Premier Foods have secured an extension on their license with Cadbury’s cakes range.
Mondelez have granted the group more time to deliver to 46 countries, as well as to handle their flagship Oreo range.
New Cadbury Deal
Highly indebted food group Premier Foods have secured a renewal of their license from Mondelez International, which allows them to make Cadbury cakes.
While their deal previously covered 10 countries, they have now extended it to cover 46 around the world. Their principal markets are the UK, Ireland, Australia, and the UAE, all of which are included in this renewed and extended deal.
The cakes created by Premier Foods can be based on the entire Cadburys range, which includes Flake and Crunchie. For the first time, they will also be entitled to make cakes based on Oreo, which is the flagship biscuit brand for Mondelez.
While previous licences lasted for only 3 years, this one has been extended for 5. There is also an additional option to extend the deal until 2025 so long as performance criteria are met.
8% of Premier’s total sales are made up by the Cadbury range, which amounts to £60 million a year. However, the value in the license lies in the fact that the Cadburys range has seen much more rapid growth than the other food brands held by Premier. These include Mr Kipling’s cakes, Ambrosia’s puddings, and gravy from Oxo.
Sales of Cadburys cakes have grown by 19% over the past two years, in comparison to a market growth rate of just 0.7%.
Analysts at Shore Capital said: “The new agreement is clearly welcome to Premier Foods’ shareholders as it removes a degree of uncertainty over an important component of the group’s branded product portfolio.”
Product Range Changes
One of the biggest catalysts for the rise in sales for the Cadburys range has been new product development. The Cadburys Amaze Bites are one such item, tubs of mini chocolate-covered cakes which have been helping to boost Premier’s revenues since 2015.
However, the product launches started to falter last year, and in January there was a profit warning for the group along with criticism from investors. They had turned down a 65p per share takeover from US spice makers McCormick, which some felt was a poor decision.
However, chief executive Gavin Darby says that the license “will unlock exciting new growth opportunities for both partners… and represents a major boost to our fast-growing international business”.
The deal comes after a long history of buy-outs. It started with the financial crisis, which allowed Premier to buy RHM food group, thereby gaining the Cadbury cakes license. In 2010, Kraft acquired Cadbury, which had already sold the licence for the Cadbury biscuit line to Burton’s Biscuit Company. Mondelez was spun off from Kraft 2 years later, and in 2016, it bought back the biscuit licence for £200 million.
If you can keep up with all of that, you might want to think about applying for one of our food jobs. The world of food can move quickly, especially where finances are concerned. Only time will tell whether Premier Foods have made the right decision to resist a buyout now. If anything is going to save their dwindling fortunes, it could probably be the Cadbury’s line – and particularly the ultra-popular and currently trendy Oreo biscuits.
In the meantime, this can be taken as good news for investors in both Premier and Mondelez. New product ranges have proven to do well for both in the past, and with the new deal in place, we can perhaps expect to see more.