The biscuit sector may be mature, but nevertheless it remains a playground for three of the most powerful trends informing innovation today: convenience, health and indulgence. By seizing control of the brands previously franchised to United Biscuits, Kraft is reasserting its international importance, argues Catherine Sleep.

Many of the world’s leading food companies have a stated aim of concentrating on their most powerful brands while stripping out underperforming or non-core products, often acquired in the heyday of the 1980s. Unilever, for example, committed to slash its portfolio from 1,600 to 400 core brands under its ‘Path to Growth’ campaign. Kraft has been less explicit about plans for its brands, preferring instead to talk in terms of plant closures and workforce reduction. The company is midway through a plan to close 40 plants and cut its employee base from 102,000 to 88,000.

Investors naturally approve of cost savings, but they are far more excited by affirmative action and wise acquisitions, and the investor community should react more positively to the news that incoming CEO Irene Rosenfeld is reclaiming the company’s Nabisco trademarks in Europe and buying the Spanish and Portuguese units of United Biscuits (UB) for an estimated US$1.07bn. Shortly before Kraft bought Nabisco in 2000, the latter company had offloaded its European trademarks to UB, so it makes perfect sense for them to be brought back into the portfolio, not least because UB in its entirety may well soon be on the auction block, so Kraft risked losing the Nabisco rights to a third party.

The move also affords Kraft a quick and relatively painless way to boost its European activities, which is crucial to its aim of being perceived as a more international company. UB is the largest cookie maker in Spain and Portugal, with about 26% of the market in Spain and 37% of the market in Portugal. The markets show reasonable, if not spectacular, growth of 5-10%.

“Kraft has a fairly narrow international footprint so as they seek to expand, it makes sense for them to buy back rights to brands they already own,” said Thomas Russo, who oversees more than $3bn at Lancaster, Pennsylvania-based Gardner Russo & Gardner, including 1.7 million Kraft shares on 31 March

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The transaction gives Kraft a pre-tax gain of $243m from the redemption of its UB stake. Excluding that, the acquisition is expected to increase profit by about two cents a share in the first 12 months after it’s completed, Kraft said.

Looking forward, Kraft will be seeking to build on the work UB has undertaken to capture the spend of biscuit buyers who have an eye to nutrition. The British company has won market share by launching cookies with a healthier fat profile in recent years, a trend Kraft will look to consolidate.

Some analysts feel that Kraft’s performance on the stock market is weighed down by its association with tobacco company Philip Morris, with which it shares a parent company. A spin-off of Altria’s 86% stake in Kraft is expected once ongoing tobacco litigation suits are settled this summer.

This long-awaited spin-off may now be held up by a change at the helm following Roger Deromedi’s exit last month. Investors will need to become familiar with Pepsi veteran Rosenfeld and show confidence that she is in control before a spin-off. This week’s move is a reassuring indication that she knows Kraft’s branded portfolio must become more focused if it is successfully to offset cost pressures and see margin improvements.