Is Kraft working for Cadbury? - Business, Innovation and Skills Committee Contents


4  Kraft's undertakings on Cadbury manufacturing, R&D and brands

Introduction

42.  In 2010, Kraft gave a number of undertakings to our predecessor Committee. In this section we consider the undertakings made in relation to manufacturing, R&D and brands, and the progress Kraft has made in its merging of the two companies.

43.  Kraft undertook:

  • To preserve the identity of the Cadbury brand and the company,[44] and to manage the brands, the assets and the people out of the UK;[45]
  • To continue to base Cadbury marketing and sales in the UK;[46]
  • To continue to produce, in the UK, Cadbury's Dairy Milk[47] and Cadbury's other products in UK production at takeover;[48]
  • That R&D facilities would be maintained.[49]

Current status

44.  Kraft is now half way through its two-year commitment in relation to manufacturing and jobs in the UK. In the meantime, several major developments have been announced in relation to HQ functions and R&D.

45.  In March 2010, Kraft said that it would make up to 150 workers redundant in the Cadbury finance, legal and communications departments, mostly at the headquarters in Uxbridge near London and also at the Bournville site in the Midlands. In May 2010, Kraft announced that it would close its own Cheltenham HQ, which employed 450 people, but would transfer the HQ functions to Bournville and Uxbridge.[50] Finally, in December 2010, the company announced that it would move a number of key management roles to Zurich.[51]

46.  Unfortunately, Kraft's Progress Report to us avoided reference to most of these announcements. However, it confirmed that Kraft had created 50 new expert positions at Bournville.[52] In addition, it said:

Last May we announced that Bournville, following a $216 million (£135m) investment programme over the last five years, will be Kraft Foods' global centre of excellence for chocolate research and development. The centre of excellence will drive new product development, new technologies and best practices for such beloved chocolate brands as Cadbury Dairy Milk, Milka, Toblerone, Côte d'Or, Terry's, Flake, Creme Egg, Green & Black's, Suchard, Freia, Marabou and Lacta. Bournville will drive innovation for the Kraft Foods chocolate business all over the world.

We have met and exceeded our specific commitment to maintain Cadbury's R&D sites in the UK. Cadbury's existing science centre in Reading will become a global science and technology centre serving Kraft Foods worldwide. Both the global centres in Bournville and Reading are in addition to Kraft Foods' existing global centre of excellence for coffee, which has been in Banbury for more than forty years.[53]

47.  Mr Bunker told us that Bournville is currently recruiting to fill 50 R&D vacancies,[54] that 50 sales roles are also being advertised,[55] and that recruitment is happening in Reading.[56] That is all good news indeed. Mr Bond also told us that some 40 of the Uxbridge workers had found alternative employment within Kraft.[57].

48.  In the evidence session Kraft was, however, unable to extend its undertakings in relation to manufacturing and jobs, or to share the results of its manufacturing review.[58] Trevor Bond told us:

We are bringing jobs into the broader network. But we live and work in very uncertain times. I am passionate about Bournville, as you can tell, but I am also passionate about productivity. We have to drive productivity as well as investment. That means that we will not extend our guarantee after next year. What I can guarantee is a strong business, such as we have had over the past many years, is the best chance of long term success.[59]That said, Trevor Bond confirmed that Dairy Milk would continue to be produced in the UK for the foreseeable future.[60] He also told us that growth in the sales of Cadbury's Dairy Milk was strong and that Kraft had brought Cadbury hot chocolate production and a certain amount of chocolate egg production back to the Bournville site.[61]

49.  Speaking about investment in Cadbury, Trevor Bond said:

In Sheffield we have our largest sugar manufacturing facility in Europe. In Bournville, we have over £150m worth of assets. We are businessmen. We make what is right for our consumers and customers, because that is what drives our businesses into the future. We have fantastic assets—brands, people and physical assets. Our responsibility to our shareholders and to the broader community is to continue to invest, innovate and grow them.[62]

In addition, Mr Firestone was able to confirm that the major Cadbury intellectual property would remain in the UK, to the extent that royalties are received on it by Cadbury UK from the Swiss entity.[63] This provided some reassurance both on Kraft's compliance with the previously given undertaking on brand management and on its payment of UK tax, albeit we heard that the senior marketing manager is now based in Zurich[64] and that strategic marketing decisions originate there.[65]

50.  We welcome the increased investment in Bournville. We also welcome Kraft's commitment to expanding the research role carried out at Bournville alongside the confirmation that the R&D facilities at Reading will continue.

51.  Given Kraft's undertaking to manage the Cadbury brands out of the UK, we trust that all marketing posts other than that of the senior marketing manager will remain UK-based. We trust furthermore that marketing decisions made by Kraft at the European level will remain consistent with strong growth objectives for Cadbury products in the UK and across the region.


44   16 March 2010, qq 174 and 176 Back

45   Q 175, ibid. Back

46   Q 215, ibidBack

47   Qq 177 and 179, bid. Back

48   Q 182, ibid. However, this was qualified by the proviso that there were no plans to move production as of March 2010 Back

49   Q 298, ibid. This applied to Reading, and was qualified by a proviso that the commitment was not in perpetuity. There was a statement of intention to invest in Bournville at Q 193. Back

50   Financial Times, 11 May 2010, 'Cadbury bases to become Kraft UK HQ' Back

51   BBC News, 4 December 2010, 'Kraft to switch Cadbury jobs to Zurich' Back

52   Paragraph 7 Back

53   Paragraphs 20-21 Back

54   Q 71 and Q 92 Back

55   Q 111 Back

56   Q 163 Back

57   See Q 76 Back

58   Q 74 Back

59   Q 83 Back

60   Q 79 Back

61   Q 81 Back

62   Q 133 Back

63   Qq 116 and 117 Back

64   Q 108 Back

65   Q 120 Back


 
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Prepared 23 May 2011