ALREADY DESTROYING VALUE? THE CADBURY-KRAFT MERGER

 



This morning Cadbury, the UK multi-national confectionery manufacturer, and Kraft, the US based multi-national food conglomerate, announced they had agreed the much contested takeover bid for £11.5bn. I am a consumer and shareholder of Cadbury.

Food brands are all about trust, and chocolate even more so because it is an emotional category. Cadbury is an iconic British brand with a rich and socially aware history. In its early days Cadbury was a major employer of women and had a paternalistic attitude to its employees (in a good sense) investing in their welfare. Cadbury is one of the most trusted brands especially in the UK regularly coming in the top 10 of brand trust surveys. Even this morning on it's website the headline graphic was "values led, performance driven". 


Is Cadbury's history of commercial success in a social context important or relevant anymore? 


@urbanfly tweeted this morning "There's a romantic idea that Cadbury is a Birmingham company. They're a global corporation who buy out other companies". 


Whilst Cadbury is a global corporation I believe that history is an important part of the embedded value of any company. Brands are created by people and their actions. And the mythology of a company is important as an implicit guide for those making decisions, providing a different perspective or a pause for thought. 


Of course there is another side of Cadbury. They benefited hugely from the British Empire, but more recently have been a huge buyer of FairTrade commodities especially in West Africa.

A descendent of Cadbury's founder called the takeover "a horror story" according to the BBC. Felicity Loudon, George Cadbury's great-granddaughter said, "Every single iconic brand is going – we sell out everything." Of course this isn't important in of itself but I think it is the attitude that many will feel as we see this great British company consumed.

The takeover has been justified because the companies want to secure growth and save cost with now warm words between the parties saying how the best of Cadbury will be retained. But I doubt this will happen. I've worked on both sides of the fence being acquired and acquiring in my corporate career. Cultures rarely merge well. The company taking over inevitably dominates and imposes its values and decision making processes.

What all this means is a challenge to the very logic and price paid for the takeover by Kraft of Cadbury. Another reload of the Cadbury website this morning proclaimed "creating brands people love".

And here is the rub….of the £11.5bn paid a major part of this will be goodwill. A major part of this goodwill will be the intangible value of the Cadbury brands. From the reaction on Twitter and in the press the destruction of this goodwill has been palpable already. The provenance and corporate background of brands is increasingly important to people. In our transparent society information on the companies that make the brands "we love" is so much easier, we know their stories and a sense of where they come from. The fact that Cadbury has been promoting its use of FairTrade in advertising is all about proving they are true to being led by their values.

Given the arguments over the deal, the context of the UK economy and the shameful collapse in manufacturing in the UK's manufacturing base over the past 20 years this takeover will get a huge amount of coverage both now and in the future. The result for consumers will be the perception, even slight, that their bar of Dairy Milk is less satisfying than it was before. Even if the taste of the chocolate stays the same (a big topic on Twitter!), the "taste" of the brands will be tainted for ever.

There is no doubt that a great British company and brand died this morning.

What's your view? Do you think the takeover will destroy or create value? Comment now!

Thanks

Justin

Mail me: justin@basini.com
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DON”T CHANGE WHAT YOU DO, CHANGE YOUR BRAND POSITION

Ever considered whether moving your brand’s position is good idea?
Ever thought about whether you could thrive in a cheaper part of the market?
Ever got frustrated that you don’t make much progress against your competitors?

I’ve often looked at these brand positioning questions and recently experienced the repositioning of Aer Lingus, the Irish national airline.

I used to despise Aer Lingus. When I was travelling to Dublin every week for work (about 7 years ago) I avoided them like the plague, they were awful. Badly run, never on time and unpleasant. They were a poor imitation of British Airways or bmi. Worse of all they were bad AND expensive.

But in the last few months I’ve flown Aer Lingus four times and they have changed significantly. It seems they have upped their game but the main thing they have done is reposition their brand and that has done wonders for their perceived value.

They have kept the core of their national carrier approach – assigned seats, quite generous baggage allowances, trained and uniformed staff, sober style, normal planes with normal seats. But they have changed their pricing model to be similar to Easyjet – i.e. book early get cheap seats. For all the flights I have taken with them I have been booking up to 8 weeks in advance (so not incredibly early) and got flights for under £50.

Aer Lingus are now competing in my mind with Easyjet and Ryanair for my low cost flights. They aren’t competing with British Airways anymore from where I look at the market. They bring a certain national carrier quality to this low cost competition and this combination has won out for my last 4 flights. They didn’t win when they were competing against British Airways, they do when they compete against Easyjet.

Sometimes you don’t have to change what you do, you just have to move your brand or business model to compete in a different part of the market where you bring value.

Now, as a quick look at their results shows, the challenge for Aer Lingus will be to right size their cost base to the reduction in revenue per seat that low-cost has caused. They need to do this whilst maintaining a half decent customer experience and is currently differentiating them from their low cost competitors. Not an easy task but by focusing on the things that really matter, keeping some of the national carrier experience, and innovating on key dimensions they have a chance.

A good example is their investment in the hub at Gatwick or the very impressive self check baggage approach they have in Dublin. This self check baggage system means you can sticker and drop your bags automatically. Rather than detract from the experience this is a great innovation and almost guarantees no queuing.

We’ll see where the airline story goes. The “pack ’em in like cattle model” will I think become increasingly niche, especially as flying becomes more expensive. I, for one, will be looking for great value.

Thanks for reading, as ever, please comment if you have ideas or thoughts.

Justin

Email me: justin@basini.com
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TRUST IN BANKING

I’ve been thinking about Trust again as I pick up my book writing after a summer break.

I want to return to a theme that I discussed in a speech that I made to the Financial Services Forum conference earlier this year. You can download the text of the speech from my website. If you read my earlier blog on Banking and Common Good there are some key themes that emerge if banking is to regain our trust as consumers. As I outlined in that blog I believe we are a turning point but there is significant regression to the mean and that the old status quo is most likely to return. I read with interest in the weekend’s FT about the prediction of a bumper bonus season for the investment bankers.

As “masters of the markets” financial services can contribute market based solutions to the biggest problems. The issues facing us today as a globalised society are bewildering: climate change, peak oil, water crisis, natural resource depletion, all underwritten by uneven wealth distribution, poverty, crime, conflict,increasing urbanisation. These issues are moving more quickly and in a more interrelated way than ever before. The European Carbon Emissions Trading Scheme and the futures markets for protection of Amazon land, are all examples of financial markets contributing solutions.

Contribute proactively to a move away from an age of naked consumerism to something that priortises inidividual well-being and community cohesion. Imagine a world where a conversation in the bank, with a bank manager, could assess whether a credit card to fund that new purchase, or a stretching mortgage to buy that bigger house, were needed putting individual happiness at the heart of the discussion.

After all is said and done what we trust are organisations that have values communicated through their actions, run by accessible and open people, businesses that value their loyalty, and seek to create profit by creating products which meet consumer needs transparently. We will trust brands that communicate openly and positively about the many benefits they provide. Brands can move from basic levels of trust when their businesses start to play for higher goals.

What do you think? As always please feel free to share, retweet, comment and get involved.

Yours

Justin

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