Precursor Kraft Foods traced its roots to the National Dairy Products Corporation, formed on December 10, 1923, by
Edward E. Rieck and Thomas H. McInerney. The firm was initially set up to execute on a
rollup strategy in the fragmented United States
ice cream industry. 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, exceeding
Borden. McInnerney operated the
Hydrox Corporation, an ice cream company located in Chicago, Illinois. In 1923 he went to Wall Street to convince
investment bankers there 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 including
Goldman Sachs and
Lehman Brothers to 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 of
Pittsburgh,
Pennsylvania. The resulting firm was then listed on the
New York Stock Exchange with 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 being:
Beginning Born in
Stevensville,
Ontario, Canada, in 1874,
James L. Kraft immigrated to the
United States in 1903 and started a
wholesale door-to-door cheese business in Chicago; its first year of operations was "dismal", losing
US$3,000 and a horse. It then took hold and Kraft was joined by his four brothers to form
J.L. Kraft and Bros. Company in 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 heavy
product development, expansion by
marketing, and opening a
wholly owned cheese
factory in
Stockton, Illinois. In 1915, the company invented
pasteurized processed cheese that did not need
refrigeration, thus giving a longer
shelf life than conventional cheese. In 1926, Kraft was listed on the New York Stock Exchange. The listing strengthened the company’s national profile and provided additional capital for expanding its manufacturing and distribution network. From the mid‑1920s through 1930, Kraft acquired a number of regional dairy and cheese firms as it expanded its national production network. The table below summarizes the acquisitions documented in a judicial document, official corporate announcements, and newspaper coverage. In May 1926 the
Kraft Walker Cheese Co. was registered in Australia. It was a separate company from Fred Walker & Co. but managed by the same staff.
Fred Walker was chairman by 1930, and after his death in July 1935, Kraft acquired the company. Later, in 1927, it established its London, United Kingdom, and
Hamburg, 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 a
cream cheese branded as
Philadelphia cream cheese, founded by Jason F. Whitney, Sr., and the company changed its name to
Kraft-Phenix Cheese Company. In 1929,
The New York Times reported that Kraft Phenix,
The Hershey Company and
Colgate were looking at merging. In the same year, it was reported that National, Borden and
Standard Brands (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. 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, the
Sealtest brand of ice cream was launched as a unified national brand to replace the firm's numerous regional brands. In the 1960s, product development became intense, launching
fruit jellies,
fruit preserves,
marshmallows,
barbecue sauces and Kraft Singles, a brand of individually-wrapped cheese slices. In the same year it also acquired The Southern Oil Company in
Manchester, England.
National Dairy becomes Kraft In 1969, the firm changed its name from National Dairy to
Kraftco 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 to
Glenview, Illinois, in 1972. During the 1980s, Dart & Kraft offered mixed results to its shareholders, as new acquisitions in the food business—such as Churny premium cheeses,
Tombstone Pizza,
Lender's Bagels,
Frusen Gladje ice cream and
Celestial Seasonings tea—slightly offset the lagging nonfood business, due to Tupperware's decrease in sales and
KitchenAid's (acquired soon after the merger) slide in market share, leading Dart & Kraft to spin off its nonfood business (except
Duracell batteries) into a new entity (
Premark International, Inc.) while changing its name back to Kraft, Inc. Premark was bought by
Illinois Tool Works in 1999. Kraft then acquired
General Host's All American Gourmet Co. unit in 1987. In 1988, Kraft sold
Duracell to private equity firm
Kohlberg Kravis Roberts, who then put it into an
initial public offering in 1989.
Gillette ===Philip Morris acquisition and merger with
General Foods=== 's
Ruscote estate. It has been a major employer in the town since 1965. At the end of 1988,
Philip Morris Companies purchased Kraft for $12.9 billion. In 1989, Kraft merged with Philip Morris's
General Foods unit—makers of
Oscar Mayer meats,
Maxwell House coffee,
Jell-O gelatin, Budget Gourmet frozen dinners,
Entenmann's baked goods,
Kool-Aid,
Crystal Light and Tang powdered
beverage mixes,
Post Cereals,
Shake 'n Bake flavored 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 1993, it acquired
RJR Nabisco's cold cereal business (mainly
Shredded Wheat and
Shreddies cereals),
Terry's of York from
United Biscuits, while selling its
Breyers ice-cream division to
Unilever and its
Birds Eye unit to
Dean Foods. In 1994, it sold its frozen dinners unit to
H.J. Heinz and in 1995, it sold its foodservice unit. Also in 1994, it acquired an 82% stake in Romanian confectionary company Poiana-Produse Zaharoase SA. 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 to
Kellogg Company), its caramel & marshmallow divisions and its tablespreads division.
Log Cabin syrup was sold in 1997. On August 2, 1996, Kraft announced a deal with
PepsiCo to market the
Taco Bell brand of grocery products. In 1998, Kraft announced a partnership with
Starbucks to market and distribute the Starbucks brand of coffee beans in grocery stores. By 2007, Philip Morris (now Altria Inc.) sold its stake in Kraft Foods and the companies separated.
Financial expansion In 2000, Philip Morris (renamed
Altria in 2003) acquired
Nabisco Holdings for $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-largest
IPO of all time, retaining an 88.1% stake in the company. Also in 2001, Kraft acquired the Bulgarian and Romanian coffee businesses, as well as the Moroccan coffee business. On January 4, 2002, Kraft acquired
Stollwerck's Eastern European confectionery businesses. In March 2004, Kraft acquired juice maker
Veryfine. In 2004, it sold its sugar confectionery division to
Wrigley, while doing minor divestitures—including its
hot cereals division (
Cream of Wheat) to
B&G Foods in 2007, its fruit snacks division to
Kellogg's in 2005, its pet snacks division (
Milk-Bone) to
Del Monte Foods in 2006, juice drinks and
Fruit2o to
Sunny Delight Beverages in 2007, its yogurt division to
CoolBrands International, its British desserts business to
Premier Foods and some grocery brands in 2006. In 2006, the company bought the Southern European business of
United Biscuits, acquiring several local brands such as
Galletas Fontanenda. Investor
Nelson Peltz bought a three-percent stake at Kraft Foods and discussed revitalizing the business with executives, with options such as buying
Wendy's fast-food chain or selling off
Post cereals and
Maxwell House coffee. While two years earlier fiery protests had arisen over plans for American
PepsiCo's hostile 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 February 2008,
Berkshire Hathaway, run by billionaire investor
Warren E. Buffett, announced that it had acquired an 8% stake in Kraft then worth over $4 billion. Buffett's business partner
Charles Munger had 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 2010
annual report. On September 22, 2008, the company replaced the troubled insurance company
American International Group in the
Dow Jones Industrial Average. On December 8, 2009, Kraft sold
Balance Bar to
Brynwood Partners.
Purchase of Cadbury 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 economic
protectionism in 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 the
Royal Bank of Scotland, the British part-state-owned bank. The Cadbury purchase was part of the long-term strategy of
Irene 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 of
Nestlé and
Hershey joining together. Kraft also believed it could eke out 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 as a necessary step 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. 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 as
Stride,
Trident,
Dentyne, and
Chiclets.
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." In July 2010, Kraft announced it was selling Cadbury's Romanian unit to Oryxa Capital as a condition for the
European Commission's approval for the company's purchase of Cadbury.
Acquisition fallout 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 executive
Irene Rosenfeld said, "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. 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. President
Sanjay Khosla said, "
South Africa is a priority market for us, where we focus on power brands like Cadbury chocolate."
Sale of frozen pizza division to Nestlé , September 2011 On March 1, 2010,
Nestlé concluded 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 included
DiGiorno,
Tombstone and
Jack's brands in the United States, the
Delissio brand in Canada and the
California Pizza Kitchen trademark license. It also includes two Wisconsin manufacturing facilities in
Medford and
Little Chute. The business generated 2009 net revenues of $1.6 billion, with 3,400 employees.
Proposed split 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 the
New York Stock Exchange, but the company has recently decided to move to
NASDAQ, 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 named
Mondelēz International, would focus on the global snacks business, and would include the former
Cadbury businesses, plus global brands including Dairylea. On April 2, 2012, Kraft Foods Inc. announced that it had filed a Form 10 Registration Statement to the
SEC to 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. ==Sponsorships and promotions==