Cadbury Case Study Doc

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Strategic Management: Cadbury and the confectionery industry

CADBURY Schweppes, the owner of the Dairy Milk brand, blamed hot weather for the slump in chocolate sales in Britain that is causing mounting alarm in the confectionery industry.

Wilting consumers are to blame for weak sales, said Todd Stitzer, the chief executive of the sweets and soda pop company, who barely mentioned a salmonella food poisoning scandal last summer which forced the company to remove one million chocolate bars from retailers' shelves.

Instead, the American Cadbury boss suggested the whole chocolate market is suffering from unseasonal temperatures as he warned the company's investors that falling sales in the UK since July would hurt the company's profit margins.

However, anxiety is growing among City investors that the entire confectionery sector is under assault from changing consumer tastes and a campaign by grocers to promote healthy eating.

A massive surge in fresh fruit sales alongside weak chocolate and confectionery volumes shows that consumers and retailers are responding to the growing anxiety about sugar in the national diet, said AC Nielsen, the market research consultancy.

"Healthy eating is starting to take hold," said Sue Kilmer, head of communications at Nielsen. “Consumers have greater disposable income and seem happy to spend more to purchase products that are seen as healthier than sweets”.

Cadbury denies any such influence behind the decline in chocolate consumption. It even suggests consumer confidence is returning since the June product recall.

Yesterday Cadbury said the chocolate market as a whole since the beginning of July was 5 per cent below the same period last year but the group insists it is nothing to do with the dodgy chocolate bars. "Our market share is strengthening," said the company.

A snapshot of the chocolate rivals assessed by Nielsen shows that, over the last year market shares in the UK confectionery industry have been as follows:

Cadbury 34.6 per cent
Mars 26.6 per cent
Nestle 15.6 per cent

(Nestle share actually fell, partly as a result of its failed experiment in bizarrely flavoured products, such as Mango Kitkats).

For the chocolate barons, the big unknown is whether the public is beginning to tire of its sugar ‘fix’. According to Julian Hardwick, an analyst at ABN Amro, the jury is still out. "People in the industry are grappling with the question of whether it is the salmonella or part of a social trend. If we get back to normal weather and we don't see a pick-up in demand, then we will know," he said.

All is not lost, reckons Nielsen, because upmarket chocolate, such as Green & Black, the luxury organic brand acquired by Cadbury last year, is doing well.

According to Cadbury, if Green & Black sales were added to the group, the firm's market share would have risen over the past year.

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Cadbury Schweppes unveiled the biggest restructuring plan in the group's history yesterday in a bid to redefine itself as a pure sweets and chocolate maker and to bolster its defences against a possible takeover.

Todd Stitzer, the chief executive, speaking before the expected £ 7.5 billion sale of its American beverages unit to private equity, outlined plans to cut nearly 8,000 jobs, or 15 per cent of the company's 52,500-strong global workforce, and close ten of its 70 factories, by 2011.

He said that the aim was to create an efficient "standalone confectionery business" and to boost Cadbury's 10 per cent share of the $137 billion (£ 69 billion) global market for chocolate, sweets and chewing gum.

"Despite our size, we remain cost-disadvantaged and too complex from a supply chain and commercial standpoint," Mr Stitzer said.

He declined to offer details of where the cuts would fall, but said that Cadbury would seek further savings by simplifying its range of products, outsourcing IT and back...
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