Will Cadbury give Kraft indigestion?

by Steve McKee

After months of intrigue, Kraft finally made a successful bid for venerable British candy maker Cadbury, leaving archrival Hershey's on the sidelines.

Kraft management predicts that the $50 billion combined company will be able to save $675 million over three years, but that's not the primary reason for the merger. It's all about global distribution and access to developing markets. Cadbury has it, Kraft wants it. Makes sense on paper.

Most mergers do make sense on paper, yet many become spectacular failures. The reason? A lack of appreciation for just how difficult it is to integrate not only global operations, but two proud and independent workforces.

Kraft is going to face this problem in spades with Cadbury. Todd Stitzer, Cadbury's CEO, said that Hershey's would have been a better cultural and operational fit. The company's Chairman, Roger Carr, took it a step further by saying Kraft is "an unfocused conglomerate" with "unappealing categories" and management that "underdelivers." Carr went on to say, "There is no strategic, operational, managerial or financial reason" for the merger.

Sure, Carr's statement may have been a bit of strategic bluster to raise the value of the offer (which he succeeded in doing), but it sounds pretty categorical to me. And it was telling that not a single Cadbury executive was present on the conference call with analysts to discuss the deal. Hmm.

Kraft estimates it will take $1.3 billion to "integrate Cadbury." I'm not sure exactly what that means or who came up with the number, but I don't know how anybody could forecast the costs associated with the fear, resentment and internal jockeying with which Kraft and Cadbury managers and employees are now having to deal. The fact that Britons consider Cadbury a national treasure that has been overrun by ugly Americans sure won't help.

Let's hope Kraft doesn't end up with a stomachache.


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Steve McKee is a BusinessWeek.com columnist, marketing consultant, and author of "When Growth Stalls: How it Happens, Why You're Stuck, and What To Do About It." Learn more about him at www.WhenGrowthStalls.com and at http://twitter.com/whengrowthstall.

Don't Be Commoditized

by Steve McKee

The other day I met with about a dozen smart, aggressive CEOs, all of whom run successful companies. Most of them, like most of us, are struggling in the current economic environment.

The conversation turned to the pressure on margins they're facing, particularly in industries where distinguishing one competitor from another can be difficult. The question on the table ultimately became this: if you're operating in a "commoditized" industry, what choice do you have but to compete on price?

Plenty. I happen to believe that there is no such thing as a truly commoditized industry. Think about it - if milk or orange juice can be branded, anything can be. Even if your offering is virtually indistinguishable from what competitors provide, the way it's promoted and delivered - from packaging to timeliness to inventory management to the terms offered - can set your brand apart.

It all goes back to the fundamentals of marketing and the Four Ps. While your "product" might be very similar (even identical) to that of your competitors, there are three other Ps in the toolbox with which you can differentiate. For example, while Coke and Pepsi might take issue with being called commodities, to most people they are acceptable substitutes as far as the caramel-colored beverage in the bottle is concerned. Yet both companies relentlessly work to differentiate themselves along packaging, distribution and promotional lines, often with a great deal of success.

Don't cop out if you operate in a highly competitive industry, complaining about having to compete on price. It's not true. Find a way not to be "better", but "different," using all of the tools in the marketing toolbox. Accepting "commodity" status is a choice you make. Or don't.

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Steve McKee is a BusinessWeek.com columnist, marketing consultant, and author of "When Growth Stalls: How it Happens, Why You're Stuck, and What To Do About It." Learn more about him at www.WhenGrowthStalls.com and at http://twitter.com/whengrowthstall.

Social Media and Music - Ideal Partners?

Quiet Company - "It's Better To Spend Money Like There's No Tomorrow Than Spend Tonight Like There's No Money"

I recently became aware of TheSixtyOne, an online music community where "artists upload their work for review, but, rather than allow a stuffy suit in a boardroom to decide what's good, thousands of listeners do." Since I canceled my Last.fm account after they handed user data to the RIAA, I've found TheSixtyOne to be the best way to learn about new bands that you otherwise wouldn't hear about.

One band I've gotten into from TheSixtyOne is Quiet Company from Austin, TX. Their music is a kind of wonderful, melodic piano-pop with lyrics that are optimistic without feeling cheesy. With songs like "It's Better To Spend Money Like There's No Tomorrow Than Spend Tonight Like There's No Money" (above), you know they're not taking themselves too seriously.

After playing the track list multiple times, I just HAD to share them with my Twitter stream. The best way to share music on Twitter is Blip.fm. I searched, found the song, and sent this:

That was the last I thought of it, until this morning. When I opened TweetDeck, I found this reply from @quietcompanytx:

They followed up with another tweet saying I could share that link with anyone I think would like their music, so here you go.

I downloaded the sampler, happy to get free music, and played the three songs about four times over.

Then something funny happened.

I went to the Quiet Company site, and bought & downloaded their newest album, "Everyone You Love Will Be Happy Soon", directly from the band.

What's so funny about that? I almost never buy new music. With the plethora of online music sites - from Last.fm to Pandora, to Blip.fm to TheSixtyOne and more - I can stream just about anything I want. For free.

But because Quiet Company used the tools of the internet - first, to showcase their music; then, to find and reach out to those talking about it - they were able to gain a new fan, turn that fan into an evangelist, and see a return on the time and effort they've spent.

This isn't something that only applies to music. Whether you're a band, a business, or a nonprofit, how can you excite people with your offerings? How can you benefit from listening to online conversations and engaging with those that are talking about your product or service?

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Gradon Tripp is the founder of Social Media for Social Change, an organization that uses the tools of online media to raise awareness for nonprofits. He writes about ways organizations -- both non-profit and for-profit -- can benefit from using social media at GradonTripp.com.

Food Innovation - New Tastes using Old Methods

Ever notice how long food ingredient lists have gotten over the past thirty or forty years?


Distribution and logistics hurdles used to require that food was a local and fresh affair. Then television and new distribution and logistics capabilities enabled the creation of regional and then national grocery chains. This encouraged companies to make one centralized product in quantity for national distribution. The national distribution system lengthened the amount of time that products might spend in retailers' supply chains, and ingredient lists began to lengthen as a result. To make matters worse, as automobiles enabled larger stores outside the city center with larger selections, floor space turned less frequently and retailers increased the pressure for longer shelf lives on top of the longer supply chain survival time. That is why you need a degree in chemistry today to decipher the average food item ingredients list.

So now that our food has a wicked shelf life but no natural taste without loads of sugar, salt, fat, and "flavor enhancers", has a market been created for a new breed of food "innovators"?

The answer is a resounding yes!

The Newman's Own Example

An excerpt from Shameless Exploitation in Pursuit of the Common Good: The Madcap Business Adventure by the Truly Oddest Couple):

"It was a recipe like nothing they had ever seen before, nor had anyone else in the spaghetti sauce business. When Ralph Cantisano saw the recipe, he had serious doubts that a sauce with fresh components and no preservatives would have the necessary shelf life, the same doubts that we had encountered with our dressing and that we would face with all our natural products, primarily because no one had ever bottled fresh stuff before without fixing it with chemical preservatives"

Newman's Own succeeded in finding a way to bottle both their salad dressing and their spaghetti sauce without chemical preservatives, and have gone on to donate more than $200 million to charities.

The Chocolate Milk Example

Look at the ingredient list for Darigold "Old-Fashioned" Chocolate Milk:

Milk, Sugar, Corn Syrup, Nonfat Milk, Whey, Cocoa Processed with Alkali, Mono-and Diglycerides, Cellulose Gum, Carrageenan, Guar Gum, Locust Bean Gum, Vitamin D3.

Organic Valley Chocolate Milk is not much better:

Organic Grade A Reduced Fat Milk, Organic Sugar, Organic Dutch Cocoa, Salt, Carrageenan, Vitamin A Palmitate, Vitamin D3.


And then look at the ingredient list of Wilcox Old Fashioned Chocolate Milk (from a local Washington dairy):

Grade A Milk, Cream, Sugar, Cocoa

If you haven't tasted Wilcox Old Fashioned Chocolate Milk or Marks & Spencer's chocolate milk in the U.K., trust me, they are pure chocolate bliss.



The Conclusion

With improvements in the supply chain, distribution efficiency, inventory management, and just in time delivery, food companies and food retailers now have the opportunity to shift food consumption in the United States in innovative new directions away from mile long supply chains and nitrogen ripening chambers.

Luckily, increased shipping costs are bound to force more companies to explore distributed production (ala Coca Cola and Anheuser Busch) to reduce costs. At the same time, the local food and slow food movements are picking up steam. If grocery stores also begin updating their supplier requirements and their stores, then we may see a perfect food storm deliver fresher, tastier food to our shelves soon with fewer preservatives.

Imagine a grocery store with more frequent, efficient re-stocking and a produce section carrying smaller quantities of each item (reducing waste) that reside in constantly weighed bins, matched against boxes in the warehouse and boxes scanned as they are emptied into display stock, giving the store and regional distributors a real-time produce inventory. This real-time produce inventory would allow the stores to carry fresher, and hopefully naturally ripened (and thus tastier) produce with reduced waste.

Now for the bad news. Wilcox Old Fashioned Chocolate Milk is no longer available because the dairy tried to compete on price in their unflavored milk business, started losing money, and sold their milk business off to a competitor. The competitor has chosen to expand distribution of their pre-existing artificial chocolate milk instead of expanding distribution of Wilcox Old Fashioned. Thus consciously choosing to eschew a market willing to pay a premium for a better tasting, natural product.

Imagine my shock and horror...

So, to satisfy my own sweet tooth and to help raise even more money for charities, I will be calling the guys at Newman's Own to pitch them on the idea of producing a fresh and natural chocolate milk on a national scale via a consistent recipe and local dairies for maximum freshness.

What are your "new" food innovation ideas?