Mondelez International is doing what it can to cut costs and improve its production, as the maker of Oreo cookies sees limited opportunities for strong near-term sales growth, executives said Tuesday.
The company has been updating its supply chain, including making changes at some existing manufacturing plants and opening new ones in emerging markets. It plans to build five new plants from 2016 to 2018.
“In the current challenging environment, we’re executing against our transformation agenda by controlling what we can control, reducing costs, pricing to protect profitability and driving our power brands and innovation platforms in key markets,” Chairman and CEO Irene Rosenfeld said ahead of the company’s Tuesday presentation at the Consumer Analyst Group of New York conference in Boca Raton, Fla.
Mondelez, headquartered outside Chicago, focuses on snacks, sales of which are growing at a faster clip than those of other packaged foods. But the company foresees sales growth of just 2 percent this year, excluding items, slower than the 3 percent growth it expects in its categories in general. One reason for the sales growing slower than the industry overall is that Mondelez will stop selling certain small lines. Longer term, it expects its sales to grow at or above the rates of the overall categories it competes in.
By the end of 2015, Mondelez plans to have built or expanded 11 plants since 2013, including in Bahrain, Brazil, China and India. Of its five new plants scheduled to be built, one will be in Siberia. The four other plant locations have not been announced.
Mondelez acquired many of its plants and found running them to be fragmented, complex and inefficient, said Daniel Myers, the company’s executive vice president of supply chain. Now, it is putting in new manufacturing lines. Each of the new lines equals two to three existing manufacturing lines, Myers said. The company plans to start a new production line every 10 days over the next 12 months, he said.
Mondelez is narrowing its focus on snacks, including through acquisitions. It is set to take an 80 percent stake in Vietnam’s Kinh Doh snack business, in a deal announced in November. On Monday, it bought Schiller Park, Ill.-based Enjoy Life Foods, which makes allergen-free snacks.
“Consumer spending is trending upward in the healthy-snack categories and flat elsewhere,” said Chris Geier, partner in charge of Sikich LLP’s investment-banking practice in Chicago.
“Amid sluggish sales, Mondelez will need to continue acquiring additional healthy-snack brands both domestically and internationally,” said Geier, calling it a “veritable race” among rivals in this space.
The “free-from” category Enjoy Life competes in is growing at a rate of more than 30 percent, said Mondelez CFO Brian Gladden.
Mondelez also is pushing its coffee business into a joint venture that should be completed this year, further narrowing its focus on snack foods. Once the coffee joint venture is created, snacks will account for 84 percent of the company’s revenue, up from 75 percent.
The maker of Cadbury chocolate and Ritz crackers is also taking a tough look at various spending choices, after a review found it spent a lot more than best-in-class companies on areas such as travel and consultants. Changes include everything from using videoconferencing in lieu of travel when it can to eliminating some business-class air travel and airline-club memberships, Gladden said.
Mondelez was created when Kraft split into two public companies in October 2012.