KANSAS CITY — An insight from this year’s Barclays Global Consumer Staples Conference is small is potentially big for the largest food and beverage companies. Several executives taking the stage in Boston earlier this month at the annual investor conference discussed why they are focusing on secondary and niche businesses within their organizations to grow their top and bottom lines.
When Dirk Van de Put took over as chief executive officer of Mondelez International, Inc., he shifted his management team’s focus to a barbell approach nurturing both the company’s stable of large, billion-dollar brands and smaller brands it owned in regional markets around the world.
“We call it local first but not local only, and that gave our local teams more liberty to execute or to innovate against what was going on in their markets,” he said at the conference. Another change was shifting the organization’s focus to gross dollar profit versus gross dollar percentage growth.
“I would argue that creating income and revenue streams that are sustainable in the long term is the best way we had to really leverage the infrastructure we had,” said Luca Zaramella, chief financial officer at Mondelez. “Those are the best return-on-investment initiatives we can think of. And in the past, we passed up on those because we were so adamant to hit certain thresholds in terms of percentage margins.”
Today, Mondelez’s portfolio features nine global brands, including Oreo and Milka, and 19 local brands. The global brands represent 45 per cent of sales, which were $25,938 million in fiscal 2018, and the local brands represent 55 per cent.
“For us to be successful, we cannot just be focused on 45 per cent of the portfolio,” Mr. Van de Put said. “We need to find balance.” He said focus exclusively on power brands to the detriment of smaller brands was a meaningful drag on growth in the past.
Steven A. Cahillane, chairman, president and c.e.o. of Kellogg Co., said during his first year and a half with the company he was only asked about Kellogg’s MorningStar Farms brand a handful of times. Management’s focus has been on revitalizing the Kellogg’s large ready-to-eat cereal and global snack brands, which make up 75 per cent of company sales, but as the market for meat alternatives has grown Kellogg is looking to take the niche MorningStar brand mainstream.
The company debuted Incogmeato, an extension of the MorningStar brand, during the conference. Mr. Cahillane did not discuss expectations for the new products but made clear the company sees a brighter future for the brand. It may not be on par with cereals or snacks, but it is hoped extension of the brand into new categories may spur additional growth.
Kellogg’s approach to MorningStar echoes Mondelez’s strategy of finding revenue streams, large or small, that are sustainable. Top- and bottom-line growth have been elusive for many large food and beverage companies. Competition from smaller, more nimble competitors and a fragmented market make placing big bets on acquisitions or innovation platforms risky. Leveraging the niche or local brands within an organization has the potential to meaningfully contribute if supported with investment and resources.