Ingredients for success

Mac and cheese and emerging global marketplaces were on the agenda as Mondelēz International, Inc., Chairman and CEO Irene Rosenfeld kicked off Kellogg’s Brave Leader series Monday, Oct. 7.

Rosenfeld sat with Kellogg Dean Sally Blount '92 and a room of more than 500 Kellogg students, faculty and administrators to talk about her decision to spin off the international snacking titan from Kraft Foods in 2012. The following has been selected from their talk.

Blount: So Irene, you were at Kraft for many years, but you left in 2004 to run Frito-Lay. Then you came back as CEO just two years later in 2006, when Altria was thinking about spinning off Kraft. What did the company look like when you returned?

Rosenfeld: One of the reasons I actually left Kraft in the first place, and then chose to come back, is because a food company under the umbrella of a tobacco company was not a happy thing. Those of you who follow tobacco companies know that certainly during the litigious years of the '80s and '90s there were just a big focus on lawsuits and damages and so the whole food business was run for cash. The implication for those of us running those food businesses is that we were starved for investment.

We were not able to invest in our product quality, we were not able to invest in our marketing support, and our brands became tired.

Our brands became tired just as costs, input costs went up, and so we weren't able to price our brands and then it just kind of became a vicious cycle. The opportunity for us to reinvest in those franchises was a critical cornerstone of our ability to revitalize the company.

Blount: How do you decide what to do first? Because the market doesn't give you much time.

Rosenfeld: No, but I think the benefit that I had is I knew these brands well.

Kraft was a very heavily matrixed organization and we had lost touch in many respects with our marketplaces. So one of the first decisions I made was to decentralize the company. Too many things were happening in Chicago at corporate and we decentralized to allow those managers that were closest to the consumer, closest to their marketplaces, to make some of the key decisions. When I first came back, there was a request on my desk to approve a pricing action for coffee in Germany. What possibly could I know from where I sat about whether that was a good or a bad decision? And so the opportunity to decentralize, to give the local managers the authority—within a framework of course—to make those decisions was really important.

At the time about 60 percent of our revenue, almost 70 percent of our profit came from North America, which just wasn't growing that fast then or anytime soon. So if we really aspired to grow at a faster rate, we needed to make some portfolio changes. Obviously the decisions to divest Post cereals and divest our DiGiorno pizza business and in turn acquire the LU Biscuit business as well as Cadbury chocolate, were a very important part of that strategy.

Blount: How did you think about building that global portfolio? How did you get yourself there and how did you get the organization there?

Rosenfeld: Our biscuit business in 2006 was primarily a North American business. We didn't even have the right to most of our trademarks in Europe because Nabisco in the old days had sold off, during the “Barbarians at the Gate” period, the rights to those trademarks in Europe.

So I had to buy back the rights to Oreo and Ritz in Europe. We saw the opportunity to buy this biscuit business from Danone, which had no interest in biscuits, and they had a very strong footprint at that point in emerging markets. So whereas legacy Kraft had essentially a non-existent, money-losing business in China, Danone had a very profitable and very vibrant biscuit business in China. That's the LU brand

I don't like to say I bought Danone; it's confusing. I bought LU and the LU biscuit business. It was clearly an opportunity to create much more of a tailwind for us by making our biscuit business global, by expanding our chocolate footprint, as well as bringing some of the international markets, particularly the emerging markets, into the portfolio.

LU took us from about 13 percent of our business emerging markets, we doubled it to about 26 percent, and today we're almost 40 percent.

Cadbury has about a 70 share of the chocolate market in India. Legacy Kraft had no business in India but a very strong desire to be there. It's one of the fastest growing consumer good markets in the world, for all the reasons that you all know. But the cost of developing an infrastructure in a market like India is quite extensive, so we took the opportunity to buy our position in markets like India, like China, and a number of the other markets. The legacy company had a very strong position in Brazil and Russia so we used our positions in those markets to help both LU and Cadbury.

Blount: So you have to change the whole management systems in essence, in order to get people to systematically collect the right data.

Rosenfeld: When we bought Danone's biscuits, as an example, we had a money-losing business in China. They had a fairly profitable high-single-digit profit margin, and we did a study before we bought the company to understand: Why is that?

It turned out every line of their P&L was advantaged. They were using packaging that did not have to withstand the second flood. They were using machines that were made in India, not in Germany. Because food requires a stainless steel contact surface, our entire table was made out of stainless steel. Their tops were made out of stainless steel. The legs were out of aluminum. And at every line of the P&L, you could see decisions that were being made that were much smarter and was really accounting for their strong profit performance versus ours. That willingness to go out and benchmark and learn from others not to be defensive but to open your minds was a critical lesson for our company as we were turning around.

Blount: The decision to take apart an organization that you spent most of your career with must have taken some personal soul searching.

Rosenfeld: The decision when we have a dollar to invest, you would give Mac and Cheese a little more advertising money or do you invest in Oreo in China? They were not easy decisions to trade off. Because the growth was faster in these emerging markets and in our international business, we often gave the preference to those businesses.

I'm very proud of the fact we've created on any given day, depending upon where the stocks trade, anywhere between $25 and $28 billion of market cap. And so I think the marketplace would reflect the fact that we did create the value we had hoped to.