Kraft's decision to offload its fruit snacks division is understandable in the context of the comestibles giant's restructuring process. However, the real winner here is more likely to be Kellogg, which can use the products to bolster its youthful but thus far successful fruit snacks operation. With the US snacks market set to continue growing, it looks like a timely move.

Kraft's $30m sale of its fruit snacks business to Kellogg seems somewhat cut price given the estimated $80 million in sales generated from the subsidiary last year. It may be partly due to a setback in February resulting from a 'road kill' fruit snacks campaign. Protests from animal activists caused the company to withdraw the snacks shaped as animals with tire tracks over them, damaging brand credibility in the process.

The sale does fit into Kraft's ongoing streamlining process. The food and drinks giant plans to close 20 of its 197 manufacturing plants and cut 6% of its employees while boosting marketing efforts and product price reductions with $500m-$600m in additional spending this year. The company aims to focus its efforts on four core business categories: cheese and dairy, biscuits, coffee, and specialty refreshment beverages.

Kellogg's acquisition includes facilities used to manufacture products marketed under the Nabisco, Jell-O and Capri Sun brands, but Kellogg will not be able to retain these brand names. However this should not be too great a problem: Kellogg has shown through brands such as Fruit Twistables that it has the ability to incorporate such snack offerings into its portfolio successfully, and the Kraft fruit lines should help it to develop this relatively young part of its business still further. Despite only entering the fruit snacks sector in 2003, the company claims it has already secured the number two spot in the market.

Kellogg's expansion in snacks is a wise move based on market trends. According to Datamonitor, the snack market in the US is expected to grow at 1.9% annually to exceed $60bn between 2003 and 2008, with snacks accounting for 45% of eating occasions in the US by 2008. The company has its eye firmly on the top spot in US fruit snacks - the timely and economical Kraft purchase just might help it get there.

(c) 2005 Datamonitor. All rights reserved. Republication or redistribution, including by framing or similar means, is expressly prohibited without prior written consent. Datamonitor shall not be liable for errors or delays in the content, or for any actions taken in reliance thereon.