Business Irish

Thursday 2 October 2014

Inside the chocolate factory after acquisition – and there's not an Oompa Loompa in sight

Justin Cook , head of the Irish arm of Mondelez International – the Cadbury and Kraft amalgamation – tells John Mulligan how the initially tricky marriage is going and that innovation is key to the company's growth

Published 24/10/2013 | 01:00

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Justin Cook, head of the Irish arm of Mondelez International – the Cadbury and Kraft amalgamation

Justin Cook warns good-naturedly as we're donning hair nets and white coats not to swipe any chocolate from the conveyor belts .

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Inside the Cadbury plant on Dublin's northside, it's all stainless steel, robot packers, computers and technicians. Not an Oompa Loompa in sight. No three-course dinner gum. Dreams are unceremoniously shattered.

But it's admittedly impressive nonetheless. About 650 Twirls a minute pirouette towards the packing area, while dozens of Starbars get lathered in chocolate in one dunk. Cadbury has been making chocolate in Ireland for 80 years and today about 80pc of the output –which also includes Time Out and Flakes – is exported, destined primarily for the UK, but also for markets such as Germany.

At any one time there's about 150 people working on the separate floors of the extensive facility, but the fact they're dotted over such a large area sometimes makes it seem as if this is a sparsely populated chocolate Nirvana.

Cook – a native of York who studied geography at the University of Nottingham – has been in charge of the operation for about a year, having been parachuted in from Kraft.

As head of the Irish arm of Mondelez International – the name concocted last year following the 2009 acquisition of Cadbury for £11.4bn (€13.3bn at the time) by Kraft – he's got plenty of experience. He joined Kraft in 1991, and has had long stints with the group in locations such as Stockholm and Zurich.

The acquisition of Cadbury, which caused political and consumer consternation in Britain, even led to calls for the UK government to use its power to selectively overrule some M&A activity.

Cook acknowledges that there were cultural differences between Kraft and Cadbury, but insists they've been by-and-large ironed out. Still, the two are effectively newlyweds.

"It was harder for the UK operation, in that there was a very large Cadbury business merging with an even bigger Kraft business," he explains. "In Ireland, it's essentially a Cadbury business with some Kraft thrown in." The entire Mondelez range includes products from Kenco coffee, Dairylea, and Philadelphia cheese spread, to Toblerone, Oreo and Belvita.

"Culturally, I think Kraft is more head than heart, while Cadbury is the opposite. It's a nice marriage."

It might well be, but the problem is that the evidence shows bliss often eludes big mergers and they can have trouble delivering shareholder returns.

A report last year by consulting group Kinsey maintained that while that's the case for large-scale mergers and acquisitions, M&A activity amongst slow-growth firms usually fares better.

But another consulting giant, Bain & Co, insisted in a report this year that global M&A deal-making has "unequivocally" paid off in the past 11 years, with companies actively engaged in the field outperforming inactive companies not only in terms of total shareholder returns, but in sales and profit growth as well. It also pointed out that the more experience a company has with M&A, the more likely it will succeed with fresh acquisitions.

"If you look at Kraft over the last 25 years, it's been a series of acquisitions," says Cook. "We have a lot of experience of integrating processes, people change and that whole process. We're used to it."

But it hasn't all been straightforward. To offset slower growth in mature markets such as the US and Europe, Mondelez chief executive Irene Rosenfeld is focusing the group's energies on expanding in Brazil, Russia, India and China – the BRIC nations (she also spun off the slow-growth US Kraft grocery business into a separately listed business last year).

Just recently, Credit Suisse reiterated its 'outperform' rating on Mondelez stock, saying it was impressed with the scale of the opportunity the company has in China.

In more mature markets, Cook says innovation is key to growth. Mondelez, he explains, tries to act like a start-up, but with product development centralised in the UK and Germany, how much like Silicon Valley can it ever be?

"It's about the individuals. I don't care if someone's on the factory line, a salesperson or the marketing director," he explains.

"It doesn't matter. If you've got the right individual make-up and you think as an entrepreneur, you can have the ability to influence things in your role. That's what we encourage."

The innovation extends across product ranges. Cook cites Mondelez's Tassimo coffee machine range as an example. A rival to Nestle's Nespresso, it has gone from a standing start in France and Germany a few years ago to generating annual sales of about €295m.

But with Rosenfeld's focus on emerging markets, it's easy to speculate whether Mondelez operations such as those in Ireland become endangered.

Cook emphatically says that's not the case. The Coolock factory (each factory effectively specialises in making a number of products) has received €74m of investment since 2005. While a big chunk of that came under its former ownership, the investment has continued. Just a couple of weekends ago, one of the lines was being upgraded so it could manufacture more Starbars.

Still, costs have been cut, largely through voluntary redundancies, bringing total employment in Ireland to around 900.

Apart from the Dublin plant, there's a facility in Rathmore, Co Kerry, that makes chocolate crumb and uses 80 million litres of Irish milk every year. The crumb is shipped daily to Coolock and, following further refinement, forms the base of the chocolate that's used there.

"We have a phrase internally about making Ireland stronger," he says. "Unless we become competitive internally, then the danger is that you get less investment, you don't deliver the growth and then the consequences are severe. We don't want that. We want to make sure we're lean, we're effective, and that we get investment and drive efficiencies."

With chocolate forming the biggest part of Mondelez sales in Ireland, Cook concedes that there must be constant growth in the segment.

The company has a 50pc share of the chocolate market here, bigger, obviously, than the combined market share of its two biggest rivals, Nestle and Mars. Its eight-square Dairy Milk bar is the country's best-selling chocolate product. It's also has the biggest share of the candy market via brands including Maynards and The Natural Confectionery Company.

"We have to grow the chocolate business," he explains. "If we don't grow the chocolate business then we'll have some challenges."

Ireland has the second-highest per capita consumption of chocolate in the world after Switzerland, according to a report this year by the international Leatherhead Food Research group.

The accounts for the retail arm of Mondelez in Ireland show that it generated revenue of €217.5m in 2012 and made a €1.9m operating profit. Of the sales, a whopping €177.7m came from confectionery, €15.1m from food products and €24.6m were from beverages.

Cook says the pressure on margins is "constant", especially with declining disposable incomes, which means the company has to offer better value to consumers and retailers.

With Mondelez holding the number three spot for biscuit sales in Ireland, Cook also believes there's an opportunity there to grow its share of the category.

"The biscuit category here is growing at about 1pc per annum, but if you stripped out the growth that we've delivered with Belvita and Oreo, the market would be in decline," he points out.

Meanwhile, on the factory floor, bits of chocolate tend to slip here and there from various machines, or get rejected for not being the right weight.

The whole lot gets sold off in bulk to someone who makes animal feed from it.

Somewhere, there are cows and pigs living the high life.

Irish Independent

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