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Kraft Foods Inc. is the largest food company in the United States and holds the number two position worldwide, behind Nestlé S.A. The firm has two main operating units--Kraft Foods North America (KFNA; generating 73 percent of 2000 pro forma revenues) and Kraft Foods International (KFI; 27 percent)--and its brands are divided into five main sectors: snacks (30.6 percent of global revenues; 28 percent of KFNA revenues; 38 percent of KFI revenues), beverages (global, 19 percent; KFNA, 13 percent; KFI, 35 percent), cheese (global, 18 percent; KFNA, 20 percent; KFI, 13 percent), grocery (global, 16.6 percent; KFNA, 19 percent; KFI, 10 percent), and convenient meals (global, 15.8 percent; KFNA, 20 percent; KFI, 4 percent). Seven of Kraft's brands bring in more than $1 billion in revenues each year: Kraft cheeses and other products ($4.3 billion in 2000 revenue), Nabisco cookies and crackers ($3.5 billion), Oscar Mayer processed meats (number one in the United States), Post cereals (number three in the United States), Maxwell House coffee, Philadelphia cream cheeses, and Jacobs coffee (number one in western Europe). More than 60 company brands generate annual revenue in excess of $100 million, including A.1. steak sauce, Altoids candy, Balance energy bars, Cheez Whiz process cheese sauce, Cool Whip whipped toppings, DiGiorno pizza, Freia confectionery, Gevalia coffee, Jell-O desserts, Kool-Aid drink mix, Life Savers candy, Miracle Whip dressing, Oreo cookies, Planters nuts, Premium crackers, Ritz crackers, Stove Top stuffing mix, Tang drink mix, and Toblerone chocolate. The company holds the top global position in 11 product categories: coffee, cookies, crackers, cream cheese, dessert mixes, dry packaged dinners, lunch combinations, powdered soft drinks, process cheese, salad dressings, and snack nuts. Kraft Foods' products are made at more than 220 manufacturing facilities around the world and are sold in more than 140 countries.

The wealth of brands and products owned by the Kraft Foods company of the early 21st century was largely amalgamated under the stewardship of Philip Morris Companies Inc. The diversified tobacco giant's first major push into the food industry came in 1985 when it acquired General Foods Corporation. It next acquired Kraft, Inc. in December 1988, and then in March 1989 Philip Morris combined the two food companies under a new subsidiary called Kraft General Foods, Inc. General Foods and Kraft operated separately until early 1995, when the two units were merged as Kraft Foods. Then in December 2000 Philip Morris purchased Nabisco Holdings Corp., merging it into Kraft Foods. In June 2001 Philip Morris sold 16.1 percent of Kraft Foods to the public, retaining the remaining shares.

Early History of General Foods: The Postum Era

Prior to its acquisition by Philip Morris, General Foods earned a reputation as a pioneer in the acquisition and assimilation of smaller food companies and built a huge multinational, multiproduct corporation. The groundwork for General Foods was laid by Charles W. Post, a health enthusiast who tried to tempt America's coffee drinkers away from the caffeinic drink with a cereal beverage he called Postum. Post built the company that would become General Foods with a number of promising products and the marvel of modern marketing.

In 1891 Post checked into the Kellogg brothers' renowned sanitarium in Battle Creek, Michigan, in hopes of revitalizing his frail health. Post, ill for several years, was weak and confined to a wheelchair. The stay proved propitious; while at the Kelloggs' sanitarium, Post came up with several ideas that would eventually be profitable.

Post later opened the La Vita Inn in Battle Creek, where he experimented with healing through mental suggestion and special diets. A few years later Post began marketing a cereal beverage similar to the one he had received as a coffee substitute at the Kelloggs'. He began marketing this blend of wheat, bran, and molasses called Postum cereal beverage in 1895. Post incorporated the Postum Cereal Company, Ltd. in 1896 with a paid-in capital of $100,000.

In 1897 Post introduced a new cereal, made from whole wheat and malted barley flour, called Grape-Nuts. The product was baked for 20 hours, turning the starch into dextrose and creating an easily digested cereal. In 1904 Post marketed a corn flake cereal under the name "Elijah's Manna." Not immediately successful, the new cereal was renamed "Post Toasties" and subsequently became a big hit with American consumers. Post continued to bring new products to the market, including Post's bran flakes, Post's bran chocolate bar, and Post's wheat meal.

Within five years of its incorporation, Postum Cereal Company's capital had risen to $5 million. The company's Battle Creek facility was the largest of its kind in the world. Postum employed 2,500 people and its factories covered more than 20 acres. Charles W. Post had amassed a personal fortune and spent his money freely to propagate his own views. Post was an outspoken critic of closed shops and labor unions, spending thousands on advertisements attacking organized labor. This crusade against unions resulted in occasional boycotts of Post products and incurred the personal enmity of union organizers throughout the nation. Carroll Post once told an interesting tale about his brother Charles in a letter. One day the two Post brothers sat at a lunchroom counter where two brands of corn flakes--Post Toasties and Krinkle--were for sale. While the two men were eating, a railroad worker came in and asked for corn flakes. When the waitress asked which brand he wanted, the man said, "give me Krinkle. That man Post is always fighting our union." But the Posts had the last laugh: Krinkle was merely another name for Post Toasties, marketed as a reduced-price corn flake.

Despite Post's stance against organized labor, the Postum Cereal Company did not have trouble with labor in its own factories. It paid the highest wages in the industry, emphasized safe working conditions, and implemented accident and sickness benefit programs. The company also built about 100 homes for its workers which were sold on very favorable terms.

In May 1914, Charles W. Post committed suicide at his winter home in Santa Barbara, California. The day-to-day operations of the Postum Cereal Company had been run by a group of managers--C.W.'s "cabinet"--for several years. Upon his death, Post's daughter, Marjorie Merriwether Post, took over the company and helped launch the expansion that would create the company known as General Foods.

Marjorie Post was well acquainted with the Postum business. She had often accompanied her father on business trips and frequently sat in on meetings. In 1920 she married Edward F. Hutton, an investment broker. Two years later the Postum Cereal Company went public, and Marjorie Post stepped down from active management of the company. Her husband, who became chairman of the company in 1923, and Colby M. Chester, who became president in 1924, ran the company's day-to-day operations. Marjorie remained a key policymaker, however, and was critical to the company's acquisition strategy and transition into General Foods.

That transition began in 1925 with the acquisition of the Jell-O Company. Before frozen pies, cakes, and novelties entered the market, Jell-O was the premier dessert brand. In 1926 the company absorbed Swans Down cake flour and Minute tapioca. Baker's coconut, Baker's chocolate, and Log Cabin syrup were acquired in 1927. The company also shortened its name to Postum Company that year.

Late 1920s: The Emergence of General Foods

In 1928 the Postum Company acquired Maxwell House Coffee, whose roots dated back to 1892 when Joel Cheek perfected the coffee blend served at the famous Maxwell House hotel in Nashville, Tennessee. President Theodore Roosevelt visited Nashville in 1907 and was served Maxwell House coffee. When asked if he wanted a second cup of coffee, Roosevelt answered, "Yes, indeed, it's good to the last drop." This reply became the company's famous slogan.

In 1929 the Postum Company made another significant acquisition when it paid $22 million for a controlling interest of the General Foods Company, owned by Clarence Birdseye. Birdseye perfected new techniques for freezing vegetables and meat. An adventurer by nature, Birdseye had gotten the idea for his freezing technique while on an expedition to Labrador. Birdseye noted that the Eskimos routinely froze caribou and fish, and that these products retained their flavor even when stored for months before thawing. He hypothesized that the bitterly cold air contributed to fresh taste and this method might be superior to the commonly practiced slower freezing. Birdseye returned in 1917 to begin research and eventually perfected a process that could be used commercially. In 1924 Birdseye founded the General Seafoods Company in Gloucester, Massachusetts.

Marjorie Merriwether Post had noticed Birdseye's operations in 1926, but it took her three more years to convince Postum executives to acquire the company. The price had increased tenfold in that time, but Postum nevertheless happily acquired the company. The enlarged Postum Company also adopted the name General Foods Corporation in 1929, and Clarence Birdseye became head of the new General Foods laboratory, where he continued his work on frozen foods.

While the Great Depression affected all parts of the economy, food was a relatively stable industry. After record profits in 1929, General Foods spent its energy in 1930 on consolidating its recent acquisitions. As a result, earnings dropped slightly that year. In 1932 the company acquired the remaining 49 percent of General Foods. It expanded quickly, adding six new plants that year to freeze nearly 100 different products. In 1932 General Foods also purchased the Sanka Coffee Corporation, makers of decaffeinated coffee. General Foods had been distributing Sanka since 1927 through an agreement with the company's European owners.

General Foods' earnings, which had reached $19.4 million in 1929, dropped to $10.3 million in 1932. In 1933, however, they began to rise again as consumer purchasing power strengthened. In 1935 E.F. Hutton resigned as chairman of the company and C.M. Chester assumed the post, where he remained until 1946. Marjorie Post returned to the company as a director the next year, a position she retained until 1958.

During World War II, General Foods, like other food companies, achieved record sales, despite food shortages and other wartime exigencies. Sales in 1943 were more than double those of 1929. During the war, the company's Denver plant produced ten-in-one rations for the U.S. Army. General Foods also began developing an instant coffee for the army in 1941. In 1943 General Foods acquired the Gaines Dog Food Company, and the next year it added Yuban premium coffee to its already strong coffee line. Instant Maxwell House coffee--one of the first postwar consumer products--was introduced in 1946.

Postwar Era: International Expansion and Short-Lived Diversification

In May 1953, General Foods acquired the Perkins Products Company of Chicago. Perkins manufactured a variety of powdered beverage mixes to which the consumer added sugar and water for a fruit-flavored drink. Kool-Aid has been a favorite of kids across the nation ever since. Years later General Foods added a number of other products to its beverage division, including Tang, Country Time, and sugar free Crystal Light. In 1954 the company entered the salad dressing market with its purchase of the Hollywood manufacturer 4 Seasons, Inc., and in 1960 Open Pit barbecue sauce was acquired.

Acquisitions of established companies continued as General Foods diversified outside of the food industry. In 1957 the company bought the SOS Company, a leading scouring-pad manufacturer. Ten years later, however, the Federal Trade Commission ruled that the acquisition violated antitrust laws and forced General Foods to sell the company. In 1968 General Foods entered the fast-food business by purchasing the Burger Chef chain for more than $15 million. In December 1969, General Foods added the Viviane Woodard Cosmetic Corporation, a door-to-door operation, for $39 million. The following year, toy company Kohner Brothers and the nation's largest seed company, W. Atlee Burpee Company, were both acquired.

Because General Foods did not have as much luck with its nonfood subsidiaries as it did with food businesses, it disposed of most of them. Kohner Brothers was sold to Gabriel Industries after just five years; the Viviane Woodard cosmetics business was closed in 1975; Burpee was sold in 1979; and, after consistently losing money, the Burger Chef chain was sold in 1982.

In the late 1950s and early 1960s General Foods aggressively branched out into international markets. In 1956 the company acquired a controlling interest in the La India Company, Venezuela's number one chocolate company. In 1959 the company's Canadian subsidiary purchased the Hostess snack-food company of Canada; in 1960 it purchased the Kibon ice cream company of Brazil and the French coffee-roaster Etablessements Pierre Lemonnier S.A.; in 1961 it bought Krema Hollywood Chewing Gum Company S.A. of Paris; and General Foods of Mexico S.A. was formed in 1962. Numerous other food processors throughout the world were purchased as well. At the end of the decade General Foods had major subsidiaries operating in Canada, the United Kingdom, Australia, France, Mexico, Brazil, Venezuela, Denmark, Sweden, Spain, and Italy.

By the mid-1960s General Foods was an established giant in the industry. Chairman C.W. Cook, who took over in 1965, ran a company whose outstanding successes were based on new product development, sweeping market research, and enormous advertising budgets.

During the 1970s international acquisitions continued at a furious pace, but domestic operations settled down a bit. Frozen foods became increasingly popular as more double-income families found less time to cook and had extra cash for quick meals. The company's BirdsEye frozen-food division also enjoyed a boost in earnings. But not all of General Foods units benefited from such favorable demographic changes. Jell-O, for example, suffered as new products such as frozen novelty desserts came to the market. In 1979 the Jell-O unit pushed to recapture the dessert market, employing an advertising campaign to reverse Jell-O's steady decline. In the early 1980s the company introduced Jell-O Pudding Pops--frozen pudding on a stick--to capitalize on its well-known name and expand its share of the market.

Nonetheless, at the end of the 1970s General Foods was not performing up to expectations. The company was overly dependent on coffee for its revenues--its various coffee brands accounted for 39 percent of General Foods' entire revenues in 1980.

1980s: Oscar Mayer and the Philip Morris Takeover of General Foods

In 1981 General Foods made its largest acquisition to date when it bought Oscar Mayer & Co., the leading American hot dog maker, for $470 million. Oscar Mayer, founded in 1883 by a Bavarian immigrant, was a family-held company until the purchase and had a reputation for high-quality products. General Foods was trying to reduce its dependence on the coffee trade, but Wall Street critics charged that with the purchase of Oscar Mayer, the company was opening itself up to the wildly cyclical, low-margin packaged-meat business.

Regardless, the merger did give General Foods access to an extensive refrigerated supply network. In addition, the acquisition afforded General Foods a high profile in the refrigerated meat section at the supermarket--Oscar Mayer was the largest national brand of lunch meats, and its Louis Rich turkey products unit was top in that growing segment of the market.

In 1984 the company agreed to sell its Gaines Pet Food division for $157 million. General Foods' overall performance went down as coffee sales dipped, and the Post Cereals unit, too, began to slide.

In November 1985 Philip Morris Companies Inc. purchased General Foods for $5.6 billion. Philip Morris had long been known as an aggressive marketer. Its chairman, Hamish Maxwell, planned to turn around General Foods and, at the same time, decrease Philip Morris's reliance on the shrinking tobacco market. In January 1987, Philip Smith became CEO of General Foods. Smith began a massive reorganization of the company in 1987, splitting its three core product lines--coffees, meats, and assorted groceries--into separate units. The following year, General Foods' Oscar Mayer division introduced Lunchables, a line of convenient meals that featured meat, cheese, and crackers. Meantime, Philip Morris acquired Kraft, Inc. in 1986, which led to the 1989 combining of General Foods and Kraft under Kraft General Foods, Inc.

Early History of Kraft

One of Kraft, Inc.'s primary predecessor companies was established by James L. Kraft, the son of a Canadian farmer. In 1903 Kraft started a wholesale cheese distribution business in Chicago. Kraft hoped to relieve grocers of the need to travel daily to the cheese market by delivering cheese to their doors. Business was dismal at first, and it was later reported that Kraft lost $3,000 and his horse the first year.

But the business eventually took hold and James was joined by his four brothers, Fred, Charles, Norman, and John. In 1909 the business was incorporated as J.L. Kraft & Bros. Company. New product development and innovative advertising fueled the company's growth. As early as 1911, Kraft mailed circulars to retail grocers and advertised on elevated trains and billboards. Later, he was among the first to use color advertisements in national magazines. In 1912 Kraft opened a New York office to develop an international business. By 1914 the company sold 31 varieties of cheese throughout the country, and that year it opened its own cheese factory in Stockton, Illinois.

Before the advent of refrigeration, cheese was sold in large wheels which spoiled quickly after being cut open. Kraft developed a blended, pasteurized cheese that did not spoil and could be packaged in small tins. Kraft began producing what it called process cheese in 1915 and received a patent in 1916. Six million pounds of this cheese were sold to the U.S. Army during World War I.

In 1919 Kraft placed its first advertisements in national magazines. The next year, Kraft acquired a Canadian cheese company. In 1924 Kraft's name was changed to Kraft Cheese Company and the company offered its shares to the public. That year Kraft also opened its first overseas sales office, in London, which led to the establishment of Kraft Cheese Company Ltd. there in 1927. The same year Kraft moved into Germany by opening a sales office in Hamburg. In 1928 Kraft merged with Phenix Cheese Corporation, the maker of Philadelphia Brand cream cheese. The newly formed Kraft-Phenix Cheese Corporation had captured 40 percent of the nation's cheese market by 1930 and boasted operations in Canada, Australia, Britain, and Germany.

1929-80: Kraft's National Dairy Era

The 1920s spawned another growing dairy concern, the National Dairy Products Corporation, whose fortunes were soon to be linked with Kraft-Phenix. National Dairy was the product of a 1923 merger between the Hydrox Corporation of Chicago, an ice cream company established in 1881 and purchased in 1914 by pharmacist Thomas McInnerney, and the Rieck-McJunkin Dairy Company of Pittsburgh. Throughout the remainder of the 1920s, National Dairy acquired other small dairy concerns in the East and Midwest, including the Breyer Ice Cream Company and Breakstone Bros., Inc., the sour cream and cottage cheese company. In 1929 National Dairy set out to acquire Kraft-Phenix. The merger was completed on May 12, 1930. The group of companies assembled by McInnerney prior to the Kraft-Phenix merger eventually formed the core of Kraft's Dairy Group.

The merger did not radically affect the way in which the two companies operated. McInnerney's strategy had always been to provide essentially autonomous subsidiaries with the resources needed for growth. Consequently, Kraft functioned independently from New York-based National Dairy, which acted primarily as a holding company.

After the merger, Kraft settled down to introduce many of the brands that later formed the heart of its consumer product line; Velveeta pasteurized process cheese spread had been introduced in 1928; Miracle Whip salad dressing and Kraft caramels came in 1933; the famous macaroni and cheese dinner in 1937; and Parkay margarine in 1940. Again, innovative advertising--this time on radio--encouraged quick public acceptance of the new products. In 1933 the company sponsored the "Kraft Musical Revue," a two-hour musical variety show. Later the program was shortened to one hour and was broadcast weekly as the "Kraft Music Hall," hosted by Bing Crosby. Overseas operations expanded, guided by a policy that mandated local control and products tailored to meet the needs and tastes of foreign consumers. Meanwhile, in 1935, National Dairy introduced Sealtest ice cream, named after a quality-control system for its dairy products.

Kraft was a major food supplier during World War II. By the end of 1941, four million pounds of cheese were shipped to Britain weekly. Many Kraft products, including field rations of cheese, were produced for the U.S. government. Kraft's labs researched better methods of food production while home economists at Kraft Kitchens, a division established in the home economics department in 1924, developed recipes to ease wartime shortages.

In 1945 the Kraft Cheese Company became Kraft Foods Company. In the postwar years, Kraft resumed the formula of new product development and advertising that had helped build the company. In 1947 Kraft created and sponsored the first commercial network program on television, the Kraft Television Theatre. Along with the new advertising vehicle new products, such as sliced process cheese in 1950 and Cheez Whiz pasteurized process cheese spread in 1952, were introduced.

In 1951 the postwar economic boom drove National Dairy's sales over the $1 billion mark for the first time. Thomas McInnerney died in 1952 and J.L. Kraft died the following year. Kraft's death marked the end of the Kraft family's leadership of the business. National Dairy began to reorganize along more centralized lines soon after its founders died. The autonomous subsidiaries became divisions of a single operating company in 1956 and 1957. Meanwhile, the company took its first cautious steps toward diversification with the acquisition of Metro Glass, a maker of glass packaging, in 1956.

During the late 1950s and the 1960s, Kraft continued to expand its product line, adding new products such as jellies and preserves in 1956, "jet-puffed" marshmallows in 1959, barbecue sauce in 1960, and individually wrapped cheese slices in 1965. During the 1960s, Kraft also introduced many of its products in foreign markets.

In 1969 National Dairy renamed itself Kraftco Corporation and in 1972 it transferred its headquarters from New York to the Chicago suburb of Glenview. The company name changed in 1976 to Kraft Inc. to emphasize the company's focus on food processing and to more clearly identify it with the internationally known Kraft trademark. Reorganization accompanied the name change; the movement toward a more centralized structure--begun in the 1950s--was accomplished by partitioning the company into divisions according to specific markets or products.

Kraft manifested a decidedly conservative business strategy during the 1970s. Unlike other major food companies, Kraft did not seek acquisitions to shore up sagging profits. New product introductions also slowed somewhat; after the introduction of Light n' Lively yogurt and ice milk in 1969, squeezable Parkay margarine came in 1973 and Breyers yogurt in 1977. The difficult business climate of the 1970s may have encouraged a defensive posture as inflation increased costs and cut into profits.

John M. Richman, who began at Kraft as a lawyer at National Dairy Products, became Kraft's chairman and CEO in 1979. Richman planned to strengthen the company's position in its traditional markets while diversifying into higher-growth industries. His first move--a truly bold stroke--was a merger with Dart Industries Inc., a Los Angeles-based conglomerate headed by the flamboyant Justin Dart.

1980-86: The Dart & Kraft Era

Dart Industries was established in 1902 as United Drug Company. Justin Dart began his career in the retail drug business and built Rexall Drugs into one of the largest chains of drugstores in the country. With Rexall as his base, Dart began an aggressive acquisition campaign, diversifying into chemicals, plastics, glass, cosmetics, electric appliances, and land development. In 1969 the company name was changed to Dart Industries to reflect this diversity. At the time of the merger, the flagship of Dart Industries was its successful Tupperware subsidiary that sold plastic food containers through direct sales by independent dealers using a "home party" plan.

The aggressive, innovative, and rapidly growing Dart Industries fit perfectly into Richman's plan; it offered Kraft instant diversification. The merger also offered advantages for Dart and his company. Richman's boldness appealed to Dart, who thought that Kraft would give Dart Industries some stability. Thus, Dart & Kraft Inc. was launched on September 25, 1980, with Richman as its chairman and CEO and Justin Dart as chairman of the executive committee. Kraft and the subsidiaries of Dart--Tupperware, West Bend appliances, Duracell batteries, Wilsonart plastics, and Thatcher glass--continued to operate independently. Some analysts, however, doubted that such a diverse company would succeed.

As in many restructurings, there were some early rough spots, but major changes in operating procedure were confined to top managers. Middle managers were left in their familiar roles to ease the transition. Altogether, management apparently succeeded in unifying two very different firms with a minimum of friction.

Industry analysts, nonetheless, felt compelled to ask which partner would dominate the merger. Although Kraft was the larger of the two companies, the consensus was that the more aggressive and growth-oriented Dart would be the dominant party. The reasoning was that Dart had been given preference in the new company's name and it was Kraft's desire to become more like Dart that initially led to the merger. On the first anniversary of the merger, Richman himself commented that "in terms of organization and outlook, we're more a Dart than a Kraft."

Indeed, Dart & Kraft's initial activities bore out this assessment. Soon after the merger, the company bid $460 million for the Hobart Corporation, a manufacturer of foodservice equipment. The deal was completed in April 1981. Even while the Hobart deal was being negotiated, Dart & Kraft announced that it was considering further acquisitions.

Although several smaller acquisitions followed in the next two years, diversification slowed because several subsidiaries experienced managerial problems or proved vulnerable to the recession of the early 1980s. Poor performers included Kraft's European operations and its foodservice business, and Dart's plastics unit and its West Bend appliances. Even Hobart was troubled by sagging profits and declining market share in its Kitchen Aid division, which produced top-of-the-line kitchen appliances. Company efforts to get these businesses back on track were beginning to show results when trouble struck Tupperware.

Tupperware had been a phenomenal success; it doubled sales and earnings every five years prior to 1980. But in 1983 sales slipped 7 percent and profits were down 15 percent. Tupperware's slide was attributed to attrition among its dealers--as more women took jobs outside the home, there were fewer people to sell and buy Tupperware.

In 1984 the company planned to increase returns from 13.3 percent to 18 percent, and thus place Dart & Kraft in the top fifth of the consumer-products industry. This ambitious goal was to be attained by adding new products, extending existing lines, and using aggressive marketing and advertising.

Michael A. Miles, the man who had revived Kentucky Fried Chicken, was brought in to direct the new effort. Miles first cut costs by overhauling the European division. Many of Kraft's brands competed in mature markets. Additions to these lines--for example, bacon and cream cheese-flavored salad dressings--boosted sales. The company also acquired promising new brands that appealed to the upscale consumer. Among these were the import-style cheeses of Churny Company, Inc., Celestial Seasonings herb teas, Lender's bagels, and Frusen Glädjé premium ice cream.

The company pursued similar tactics in Dart & Kraft's nonfood businesses, but when sales continued to lag into 1986, the company decided, in effect, to dissolve the six-year-old merger. Hobart, Tupperware, Wilsonart, and West Bend were spun off into a new company called Premark International, Inc. Kraft, Inc. retained all of the product lines it had brought to the 1980 merger and also gained Duracell batteries.

Kraft followed through on its plan to expand its product lines and market them aggressively, a strategy that won visible gains. The company's management seemed to have rediscovered J.L. Kraft's approach that combined the stability of well-known brand names with creative marketing and the continuous development of new products aimed at changing American tastes. In 1988 Kraft also became a pure food company once again when it sold off Duracell.

Late 1980s and Early 1990s: Philip Morris and the Kraft General Foods Era

Philip Morris's designs on the packaged-foods industry became clear when the company purchased Kraft in December 1988 for $12.9 billion. In March 1989 Philip Morris merged the Kraft and General Foods units into one giant entity called Kraft General Foods, Inc. Initially, the subsidiary was divided into seven major groups: General Foods USA, Kraft USA, Kraft General Foods International, Kraft General Foods Canada, Oscar Mayer, Kraft General Foods Frozen Products, and Kraft General Foods Commercial Products. At the helm was Kraft's Michael Miles.

As a result of the merger, the company became the largest food marketer in the United States. Profits at Kraft General Foods grew at an average rate of more than 20 percent in its first two years. Early on, the company's size proved to be a competitive advantage; it saved $400 million through initial consolidations and its purchasing power multiplied. Size had its drawbacks, however. The company was slow to respond to demand in some markets. For example, Kraft waited until 1990 to introduce Touch of Butter, well after other food producers responded to the public's growing concern about excess cholesterol. Tensions existed between the Kraft and General Foods forces within the company as well. One notable failure during this period was Kraft microwave entrees, originally developed by General Foods, but marketed under the Kraft name as a result of internal politics. The product was discontinued after only six months.

On the international front, Kraft General Foods International acquired Jacobs Suchard AG in August 1990 for $4.2 billion. Based in Switzerland, Jacobs Suchard was a leading European maker of coffee and confectionery products. Its key brands included Carte Noire, Grand Mere, and Jacobs coffee and Suchard, Milka, Toblerone, and Cote d'Or chocolates. Backed by the deep pockets of Philip Morris, Jacobs Suchard began an acquisitions spree, with a number of the purchases taking place in the newly opened markets of central and eastern Europe. The largest acquisition by Jacobs Suchard during this period, however, was the 1993 purchase of Freia Marabou a.s., the leading Scandinavian confectionery maker, for $1.3 billion. Later in 1993 Jacobs Suchard was merged with Kraft General Foods Europe to form Kraft Jacobs Suchard AG.

In 1991 Miles became CEO of Philip Morris. He was replaced at Kraft General Foods by Richard Mayer, who had previously headed General Foods USA. The company's sales in the North American market grew only 1 percent in 1991. Several of the company's most important product categories lost market share that year, including cheese, processed meats, and frozen dinners. In the $5.2 billion retail cheese market, Kraft General Foods' drop to 42 percent control cost the company approximately $125 million in profits. The company's Oscar Mayer line of processed meat products was hurt by the rising tide of health-consciousness among consumers. To combat this trend, healthier-sounding items such as "light" bologna and turkey bacon were introduced. In addition, close to 300 products with lagging sales were eliminated. Demand for Louis Rich processed turkey products was slipping as well. Kraft General Foods responded by closing its Tulare, California, plant, thus cutting the payroll by more than 1,000 employees. Another market share loser was BirdsEye frozen vegetables, which fell behind Pillsbury's Green Giant brand in share of sales.

An area in which Kraft General Foods achieved positive results in 1991 was in its Post cereal unit. Honey Bunches of Oats, introduced in 1989 (when Post registered an all-time low market share of 10.9 percent), snared 1 percent of the $7.5 billion breakfast cereal market by 1991. This was the company's first gain in that area in more than ten years. Coffee also performed well for Kraft General Foods in 1991. During the year the Maxwell House brand regained market leadership over Procter & Gamble's Folgers.

In 1992 KGF Marketing Services was formed. The purpose of this unit was to assist in coordinating marketing strategies and bridge the gaps between the different operating units. Late in 1992 the operating units of Kraft General Foods were realigned. The company eliminated two of its seven original operating groups, KGF Frozen Products and Oscar Mayer Foods. The two units were folded into Kraft USA and General Foods USA. In November 1993 came the launch of yet another restructuring, this one designed to eliminate 14,000 jobs and close 40 plants worldwide.

In addition to these restructurings, Kraft General Foods in the mid-1990s added to and subtracted from its array of operations. In January 1993 the firm completed the $450 million purchase of RJR Nabisco Holdings Corp.'s cold cereal business, gaining the Shredded Wheat and Shreddies products. Seeking to jettison low-margin product lines and businesses, Kraft General Foods completed four major divestitures. The company sold its ice cream business, including the Sealtest and Breyers brands, to Unilever in 1993 for about $215 million. That same year it sold the BirdsEye frozen vegetables brand to Dean Foods Company for $140 million. A further pullback from the frozen food sector came in December 1994 when the All American Gourmet Company, maker of Budget Gourmet frozen meals and side dishes, was sold to H.J. Heinz Company for about $300 million. In early 1995 Kraft General Foods sold its foodservice unit to buyout firm Clayton Dubilier & Rice Inc. for about $700 million.

1995-2000: Restructuring As Kraft Foods, Inc.

With the financial results of Kraft General Foods continuing to disappoint and under criticism for moving too slowly to integrate the operations of Kraft and General Foods, the management was shaken up in late 1994. Mayer unexpectedly took early retirement and was replaced as head of Kraft General Foods by James M. Kilts, who had been in charge of Kraft USA. Kilts moved quickly to engineer a turnaround, launching a major restructuring--the fourth since 1989--in early 1995. Kraft USA and General Foods USA--along with Kraft General Foods Canada--were merged into a single organization called Kraft Foods, Inc., which also became the main Philip Morris food subsidiary, replacing Kraft General Foods, Inc. Kraft General Foods International was renamed Kraft Foods International, Inc. and became a subsidiary of Kraft Foods, Inc.

Continuing the drive to improve margins, Kraft Foods in October 1995 sold its low-margin bakery division to CPC International Inc. for $865 million in cash. The division's brands included Entenmann's and Freihofer's sweet baked products, Oroweat and Freihofer's breads, and Boboli Italian pizza crusts. Other divestments in 1995 included Kraft marshmallows, sold to Favorite Brands International Inc.; and the North American tablespreads business, which included the Parkay brand of margarine and was sold to RJR Nabisco. Kraft sold Lender's bagels in 1996 and the Log Cabin syrup brand in 1997. On the product launch side, Kraft had one of its biggest successes in years with the debut of DiGiorno Rising Crust pizza, which featured an uncooked crust that rises when baked and that many consumers felt taster fresher than the hard, flat crusts that were typical of most frozen pizza.

Kraft also made some selective acquisitions in the later years of the 1990s, picking up, for example, the license for the Taco Bell line of Mexican grocery products in 1996. By 1997 margins had improved to 17 percent, a significant improvement over the 12 percent level of 1994. During 1998 Kraft entered into a long-term licensing agreement with Starbucks Corporation, whereby Kraft would market and distribute Starbucks whole bean and ground coffee into grocery, warehouse club, and mass merchandise stores. During the early months of 2000, Kraft Foods added two brands in the fast-growing healthful food sector: Balance Bar energy and nutritional snack products and Boca Burger soy-based "meat alternative" products. The $358 million that was spent for these two brands was chump change, however, compared to the $18.9 billion spent by Philip Morris to acquire Nabisco Holdings Corp. in December 2000.

Brief History of Nabisco

The origins of Nabisco date back to the late 19th century, when a series of mergers took place in the American baking industry. The culmination of decades of amalgamation was the 1898 merger of the midwestern American Biscuit Company with the eastern New York Biscuit Company, forming the National Biscuit Company, which was usually called N.B.C. in its early years. With 114 bakeries and a capital of $55 million, the Chicago-based N.B.C. held a virtual monopoly on cookie and cracker manufacturing in the United States. Among the initial brands held were Fig Newtons and Premium Saltine crackers.

Adolphus Green was the chief engineer of the 1898 merger and was chairman of the company until his death in 1917. Green was responsible for N.B.C.'s legendary emphasis on standardized, brand-name products. To help launch the new company, Green introduced a new line of soda crackers called Uneeda Biscuits packaged in special protective containers--small cardboard boxes lined with waxed paper to retain freshness; previously, crackers had been sold in bulk from cracker barrels or large crates. The new product was an enormous hit, with sales surpassing 100 million packages by 1900.

National Biscuit introduced other new products in its early years: Barnum's Animal Crackers in 1902 and both Lorna Doones and Oreos in 1912. The latter eventually became the world's best-selling cookie. N.B.C. moved its headquarters from Chicago to New York in 1906.

The company prospered greatly during the 1920s. It established its first foreign subsidiary, in Canada, in 1925. Through acquisitions, the product line was expanded to include pretzels, breakfast cereal, and ice cream cones. The most important purchase was that of the Shredded Wheat Company, completed in 1928 for $35 million. In addition to Shredded Wheat cereal, which had debuted in 1892, this acquisition also brought into the N.B.C. fold Triscuit wafers, which had been introduced in 1902. During the Great Depression, when growth slowed and profits fell, N.B.C. acquired Bennett Biscuit Company, maker of Milk-Bone dog biscuits, in 1931. The company also launched another hit product in 1934, Ritz crackers. In 1941 the letters "N.B.C." in the official company trademark were replaced by the word "Nabisco," a popular nickname for the company. In part, the change was made to reduce confusion with the recently established National Broadcasting Company.

During the immediate postwar years, Nabisco spent more than $150 million modernizing the firm's antiquated bakeries. Overseas, the 1950s were a period of major expansion in Latin America, while the 1960s saw the company push aggressively into Europe. By the end of the 1960s, Nabisco was the leading manufacturer of crackers and cookies not only in the United States but also in Canada, France, and the Scandinavian countries, and was a major supplier to many other European and South American countries. Meanwhile, Nabisco acquired the Cream of Wheat Corporation in 1961.

In 1971, the year that company sales reached $1 billion for the first time, National Biscuit changed its name to Nabisco, Inc. Four years later, its headquarters were moved to East Hanover, New Jersey. The company launched a short-lived diversification program in the 1970s, acquiring toy maker Aurora Products and drug company J.B. Williams, manufacturer of Geritol and Sominex, both in 1971. Aurora was sold in 1977, while Williams was sold to the Beecham Group in 1982.

The inflation and mounting energy costs of the 1970s led Nabisco to seek a merger with another large food concern. In 1981 the company merged with Standard Brands to form Nabisco Brands, Inc. Standard Brands had been formed in 1929 through the merger of the Fleischmann Company, maker of diverse products, including yeast and gin; Chase & Sanborn, a coffee roaster; and the Royal Baking Powder Company. Over the years, Standard made a number of important acquisitions, including Planters Nut & Chocolate Co. in 1961 and the Curtiss Candy Company, maker of the Baby Ruth candy bar, in 1964.

Nabisco Brands acquired the Life Savers Company for $250 million in 1981. After becoming the object of repeated hostile takeover attempts, the company in 1985 agreed to a friendly takeover by R.J. Reynolds, a worldwide manufacturer and distributor of tobacco, food, and beverage products, for $4.9 billion, creating the nation's largest consumer-products company, with annual sales of more than $19 billion. R.J. Reynolds changed its name to RJR Nabisco, Inc. later in 1985, while the firm's food unit took the name Nabisco Foods Group. The new Nabisco gained a number of Reynolds brands, including Del Monte canned products, A.1. steak sauce, and Grey Poupon mustard.

In 1988 a management group at RJR Nabisco attempted to take the company private in a $17.6 billion leveraged buyout. This led to an epic takeover battle after the brokerage house of Kohlberg Kravis Roberts & Co. (KKR) stepped in with a bid of $20.3 billion. A third bidder entered the fray in the form of a joint bid by broker Forstmann Little & Co., Procter & Gamble Company, and Ralston Purina Company. KKR ultimately won the battle with a $24.5 billion bid, gaining control of RJR Nabisco in 1989. The huge debt taken on to complete the takeover necessitated divestitures, and later in 1989 RJR Nabisco sold its European cookie and cracker business to BSN (later known as Groupe Danone), France's largest packaged-food group, for $2.5 billion. One year later, RJR Nabisco sold its Asia-Pacific businesses to Britannia Brands, a joint venture between BSN and an Indian partner. In 1991 RJR Nabisco went public again as RJR Nabisco Holdings Corp.

Nabisco Foods Group scored a coup in 1993 when it introduced the Snackwells line of low-fat cookies and crackers. Snackwells became a huge hit, with annual sales rocketing to $297 million within just two years. Also in 1993, Nabisco sold its cold cereal business, including the Shredded Wheat brand, to Kraft General Foods for $450 million. Two years later, Nabisco purchased Kraft's North American tablespreads business, including Parkay margarine. That same year, RJR Nabisco took Nabisco Foods Group public, selling a 19.5 percent stake.

Two major restructurings were undertaken in 1996 and 1998, the former involving the elimination of 6,000 jobs and a $428 million charge and the latter, 6,500 job cuts and a $530 million charge. Also in 1998 Nabisco sold its margarine and egg substitute business--including Parkay, Blue Bonnet, Fleischmann's, and Chiffon margarines and the Egg Beaters egg substitute product--to ConAgra, Inc. for $400 million.

Following the sale of its international tobacco operations, RJR Nabisco spun off its domestic tobacco business in 1999. The company was renamed Nabisco Group Holdings Corp., and its sole asset was its 80 percent stake in the Nabisco food unit, now called Nabisco Holdings Corp. Later in 1999 Nabisco Holdings purchased Favorite Brands International, maker of Jet-Puffed marshmallows (formerly Kraft marshmallows) and Farley's fruit snacks.

Nabisco was put up for sale in early 2000, leading to yet another takeover battle involving the company. This time Philip Morris emerged the victor, besting a joint bid by Groupe Danone and Cadbury Schweppes PLC. To complete its third major food company acquisition, Philip Morris had to pay $14.9 billion in cash plus assume $4 billion in debt.

Early 21st Century: Integrating Nabisco into Kraft Foods Inc. and an IPO

Philip Morris completed its acquisition of Nabisco in December 2000 and immediately began integrating the Nabisco operations into those of Kraft Foods and Kraft Foods International. In March 2001 Philip Morris created a new holding company for the combined operations known as Kraft Foods Inc. (lacking the comma of the previous Kraft Foods, Inc.). The previous Kraft Foods was renamed Kraft Foods North America, giving the new Kraft Foods two main units: Kraft Foods North America and Kraft Foods International. The two CEOs of these units, Betsy D. Holden and Roger K. Deromedi, respectively, were named co-CEOs of Kraft Foods Inc. In June 2001 Philip Morris sold a 16.1 percent stake in Kraft Foods to the public, retaining the remaining shares. The second largest IPO in U.S. history, the offering raised $8.68 billion, which Philip Morris earmarked to reduce debt it had incurred in acquiring Nabisco.

As it was integrating Nabisco and attempting to meet the anticipated annual cost savings of $600 million by 2003, Kraft Foods also began divesting some of the marginal brands it had acquired in the takeover. By late 2001, the company had announced that it had reached agreements to sell the Farley's and Sathers confection brands as well as its Mexican pasta business, which included the Yemina and Vesta brands. Additional divestments were expected for Kraft, which as one of the top two food companies in the world--with revenues approaching $35 billion--could be very choosy about which brands to retain in its very powerful portfolio.

Principal Subsidiaries: Kraft Foods North America, Inc.; Kraft Foods Holdings, Inc.; Kraft Foods International, Inc.; Kraft Foods Schweiz Holding AG (Switzerland); Nabisco Holdings Corp.; Nabisco, Inc.; Nabisco Brands Company; Kraft Pizza Company; Kraft Food Ingredients Corp.; Capri Sun, Inc.; Callard & Bowser-Suchard, Inc.; Balance Bar Company; MEX Holdings, Ltd.; Nabisco Biscuit Manufacturing (Midwest), Inc.; Nabisco Biscuit Manufacturing (West), Inc.; Nabisco England IHC, Inc.; Nabisco Group Ltd.; Nabisco Holdings IHC, Inc.; Nabisco International, Inc.; Nabisco Technology Company; Kraft Foods Ltd. (Australia); Kraft Canada Inc.; Kraft Foods Italia S.p.A. (Italy); Ajinomoto General Foods, Inc. (Japan); Dong Suh Foods Corporation (South Korea); Votesor BV (Netherlands); Kraft Foods Belgium S.A.; Kraft Foods AS (Norway); Kraft Sverige AB (Sweden); Kraft Foods España, S.A. (Spain); Kraft Foods Schweiz AG (Switzerland); Kraft Foods France; Kraft Foods Deutschland Holding GmbH (Germany); Kraft Foods Produktion GmbH (Germany); Kraft Foods UK Limited; Gevaliarosteriet AB (Sweden); Jacobs Suchard Alimentos do Brasil Ltda. (Brazil); Kraft Lacta Suchard Brasil, S.A. (Brazil); Corporativo Kraft S.A. de C.V. (Mexico); Kraft Foods de Mexico, S.A. de C.V.; Establecimiento Modelo Terrabusi S.A. (Argentina); Nabisco Argentina S.A.; Nabisco Iberia, S.L. (Spain); Nabisco Limited (Canada); Productos Alimenticios Fleischmann e Royal Ltda. (Brazil); Nabisco Euro Holdings Ltd. (Cayman Islands).

Principal Operating Units: Kraft Foods North America; Kraft Foods International.

Principal Competitors: Nestlé S.A.; Unilever; ConAgra Foods, Inc.; Groupe Danone; H.J. Heinz Company; Sara Lee Corporation; General Mills, Inc.; Campbell Soup Company; Kellogg Company; The Quaker Oats Company; Dean Foods Company; Frito-Lay Company.

Source: International Directory of Company Histories, Vol. 45. St. James Press, 2002.