As it looks to expand international revenues, Kraft Foods has developed a strategy that focuses on building its business in ten “priority markets” around the world. South Africa was recently added to Kraft’s emerging markets hit list and, in this month’s just-food interview, Katy Humphries spoke to Sean Murphy, MD of Kraft’s operations in southern Africa, about the group’s plans for growth in the region.
The maxim that emerging markets will fuel future growth is one that has shaped corporate strategy in the food industry for many years. However, while the BRIC markets remain the focus of much attention, other emerging markets are gaining increasing recognition.
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This is certainly true at Kraft Foods, the world’s second-largest food company. Kraft has placed considerable emphasis on its “Winning Through Focus” strategy – which concentrates on developing its ten “power brands” that span five categories in ten “priority markets”.
Last month, South Africa joined Kraft’s list of priority markets. The move came just four months after Sean Murphy joined the unit as managing director of Kraft Foods’s operations in southern Africa.
Speaking to just-food, Murphy is quick to emphasise the significance that Kraft places on developing its “top ten” markets. “Kraft said: ‘Right, after BRIC, where are our next opportunities?’ Certainly the Middle East and Africa are where we see that growth potential. You have a huge population throughout that region and to be positioned to work with those consumers is really a big opportunity,” Murphy says.
Moving from the Middle East, Murphy admits that he is finding adjusting to the chill of South Africa’s bright but bracing winter challenging. However, as Kraft looks to capitalise on the opportunity presented by the markets in southern Africa, it seems that there may be some tougher tests ahead.
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Sean Murphy, MD of Kraft Foods’ operations in southern Africa |
According to Murphy, expanding in each of these markets has its own challenges. However, while political instability in the Middle East and north Africa has been making headlines, Murphy says that the more stable governments of southern Africa make for a better environment for international businesses to operate in.
“The biggest challenge in southern Africa will be the economic wealth of the people. As they move above and beyond the poverty line, as the economies develop, then they become better able to participate in our categories,” Murphy observes.
As multinational companies such as Kraft look to build their presence in these emerging markets, the influx of international investment can in turn stimulate economic growth and job creation, adding to the growing body of potential consumers for FMCG companies.
While Kraft does not have a “strict policy” to promote local manufacturing, Murphy says that approximately 80% of the products sold in the region are manufactured locally. Kraft operates two manufacturing facilities in South Africa – in Johannesburg and Port Elizabeth – as well as sites in Swaziland, Botswana, Kenya and a joint venture in Zimbabwe.
“As we invest in our plants in the region then, ideally, we will also be creating jobs and livelihoods for many families,” Murphy says.
Where possible, Kraft also sources ingredients locally and the company is preparing to extend its commitment to developing local economies by converting to Fairtrade manufacturing in the region, Murphy reveals.
“The Fairtrade programme is an excellent programme to invest in African cocoa farmers,” Murphy says. “We will start with cocoa but we have plans to move to a wider range of products. It is not a programme where you just focus on one area. It is a commitment to local communities. As we can build the resources, and the local farming communities are able to make Fairtrade commitments, then we would like to work with them to move in that direction.”
Kraft’s business in southern Africa was substantially extended by the group’s 2010 acquisition of UK confectioner Cadbury. The transformational effect that the acquisition has had on Kraft’s business in the region – which legally became a single entity in March – is plain to see. The former Kraft business now constitutes around 20-25% of the combined business.
“You will appreciate the scale when you have a brand like Toblerone, which might have a 3% or 4% market share, versus the Cadbury range where there is a 60%-plus market share, depending on the area that you are talking about,” Murphy says.
This increased scale brings Kraft a number of benefits. It has improved Kraft’s ability to “reach retail shelves”, Murphy says, increased its supply chain and manufacturing flexibility and optimised its ability to launch new products. Cadbury’s footprint has also augmented Kraft’s route-to-market for its own ‘blockbuster’ brands – such as Oreo cookies or Tuc savoury biscuits– particularly into the central east African markets.
As part of the acquisition, Murphy says, Kraft gained Cadbury’s “very strong” South African research and development capabilities. Kraft has turned these facilities into “centres of excellence” for the Middle East and African regions and the company is continuing Cadbury’s investment in the development of local talent, he insists.
While Murphy believes that product development has “a role to play” in driving revenues, he adds that the majority of growth in southern Africa will come from strengthening the group’s “base” business. Murphy is upbeat on Kraft’s attempts to reach mainstream lower-income consumers and extend its routes-to-market.
“As an impulse snacking business you have got to have a certain amount of innovation to keep consumers interested. But the reality is that the base of your business drives most of your growth. That is around ensuring that your products are distributed and marketed as they should be. It also includes providing formats that reach price points that make your brand available to lower income consumers.”
In a bid to hit lower price points, Kraft recently developed a chocolate coated wafer product, named Perk, under the Cadbury umbrella. This will retail at ZAR2 (US$0.29), which is less than half the price of some of the more major countlines, Murphy reveals.
Another important element of Kraft’s operation is its ability to sell into the region’s “informal trade structure,” Murphy insists.
“South Africa has a very developed modern trade structure. What people often don’t appreciate is that the country also has a very large informal trade structure which is really designed to serve the lower income groups within the country. We typically access the informal channel through a cash-and-carry or redistribution model,” he explains.
As Kraft continues to build its business in southern Africa, it seems that the company will remain focused on leveraging its enlarged scale, developing its offering to meet local needs and expanding its routes-to-market – the bedrocks of any successful emerging markets enterprise. And, as the company grows in southern Africa, its investment in the local economies of the region is also likely to see continued growth.
