Business

Mondelez: Working To Capture Greater Market Share In The Snack Market (NASDAQ:MDLZ)


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Snack meals large Mondelez (NASDAQ:MDLZ) has had an excellent two years as pandemic induced lockdowns, and shopper panic shopping for pushed by pandemic-induced meals shortages boosted packaged meals gross sales. Mondelez reported income development of 8.05% year-over-year (YoY), accelerating from 2020 when revenues rose 2.7%. Net earnings jumped 21% YoY to USD 4.3 billion. Heavy advertising, product innovation helped seize market share with the corporate’s cumulative market share exceeding pre-covid ranges.

Short time period tailwinds related to greater pandemic-induced at-home snacking could recede, brief time period headwinds from value inflation

Mondelez has publicity to each at-home consumption and on-the-go merchandise. Mondelez’s core biscuits and goodies enterprise – which is skewed in the direction of at-home consumption – loved an acceleration in demand throughout pandemic-induced lockdown durations around the globe over the previous two years, nevertheless with economies steadily opening up and shopper mobility rising, such brief time period tailwinds could steadily recede within the coming months (the corporate expects shopper mobility to choose up in H2 2022 however nonetheless stay 10%-15% under pre-covid ranges). Mondelez’s Gum and Candy enterprise, which has already seen a decide up together with rising shopper mobility, may gain advantage from an easing of lockdown restrictions.

Mondelez business segment revenue growth

Mondelez Investor Presentation

Source: Mondelez Investor Presentation

However, Mondelez’s core Biscuits and Chocolates enterprise which accounts for greater than 70% of the corporate’s revenues, might be affected.

Mondelez biscuits, chocolate revenue contribution

Mondelez 10-Okay 2021

Meanwhile, packaged meals makers together with Mondelez, have been grappling with provide chain and value inflation challenges pushed by hovering costs for key uncooked supplies, notably wheat, eggs, palm oil, and milk, impacting margins throughout the sector. Mondelez’s robust model portfolio and pricing energy helped the corporate move on these prices to customers in 2021, with the corporate’s gross margins seeing only a slight decline in comparison with the previous couple of years. Mondelez reported a gross margin of 39.2% in FY 2021, a shade lower than the 40% reported in 2019 and 2018. 2021 gross earnings rose 7.7% YoY to USD 11.2 billion.

Mondelez gross profit

Reuters

Going ahead, Mondelez expects commodity worth challenges to proceed in 2022, however with inflationary pressures anticipated to be excessive within the first half of the 12 months and pricing actions anticipated in the direction of the latter a part of the 12 months, the corporate general expects a sequential enchancment in gross revenue {dollars} over the quarters.

Mondelez profit margins

Macrotrends

Long time period development supported by persevering with investments into model constructing and advertising, and strategic growth into new snack classes and premium snacks, and rising markets publicity

Mondelez continues to construct its legacy manufacturers by means of heavy advertising and product revitalizations, led by its two USD 1 billion manufacturers – Oreo and Cadbury. Oreo, launched greater than a century in the past, is broadly acknowledged because the world’s favourite cookie model and steady model constructing, witty social media advertising and ads, and product improvements (Mondelez continues to roll out new Oreo flavors) have helped the model keep related and win the stomachs of youthful snackers as nicely (surveys point out younger customers are main Oreo followers).

Cadbury Dairy Milk follows the same playbook with heavy advertising and product improvements following a localization technique to extend shelf house and market share. New product launches embrace Cadbury Dairy Milk Kurma – kurma means “dates” in Malay – launched in 2022 Indonesia and Malaysia in the course of the month of Ramadhan when dates develop into well-liked to interrupt quick, Cadbury Dairy Milk Silk Mousse launched in 2021 in India the place wealthy, decadent sweetened milk-based confectionery are extraordinarily well-liked, and Cadbury Dairy Milk Durian launched in 2019 in durian-loving Malaysia).

Mondelez can also be creatively fusing its iconic manufacturers to create contemporary new snacks like its Cadbury Dairy Milk Oreo chocolate bar.

Overall, Mondelez’s promoting and promotion bills have been rising steadily over time in absolute and relative phrases reflecting the corporate’s aggressive advertising efforts to construct its manufacturers and drive gross sales. Mondelez expects to improve advert spend in 2022 to drive visibility and assist greater shelf costs.

Mondelez promoting and promotion bills

US {dollars}

A&P spend / whole revenues %

2021

1.6 billion

5.4%

2020

1.4 billion

5.2%

2019

1.2 billion

4.7%

2018

1.17 billion

4.5%

While biscuits and chocolate presently make up the majority of the corporate’s revenues, the corporate is actively making strategic acquisitions to increase its product classes and capitalize on rising traits. Mondelez’s acquisition of Chipita, expands the corporate’s product portfolio into pastries.

Refrigerated vitamin bars have been a rising pattern within the U.S. recently, and Mondelez was fast to scoop up market chief Perfect Snacks in 2019 which expanded Mondelez’s product portfolio into refrigerated vitamin bars. The world refrigerated snacks market continues to be at early levels and is projected to develop at round 5% by means of 2027. Mondelez’s world presence, localized snack market information, retail and distribution networks are benefits that might assist the corporate scale the model worldwide.

The firm can also be increasing into the premium section with the corporate buying premium snack firms like premium cookie maker Tate’s Bake Shop.

About 35% of Mondelez’s income is derived from rising markets which gives super long run development potential; Euromonitor expects snack gross sales to develop 4 occasions sooner in rising markets than in developed markets by means of 2025.

Mondelez revenue contribution emerging markets versus developed markets

Mondelez Investor Presentation

Portfolio evolving to fulfill altering shopper habits

Prior to the pandemic, quite a few gamers within the packaged meals house noticed stagnant income development as customers more and more shunned packaged meals and turned to contemporary, pure meals or within the case of snacking – more healthy “better for you” snacks as a substitute. Packaged snack meals large Mondelez loved sturdy income development in the course of the top of the pandemic over the past two years, however this was not the case pre-pandemic when income development was comparatively lackluster.

Year ended December,

Mondelez

2021

8%

2020

2.8%

2019

-0.3%

2018

0.2%

Mondelez nevertheless has been evolving to fulfill altering shopper consuming habits with the corporate having in place a number of methods to fulfill this goal. First, the launch of brand name extensions centered round well-being, reminiscent of Mondelez’s Cadbury Dairy Milk with 30% much less sugar launched within the UK and India in 2019, “Oreo Zero” zero-sugar Oreos launched in 2021 in China, and the launch of Philadelphia cream cheese with 100% pure components in Europe. Second, acquisitions of well-being-focused snack manufacturers, reminiscent of Mondelez’s acquisitions of Hu Master Holdings in 2021 (the mum or dad firm of well-being snack firm Hu Products), Grenade (a UK sports activities vitamin firm well-known for its protein bars), and Gourmet Food in 2021 (an Australian premium well-being centered biscuit and cracker firm). Third, constructing their very own manufacturers, and making investments into rising, early-stage manufacturers by means of Mondelez’s devoted innovation and enterprise hub – SnackFutures. Brands Mondelez has invested in by means of its enterprise hub embrace Uplift Foods in 2019 (a snack maker centered on prebiotic practical snacks) and types which have been organically developed by means of the hub embrace CaPao (a wellness snack model providing wholesome plant-based snacks with upcycled cacao fruits), NoCoe (crackers made with principally natural components and 0 preservatives and components), Dirt Kitchen Snacks (wholesome air dried vegetable snacks, and pressed snack bars made with greens, fruits, nuts and seeds, with no added sugar or synthetic components), and Ruckus and Co (ready-to-drink frozen smoothies containing natural milk, fruit puree, and greens, a product largely aimed toward youngsters).

It stays to be seen nevertheless how profitable the corporate can be in realigning its portfolio in the direction of more healthy snacks and constructing a more healthy picture. Mondelez’s zero-sugar Oreos as an illustration obtained bland curiosity from Chinese snackers suggesting the corporate’s portfolio evolution problem is not any simple feat. Meanwhile its low-sugar Cadbury Dairy Milk bar accounts for only a tiny fraction of revenues (1.1% as of 2020 in accordance with this WSJ article).

Risks

Fat taxes and authorities regulation

Worldwide weight problems has tripled since 1975 and governments are more and more devising strategies to counter this rising well being drawback. Over 50 nations worldwide have already imposed taxes on sugar-sweetened drinks (SSBs) and as weight problems charges improve it’s potential that these taxes could prolong to different “unhealthy”, “junk” meals reminiscent of high-sugar snacks like biscuits, truffles, chocolate, and sweet as nicely. A research printed by the BMJ revealed that sugary snacks really account for an even bigger proportion of free sugar and power consumption than sugary drinks and that decreasing purchases of sugary snacks, as an illustration by means of a snack tax, might probably have a larger affect on addressing weight problems. Researchers from the Universities of Oxford, Cambridge, and Exeter and the London School of Hygiene and Tropical Medicine point out that this selection is ‘worthy of further research and consideration as part of an integrated approach to tackling obesity’. The Philippines, which reported some success in slicing sugary-drink gross sales following a sugar tax, is now contemplating imposing a snack tax along with potential promoting restrictions for junk meals, sweet, tender drinks and quick meals as nicely. This 12 months, India, a key rising market for Mondelez, introduced it will likely be imposing a tax on snack meals to counter rising weight problems within the nation.

Financials

There aren’t many firms immediately akin to Mondelez, nevertheless when it comes to chocolate Hershey (HSY) might be one in all them, and when it comes to snacks General Mills (GIS).

Mondelez shouldn’t be as worthwhile as chocolate large Hershey however surpasses General Mills in some profitability metrics, notably when it comes to margins, in addition to when it comes to development with Mondelez’s income and internet revenue development being significantly greater than General Mills.

Mondelez nevertheless stands out among the many trio as having the bottom quantity of debt, which higher positions the corporate to make acquisitions – a key a part of its development and portfolio realignment technique.

Financial metrics for the newest monetary 12 months

Mondelez

Hershey

General Mills

Revenue development YoY %

8%

10%

3%

Net revenue development YoY %

21%

15%

7%

Gross margin %

39%

45%

35%

Return on belongings %

4.7%

15%

7%

Total debt to fairness %

69%

182%

133%

Summary

Riding on the covid-induced snacking pattern, Mondelez has been rising market share, serving to drive high line and backside line development. While brief time period challenges particularly value inflation and decelerating at-home snacking might dampen monetary efficiency, long run portfolio realignment in the direction of wholesome snacks, product innovation, heavy branding, and strategic acquisitions bode nicely for the corporate. The snack market nevertheless is extraordinarily aggressive, and it stays to be seen how profitable the corporate can be in its portfolio evolution effort within the face of shopper snacking behaviors shifting in the direction of more healthy snacks. Nevertheless, the corporate has in place long run methods to handle this as a part of its effort to keep up and improve its market share, together with a devoted enterprise hub to determine and construct promising manufacturers, and a comparatively low debt burden which leaves the corporate nicely ready to amass promising manufacturers.



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