Cadbury, Kraft and the Bottom of the Chocolate Pyramid

As the Borg were wont to say, "resistance is futile"--that's the warning that Kraft is sending to Cadbury in regard to Cadbury's struggle to survive the ongoing attempts of rivals Kraft and Hershey to gain control of the storied British chocolate brand.

The potential takeover of Cadbury highlights at least a couple major issues for social enterprise. One that no doubt comes to mind immediately for longtime readers of this site is the viability of Cadbury's fair trade initiative should the company be acquired by either of its megabrand bidders. It's an issue that any number of social entrepreneurs face when their business succeeds in attracting attention from other companies & private investors: selling the company brings with it the serious risk of selling out its social benefit.

There is, however, another aspect of the Cadbury takeover contest that merits our attention: the reason why big companies think that Cadbury is such a sweet target. As the Wall Street Journal notes, the "heart" of Cadbury's appeal is the brand's "hold on consumers in India and other emerging markets."

Cadbury is the biggest confectioner in growth markets such as India, Mexico, Egypt and Thailand, according to consultancy Euromonitor International, and emerging markets provide 38% of the company's global sales, compared with about 20% at Kraft. As a combined company it would be nearly 70% bigger than its nearest competitor, candy giant Mars Inc., in emerging markets, according to a recent report by British bank Panmure Gordon Co. . . .

Equally important is the British company's vast distribution network, which includes the small kiosks and family-owned stores that sell large volumes of candy in emerging markets such as India or Mexico.

Kraft wants to tap into this distribution network. On a conference call with analysts Wednesday, Kraft executives said sales of its chocolate cookies have been growing rapidly, and they expect to expand those sales around the world, partially using Cadbury's distribution network.

"In some developing markets, Cadbury has quite a good toehold," says Neil Saunders, consulting director of Verdict Research in London. "If Kraft got a hold of it, they could speed things up by using some of Cadbury's distribution channels to really roll out their products."

The key here is not just that Cadbury has ties to emerging markets; what is particularly worth noting is what makes India and other established Cadbury territories so attractive: the micro-enterprise distribution chain.

The attention being paid to taking emerging-market micro-enterprise to scale is arguably as significant as Cadbury's fair trade initiative vis a vis supply. That a multinational corporation may not be using such language as CSR, social enterprise or sustainability does not mean the company is ignoring socially beneficial commerce--indeed, a core part of its strategy could be expanding to traditionally underserved communities that could substantially benefit from such support.