FOOD >>>

- Passionate about food -
Changing consumer patterns are leading companies to focus on what they do best, merge or enter innovative markets

The slowing US economy may have dampened consumer spending, but it has not affected dining habits. A staggering 79 percent of Americans eat out every week and food service sales are expected to hit $400 million this year. Chicago-based Kraft Foods, the nation’s biggest food business, is preparing for what could be the second-largest initial public offering (IPO) in US history after last year’s $10.6 billion AT&T; Wireless Group deal. The company took the unusual step of promoting the move in large newspaper advertisements. The ads told readers that 280 million shares will be offered at an expected price of $38-$42 a piece in the $8 billion IPO, scheduled for the week of June 11. Kraft is a unit of food and tobacco giant Philip Morris. In February, Mayor Daley backed a financial deal to ensure Quaker Oats, a major employer in the city, did not relocate. The firm plans to move 1,100 staff to a new headquarters in downtown Chicago next September, following the $9.75 million tax rebate from the planning and development department. The company, which opened its doors in Chicago in 1879, had a net income of $455 million in 1999. Its business includes the market-leading Gatorade sports drink, oatmeal and other cereals, snack foods and pasta brands such as Rice-a-Roni. PepsiCo’s $14.3 billion acquisition of Quaker, announced last December and scheduled to close by the end of June, is set to create a firm with annual revenues of $25 billion that will rank among the top five food and beverage businesses. The merged entity will keep the PepsiCo name.

A major presence in Chicago is the giant McDonald’s Corporation which has its headquarters there. Chairman Jack Greenberg says the two are intertwined. “In the Chicago area, McDonald’s has more than 460 restaurants and we’re employing 25,000 people.” It all began in 1948 with the opening of the first McDonald’s in California. In 1954, owners Dick and Mac McDonald signed a franchise with malt machine salesman Ray Kroc, who opened his first restaurant in Des Plaines, Illinois. In 1961, he bought out the brothers for $2.7 million. Today, the corporation has more than 28,000 restaurants in 120 countries. Everyone takes a pride in the company’s success, says Mr Greenberg. “We feel the legacy strongly, and just want to continue the quality and reputation of the business.” Competition has prompted McDonald’s to branch out and customers in Chicago are just as likely to be served tiramisu and a cappuccino following the opening of the first McCafe coffee bar. The firm also owns or has invested in other non-hamburger concepts like Aroma Cafe, Donatos Pizza, Boston Markets restaurants, Food.com and the UK’s Pret a Manger chain. In a move to secure customer loyalty, McDonald’s has started the FreedomPay electronic payment trial in Chicago. Using a credit card, participants can load their account via the internet or phone. Benefits have been introduced for restaurant-level staff, ranging from health, home and car insurance to credit-union memberships, to retain them. Despite its $40 billion annual sales, McDonald’s has had a sagging share price, declining earnings and problems with its overseas business. Mr Greenberg points to rising commodity prices and concerns over food safety after the outbreaks of BSE/CJD and foot-and-mouth disease in Europe. Similar competitive pressures face another of Chicago’s residents – Sara Lee Corporation, whose products range from cakes to underwear and shoe polish.

It boasts 27 ‘megabrands’ and recorded a $12 million rise in pretax income in the third quarter ending in March 2001. March also saw Sara Lee announce the sale of its Champion Europe unit, and in May it unveiled a major restructure of its portfolio to focus on food and beverages, underwear and household products. The foods division, which includes packaged meats and bakery products, reports slight increases in sales, but chairman John Bryan, who retires this October, believes the firm has more work to do. The firm’s roots go back to Baltimore, 1939, when Nathan Cummings bought coffee and tea wholesaler CD Kenny Co. He turned it into the biggest wholesale grocery firm in the US and renamed it Consolidated Foods Corp (CFC) in 1954. Two years on, he bought the Kitchens of Sara Lee, a Chicago bakery founded by Charles Lubin in 1951 whose most popular product was the Sara Lee cheesecake, named after his daughter. Using its most respected brand to enhance public awareness, CFC decided to change its name to Sara Lee in 1985. “There’s an old line that Chicago is the city that works,” says Mr Bryan. “That emanates from the fact that we’ve often had strong management or strong leadership in the city, and we do indeed have that today.” The company has a leading share of the European coffee market, including a dominant position in France, with brands such as Douwe Egberts and La Maison du Cafe. Ironically, although it sees the UK as a relatively undeveloped market, the Sara Lee brand is recognised more here than in most other countries, he adds. Mr Bryan says patterns of consumerism have changed in the West and continue to do so. “Today, more than half of food is consumed outside the home. Having said that, it has also become less expensive.

It is one of the sure signs of the progress we’ve seen in the standard of living here in the US. The fast food business is extraordinarily efficient.” Headquartered on Michigan Avenue is the number-one maker of chewing gum, WM Wrigley Jr. Co. With products such as Doublemint, Juicy Fruit and Freedent, the firm has half of the US market and sells in 140 countries. It employs 9,000 people and last year’s annual sales were $2,145 million. Providing the ingredients for the world’s food chains is grain-processing giant Archer Daniels Midland (ADM), whose “customers include Coca-Cola, Nestle, Unilever, Procter and Gamble, PepsiCo, General Foods and Kraft”, says chairman Allen Andreas. Headquartered in Decatur, Illinois, ADM has 23,000 staff, 368 processing plants, and net sales for the year ending June 2000 were $18.6 million. The firm has been taking advantage of the wave of consolidation washing over the US agricultural sector. Already the world’s largest processor of soya beans, corn, wheat and cocoa, ADM enhanced its position recently with an agreement to take control of the 24 grain elevators owned by Farmland Industries, the largest US farmer-owned co-operative.

“By limiting our focus to agriculture, we bring unique efficiencies to each link in the food chain from origination to destination,” says Mr Andreas. Looking ahead, the firm has bought a web-based enterprise business system to enhance communications with supply chain partners. In February, it announced plans to form a joint venture with Kao Corporation to make diacyglycerol, an anti-obesity aid, to be used in vegetable oil spreads and home cooking oil. “ADM’s businesses will change significantly in the coming two or three years,” says Mr Andreas. “Opportunities to grow and expand into new markets will open. Improved products will provide better nutrition and additional health benefits. ADM will be utilising its most innovative resources to add value to the world’s agribusiness industry.”