Kraft's $2 Billion Cookie Turns 100
byMay 23rd 2012 2:36PM
Remember how you used to eat Oreos when you were a kid? ("Twist, lick, dunk" was never my style. With four hungry younger brothers, I had to dunk the cookies whole and eat them in one bite if I wanted to get my share.)
Most of us have an Oreo memory. That's because eating the sandwich cookie is a ubiquitous American experience. Consider that in the year 2000, nine out of 10 U.S. households enjoyed Oreos.
Of course, it can be hard to tell where the memory begins and the marketing ends. The Oreo experience is both a real thing and a wildly successful advertising campaign.
Today the chocolate, cream-filled cookie grosses a stunning $2 billion a year, and just recently the cookie turned 100 years old, with parent company Kraft (KFT) celebrating Oreo's centennial in March. But the Oreo is no longer just "Milk's favorite cookie," or America's, for that matter -- it's a global powerhouse.
Orange-Mango Oreo, Anyone?
There are Oreos in China, Venezuela, Indonesia, and Mexico -- more than 85 markets across the globe. In Europe, Oreo sales grew by 40% just last year.
While U.S. consumers spend $1 billion a year on Oreos, this year Kraft expects sales in emerging markets to exceed that and and cross the $1 billion mark.
The Oreos sold overseas might look strange to American eyes. In China, for instance, the American version, introduced in 1996, didn't suit local tastes at first. Kraft had to reformulate the cookie to balance the bitter/sweet ratio and introduce flavors more popular among the Chinese, including green tea and orange-mango.
Some of these Oreo innovations have found their way back home; those straw-shaped Oreos now selling on the shelves of your local grocery store were first introduced in China.
So you might say the Oreo has come full circle. Or full cylinder.
Kraft Is Doing the Splits
Oreo isn't Kraft's only billion-dollar brand. As the world's second-largest food company, Kraft boasts 12 brands in total -- Maxwell House, Trident, Nabisco, and Oscar Mayer, to name just a few -- with more than $1 billion in annual sales each.
Changes are afoot, however. Before the end of 2012, the company will split in two, with the global snacks business, which will be called Mondelez International, spinning off from the North American grocery business, which will retain the Kraft name.
Whether this is a case of empire building or empire stripping remains to be seen. Market giants Warren Buffett and Bill Ackman have recently reduced their positions in Kraft, perhaps as a result of the announced split. Some investors worry that Kraft's management is making the move just for the sake of it, or because they find running such a large company to be difficult and unwieldy.
On the flip side, it's possible that the giant food company will actually be in a better position to allocate capital and manage operations as two independent units. Already, the North American business is streamlining its sales force and operations, in a move that looks to deliver greater profitability from the core grocery brands. While it's terrible to hear of jobs being eliminated (over 1,000 in the U.S.), this should make the North American business leaner and meaner.
Whereas the global snacks business, Mondelez, should deliver big growth for years to come. For instance, sales of the powdered beverage mix Tang have doubled since 2006.
The takeaway for investors? Owning both companies could give you a strong stake in the global food business.
But perhaps you're more interested in simply enjoying an Oreo than you are in owning stocks, in which case, go ahead and twist, lick, dunk to your heart's content. And while you're at it, share your unique Oreo-eating style in the comments section below.
Motley Fool contributor Catherine Baab-Muguira has no financial interest in any of the companies mentioned here.