Mondelez announces coffee merger to exploit $81bn category

Mondelez International is to form a standalone company in partnership with coffee business DE Master Blenders to create global marketing and innovation initiatives for brands such as Kenco and Carte Noire capable of growing its share of the $81bn (£47.4bn)-valued category.

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Mondelez is ceding the management of its coffee brands to DE Master Blenders to create a new global company.

The compnay detailed plans for the separate business, to be named Jacobs Douwe Egberts after DE Master Blenders’ Douewe Egberts brand, today (7 May). It will create the world’s second biggest coffee business after Nestle, with Mondelez owning a 49 per cent stake in the new business.

The venture will bring together Mondelez’s coffee brands with DE Master Blenders’, and is expected to yield more than $7bn in annual sales (£4bn), a significant improvement on the $3.9bn (£2.3bn) the former company’s coffee brands generated in 2013.

Jacobs Douwe Egberts will be run by the current management team of DE Master Blenders and aims to deliver increased scale alongside uncovering more effective opportunities for innovation, manufacturing and market development. The deal frees Mondelez to focus on its snacks business, which will account for around 85 per cent of overall revenue if it is approved by regulators.

Mondelez has long highlighted coffee as an under-appreciated long-term growth driver but its sales have slowed recently. It said lower coffee revenues pressured a 1.2 per cent drop in total revenue in the three months to 31 March.

The announcement is part of Mondelez’s $3.5bn (£2.1bn) restructuring program aimed at rapidly slashing costs and boosting margins following disappointing 2013 sales. It is projected to create $1.5bn (£884m) in savings by 2018 and will include some job cuts, although Mondelez did not specify how many positions were at risk.

Irene Rosenfeld, chief executive of Mondelez, said the strategic and cost-reduction plans underscore its “determination” to become a “leaner, more focused and more nimble global snacking powerhouse”.

The company’s marketing division was one of the first to feel the impact of the cost saving measures earlier this year when Mondelez revealed plans for its marketers to map out their media plans from scratch rather than being based on the previous year’s spend.

Rosenfeld adds: “As our first quarter results show, we’re making meaningful progress toward our margin goals, while continuing to deliver solid growth and market shares.  

“These strategic and cost-reduction actions will strengthen our core snacking business, simplify our operations and enhance our ability to deliver world-class margins.  At the same time, our shareholders will continue to share in the future growth of the coffee category through our ownership interest in an advantaged, more focused coffee company.”

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