Brand owners create new business models

08 August 2011

NEW YORK: Many brand owners are attempting to rationalise their portfolios, with examples like Kraft and Fortune Brands showing that internal priorities and external forces both play a key role in this area.

Kraft, the food group, has recently announced plans to create two independent public companies: a North American grocery firm with revenues of $16bn, and a snacks business worth $32bn per year.

"The big idea for us is to recognise that these are two very different portfolios that we believe can benefit with a focused mandate," Irene Rosenfeld, Kraft's chairman/CEO said. (Warc subscribers can read more about Kraft's changing strategy here.)

Sara Lee also split its beverages and meat units in January, while Fortune Brands spun off its golf and home products arms to focus on spirits, a move partly attributed to pressure from shareholder Pershing Square Capital Management.

Alexia Howard, an analyst at Sanford C Bernstein & Co, argued Kraft's latest decision could cause greater scrutiny to be exerted on players like Heinz and Campbell's Soup.
"Given the different investment priorities and growth trajectories of the two businesses, it makes a lot of sense," she said. "It seems as though everyone is at the breakup game these days."

This impetus has extended outside the consumer goods category, with AMR, the owner of American Airlines, currently divesting American Eagle, a regional carrier within its stable.

In the energy sector, Marathon Oil followed the same path for Findlay, a refinery, and ConocoPhillips is pursuing a parallel strategy, forming two "pure-play" exploration and production firms.

Elsewhere, Fiat, the Italian automaker, decided to separate its passenger vehicle operations from the industrial wing making trucks and tractors after taking over Chrysler.

"It's a revision of the corporate business model where companies would grow to balance out their businesses," Peter Sorrentino, a senior portfolio manager at Huntington Asset Advisors, said.

"Today there's a market-implied impediment to that. And if you can't get paid for the businesses, you break them up."

Data from Bloomberg suggests 145 spinoffs were announced in the opening six months of this year, the highest such total since the organisation began tracking figures around a decade ago.

Data sourced from Bloomberg; additional content by Warc staff