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Mondelez International, Inc​ | A Strategic Review

Firm Overview


Mondelez International Inc. (NASDAQ: MDLZ) is one of the largest multinational companies with net revenues of $26 billion in 2018. Revenue in 2018, was derived from 5 major categories of food being biscuits (43%), chocolate (32%), gum & candy (13%), cheese & grocery (7%) and beverages (5%). Around 85% of the revenue was derived from snacks categories. Mondelez owns a portfolio of iconic snack brands, also referred to as power brands, such as Oreo, Nabisco, belVita, Cadbury and Toblerone.


Industry Overview


The global snack food market is expected to reach $620 billion by 2021, growing at a compounded annual growth rate (CAGR) of 5.8%. Mondelez currently holds the No.1 position globally in biscuits, chocolate and candy, as well as the No.2 position in gum. The snack categories that Mondelez operates in globally, has on average been increasing year on year from 2016, per the chart below, and is expected to continue growing above 3% in the long term, as per the firm’s expectation.

(Source: Mondelez International Inc., 2018)

Emerging markets, primarily China and India, are forecasted to be the fastest-growing markets, in comparison to North America and Europe, for biscuits & chocolates and have quickly become a priority for Mondelez, in sustaining continued growth. Weak presence and small market share in the US, as well as it being a more mature and wealthier market, has made it a key target for expansion, in the near future. Acquisitions of regional and multinational brands remains to be the most attractive and flexible growth strategy, utilised by Mondelez.


Main Trends in the Snacking Industry


The most significant trend is shifting consumer tastes towards healthier snacks, as they become more conscious about their health while continuing to live fast-paced lifestyles. The global healthy snack market is expected to reach $32.8 billion by 2025 and has experienced a surge in new health-focused snacking ventures, whom greatly benefit from the lower price and brand sensitivity of the health-conscious consumer.


Another key trend is the rise of e-commerce. Consumers are increasingly choosing to shop online for groceries, rather than the store due to time and convenience on offer. Companies will now need to rethink their consumer targeting strategies from convenient product placement at stores to targeted online adverts. E-commerce has also enabled new ventures to compete with the larger companies on a more levelled platform, for market share and brand presence, causing major disruption across the industry.


Industry Attractiveness and Profitability Analysis


The snacking industry is highly competitive, and made up of large multinational firms, alongside several regional and niche competitors. Mondelez operating profit margin, in the quarter ending September 2018, was 13.71%, and is significantly higher than its industry average as can be inferred from the chart below. Product innovations, strong cost control and streamlining of the company, has enabled Mondelez to achieve above industry average profit margins.


For decades, the profitability of the snacking industry was largely dampened due to the commoditisation of snacks and the high price sensitivity of the consumer. However, over the past few years, this is changing with the shift towards healthier lifestyles, and consumers willing to pay a premium for healthier food options. The higher cost per unit of healthier snacks is largely offset by the increased pricing power companies gain, thereby unlocking greater potential profitability in the snacking industry.



Mondelez International, Inc


Competitive Strategy


The competitive strategy utilised by Mondelez is a hybrid strategy, similar to its peer group, wherein, they are focused on gaining a cost advantage, as well as a differentiation advantage. The hybrid strategy has been able to be utilised, primarily because of the low cost – quality trade-off in the industry.


Consumer price sensitivity and poor pricing power of companies, has resulted in major cost-cutting initiatives to be implemented in the value chain. Majority of Mondelez's cost advantage is derived from economies of scale, achieved from leveraging its global footprint.


Significant investments in product innovation and differentiation of products from competitors have also been a major focus for the company, as a response to the changing consumer preferences and trends. In the near term, Mondelez can leverage its current portfolio of power brands to fuel future growth investments and M&A, to build and secure market share, as the industry shifts towards healthier and premium snacking.


Innovation Strategy


Mondelez products are increasingly becoming commoditised, making innovation and differentiation of its products essential in developing a competitive advantage, in the snacking industry.


Mondelez has had its share of successes over the past years, experimenting with new product innovations. Oreo 'Thins' range became a global success, with the idea first being introduced in the Chinese market, to satisfy the consumer desire for healthier, thinner biscuits, while retaining the same taste and quality. Radical Innovation such as belVita biscuits, transformed the traditional breakfast category, becoming a global success, by offering consumers a nutritious, convenient breakfast option. BelVita enabled Mondelez to gain clear market leadership in a new breakfast category, establishing a first-mover advantage over its peers.


Research and Development (R&D) is an integral component of Innovation, as this is the function responsible for the key innovation success. Mondelez has in the past 1-2 years made $65 million investments in their global R&D facility networks. The aim of this is to attract the best talent from across the world, drive innovation and create a competitive advantage. The improved R&D facility networks will provide a more globally integrated solution to future innovation, and enable a quicker flow of ideas and intellectual property across the organisation globally. This will potentially mean that ideas such as the 'Thins' range introduced in China, will be more readily accessible in other markets for Mondelez owned brands to leverage and adopt.

(Source: Mondelez International Inc., 2018)

Diversification Strategy


Mondelez is well-diversified across 5 food categories, however, it does have a significant exposure to the snacking industry with, approx. 85% of its revenues generated from there. They have tried to reduce this exposure through strategic investments, in other non-related industries such as coffee. These investments include stakes of 26.4% and 13.8% in Jacobs Douwe Egberts and Keurig Dr Pepper, respectively.


Mondelez has strong geographical diversification, through selling products in over 160 countries, giving them less exposure to region-specific turmoil, FX risk and geo-political issues. Their diversification strategy has generated many cost synergies, and by acquiring competitors in a particular category, Mondelez has been able to gain market leadership positions globally.


Divestiture Strategy


Mondelez has been very flexible over the years when it comes to divesting brands from its portfolio which are low growth or product outliers. They have been and still are looking to sell brands such as these from its portfolio, to make the company leaner and more profitable. Recently, in May 2019, Mondelez completed the sale of its Middle East and Africa (MEA) cheese business to Arla Foods, to increase its exposure to the faster-growing snack categories such as biscuits and chocolates.


Organic and Inorganic Growth Strategy


Mondelez pursues growth through organic and inorganic strategies. In addition to innovation, Mondelez grows organically through trimming unnecessary costs, making the company leaner. This has significantly boosted key performance indicators over the years, as shown below:


(Source: Mondelez International Inc., 2018)

Inorganic, or Mergers & Acquisitions (M&A), is another important growth strategy which Mondelez embraces. Their strategy for M&A is to execute if the M&A helps build their scale in priority markets, provides access to high growth snacks, adds new capabilities to core categories and shapes their snacking portfolio.


Examples of M&A over the past few years include:

  • In 2015, Mondelez bought Enjoy Life Foods, a health-focused snack company for $81 million. This acquisition enabled Mondelez to enter into the allergy-free healthy snacks arena.

  • In 2016, Mondelez failed to acquire competitor, Hershey’s, for $23 billion, in a bid to boost market share in the USA. This would have been a major acquisition and would have given Mondelez market leadership in US confectionary.

  • In 2018, Mondelez acquired Tate Bake Shop for approx. $500 million. This acquisition purpose was to give Mondelez entry into the premium cookie segment.

  • More recently, in 2019, Mondelez has made two notable investments in the healthy snacking space, as part of its Snack Futures initiative. It agreed to acquire a majority interest in Perfect Snacks, producer of refrigerated nutrient bars and acquired a minority interest in Hu Master Holdings, a healthy lifestyle snacking company. Investment amounts have not been declared as of this reports publish date.


H1 2019 Highlights

  • Increased global market position from No. 2 to No. 1 in the chocolate category.

  • March 2019: Completed Minority Investment in Uplift Food Start-Up. Acquisition aimed to boost exposure to the healthy snacking food space.

  • April 2019: Completed Minority Investment in Hu Master Holdings, parent of Hu Products and Hu Kitchen.

  • May 2019: Divestiture of MEA cheese business to Arla Foods

  • June 2019: Announced agreement to acquire a majority interest in Perfect Snacks



Disclaimer: The report above is strictly for information purposes only, and does not constitute professional advice or a recommendation to purchase or sell any securities. We do not endorse the use of the report above, for use as a basis for any investment decision.

© 2020 Westrow Capital Management, LP

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