business generated 2009 net revenues of $1.6 billion, with 3,400 employees.
After a period of poor share performance and investor criticism, Rosenfeld was forced to announce in 2011 the proposed split of the company into two new entities. Both were to be listed on theNew York Stock Exchange, but the company has recently decided to move toNASDAQ, and the split companies will also trade on NASDAQ.The first entity would retain the Kraft foods names and brands, and focus on the North American foods business. The second, later proposed to be namedMondelēz International, would focus on the global snacks business, and would include the formerCadburybusinesses, plus global brands including Dairylea.On April 2, 2012, Kraft Foods Inc. announced that it had filed a Form 10 Registration Statement to theSECto split the company into two companies to serve the "North American grocery business".The split was structured so that the old Kraft Foods changed its name to Mondelez International and spun off Kraft Foods Group as a new publicly traded company.
Kraft Foods Inc was an official partner and sponsor ofMajor League Soccerand sponsored theKraft Nabisco Championship, one of the four"majors"on theLPGAtour.  The company also sponsored theKraft Fight Hunger Bowl, a post-seasoncollege footballbowl game.
Kraft Hockeyvilleoriginally was Canadian reality television series developed byCBCSports in 2006 and was sponsored by Kraft Foods in which communities across Canada compete to demonstrate their commitment to the sport of ice hockey. The contest revolves around a central theme of community spirit in Canada. In  2007, the contest was relegated to segments aired onHockey Night in Canada.
Kraft released aniPad appcalled "Big Fork Little Fork" in 2011 which, in addition to games and other distractions, has information regarding how to use Kraft foods in nutritious ways.This app costs $1.99; a version for home computers is available on the iTunes app store.
Before the company was split, its core businesses were inbeverage,cheese,dairy foods,snack foods,confectionery, andconvenience foods.
Kraft's major brands, which each generated revenues exceeding $1 billion, as:
Seventy additional brands have revenues greater than $100 million. In total, 40 brands are at least 100 years old.
In 2003, a California lawyer made national headlines by suing Kraft for using trans fat in Oreo cookies.Kraft foods announced a trans-fat free reformulation of Oreos shortly after the 2003 lawsuit was filed, and the lawsuit was dropped. Kraft denied that the change was made in response to the lawsuit, noting that the reformulation had been in planning long before the lawsuit.
In 2010, twoCaliforniaresidents filed aclass actionlawsuit against Kraft Foods for claiming certain products are healthy when in fact they contain unhealthytrans fat. Kraft denied any wrongdoing, saying all packaging claims are true and legal. As of June 2012, the case is still ongoing.
AUnited States district judgecertified the class on June 6, 2012.
Teddy Grahams, varieties ofRitz Crackers,Honey Maid Grahams, Premium Saltines, Ginger Snaps, and Vegetable Thins all contain artificial trans fat, and Kraft presents these products as healthy with phrases like "wholesome choice", "sensible snacking", and "made with real vegetables". The complaint in the case argues that these claims are a violation of California's Unfair Competition Law, Consumer Legal Remedies Act, and False Advertising Law.
The lawsuit cites current scientific consensus on the dangerous health effects of trans fat, which causes coronary heart diseaseand has been linked to type 2 diabetesand some forms of cancer.The American Heart Association concludes that there is "no safe level" of trans fat in the diet.
Based on the trans fat content and other unhealthy ingredients in Kraft products, the lawsuit makes several arguments:
Kraft denies any wrongdoing. Kraft's response briefs emphasize that the challenged claims are technically true. For example, Vegetable Thins are "made with real vegetables", and Kraft argues that this true statement cannot be called misleading. Kraft uses a similar line of argument for claims like "good source of calcium, iron & zinc to support kids' growth and development", "whole wheat", and others.
Regarding several packaging claims, Kraft argues that they are not factual statements that can be proven true or false. For example, Kraft argues that the word "wholesome" is subjective and vague. Promotional statements that are too vague to prove or disprove are calledpufferyand are not actionable under the law. Kraft argues that "wholesome", "sensible", and "smart" are all puffery and therefore cannot be found misleading or deceitful.
In 2012, Kraft contributed $1,950,500 to a $46 million political campaign known as "The Coalition Against The Costly Food Labeling Proposition, sponsored by Farmers and Food Producers"The organization was founded to opposeProposition 37, a California citizen's initiative mandating the labeling of foods containing genetically modified ingredients. As a result, there were calls for a boycott of Kraft products.
For years Kraft purchased paper for its packaging fromAsia Pulp & Paper, the third-largest paper producer in the world which was called a "forest criminal" for destroying "precious habitat" in Indonesia's rain forest.In 2011, when Kraft cancelled its contract with Asia Pulp & Paper,Greenpeaceexecutive directorPhil Radfordcommended the company for "taking rainforest conservation seriously".
Kraft began a major restructuring process in January 2004, following a year of declining sales (blamed largely on the rising health consciousness of Americans) and the sacking of co-CEOBetsy Holden. The company announced closures of 19 production facilities worldwide and the reduction of 5,500 jobs, as well as the sale of 10% of its branded products.
On January 19, 2010, Kraft sealed the deal to buy 100% of the share capital of Cadbury for over $19 billion.
On March 17, 2010, Kraft Foods said it was "truly sorry" over its closure of a Cadbury factory in Somerdale. Senior Kraft executive Marc Firestone made the public apology to MPs at a parliamentary select committee hearing.
In March 2011, in the US, Kraft Foods introducedMiO, a liquid flavoring product with zero calories and sugar-free geared to 18 to 39-year-old consumers.MiO has no artificial flavors but it does have artificial colors, artificial sweeteners and artificial preservatives, unlike some competing flavoring products, according toUSA Today.
In August 2011, Kraft Foods announced plans to split into two publicly traded companies—a snack food company and a grocery company.
On September 10, 2010, a disgruntled employee angered over a recent suspension, Yvonne Hiller, opened fire inside the Philadelphia factory where she had worked for 15 years. Armed with a.357 gun, Yvonne shot 3 co-workers, killing 2 of them. Philadelphia Police responded within minutes of the 911 call. SWAT took Yvonne into custody at 8:30pm.
In September 2000, up to $50 million worth oftaco shellswere recalled by Kraft from supermarkets andTaco Bellrestaurants. The shells containedgenetically modified corn, which was not approved for human consumption by theFood and Drug Administration; the recall was the first of agenetically modified food. The corn was supplied to a plant from which Kraft bought the shells.
In April 2009, Kraft Foods recalled products containing pistachios after the discovery of salmonella at one of its Illinois manufacturers. Kraft pinpointed as the source a California pistachio grower, which initially recalled over 2,000,000 pounds (910,000 kg) of nuts before broadening the recall to much of its 2008 crop.AWashington Posteditorial credited the "aggressive food safety system at Kraft Foods" with effectively addressing the danger.
In September 2011, Kraft recalled over 130,000 cases of Velveeta Shells and Cheese microwaveable cups because of possible wire bristles in the cups.