It has been over three years since Kraft spilt into two companies. The grocery group retained the Kraft brand identity -- calling itself Kraft Foods Group and kept the stock symbol KRFT. The snack foods group held a company contest to create a new name. The "winner" was Mondelez International (pronounced "mohn-dah-leez") with the stock symbol MDLZ. Two employees created this name from a combination of the words "monde" (Latin for "world") and "deliz" (for "delicious"). For numerous reasons, marketing experts were critical of this name from the start.
The buying public did not like it
Most buyers reacted negatively to the new name. Here are just a few of the reactions from USA Today.
•Here is a hint, Kraft, if you need to show how to pronounce a name, you shouldn't use it for the name of a company. Michael Sakraida March 21 at 9:53am
•So stupid! This new name sounds like they're moving the business to Mexico and naming it after the town. Why not leave it as 'Kraft' or some version of? That's their global name and highly regarded. Starting a new name will not help their business but hurt it. They'll find out the hard way. Andrew Komosa March 21 at 11:36am
•"Mondelez" doesn't sound remotely food-like. To me, it sounds like the name of a second-rate, off-Strip Vegas hotel. Cat MacKinnon Mar 27th, 2012 at 8:18 am
The results of a poll on Squidoo (now HubPages) that asked readers "Should Kraft change the company name to Mondelez International?" were as follows:
•Yes = 0%
•No = 93.6%
•Maybe = 6.3%
Importance of the corporate brand name
The name is perhaps the most important of all branding decisions. It forms the foundation of the relationship between the brand and the customer. In the case of Kraft, this relationship is 106 to 112 years old (depending on when you start counting) and has been established through many years of product experience, advertising, and packaging. As a result, changing it should not have been done without serious thought and consideration.
Mondelez was not a great choice
Brand-marketing experts scratched their heads when they heard about this naming decision. The only people outside of the company that seemed happy were Kraft's competitors. To many, this is just another example of how big companies sometimes make big mistakes. Why did experts not like the name?
Hard to pronounce. Upon asking a random sample of people to pronounce the name, nobody got it right. Why is this a problem? If people cannot pronounce it, it will be harder to remember and harder to fuel word-of-mouth pyramids, social networks, and stock recommendation opportunities. The corporate name is important for investors, employees, and business partners with whom the company needs to do business.
Confusing (what does it mean?). Yes, a lot of languages are based on Latin, but busy people that are already too distracted multitasking are not likely to make the association between the new name and delicious world. If they don't know what it means, the company will lose the corporate image lift their products would get if the market understands, and feels comfortable with, the corporate brand name.
Loss of Brand Equity. The brand associations with Kraft that already exist in the brains of prospective buyers and stakeholders will be lost. These have been built up for more than 100 years and are the result of billions of promotional dollars invested in the Kraft brand. O.K. They are splitting the company in two. What's wrong with calling the snacks business Kraft Snacks or Kraft Snack Foods? Everyone that knows the Kraft name will understand it, feel comfortable with it, and live happily ever after. The newbies can easily learn it. It is certainly easier to learn than Mondelez.
Not nice in Russian. If Kraft wants an international name, it should make sure it does not have negative connotations in international circles. Russian speakers say the first part of the name "manda" is a vulgar word, and the second part translates to the sex act. For the sake of my own corporate image, I'd rather not be more specific.
Would be worse if Mondelez was an important product brand name
Luckily for Mondelez, none of the snack products under the Mondelez brand umbrella contain the company name. Oreo, Nabisco, Trident, and Cadbury are strong brand names that have their own identities. The only place Mondelez is likely to appear is in the fine print on the product labels. Even so, for those that bother to read the labels (more and more people do these days), there may be some negative associations when they see the name Mondelez as the maker of the products. The issues related to the product, also transfer to the stock.
Apparently the experts were right
Three years ago, the snack foods business was expected to exhibit strong growth - especially in foreign markets around the world. That was the justification for the split and for the foreign-sounding name Mondelez. On the other hand, Kraft Foods Group was selling mature products, such as cheese and lunchmeat products. While they were cash cows (no pun intended) they were in a very slow-growing segment of the food business. What actually happened? Kraft Foods has outperformed Mondelez.
- Mondelez revenue fell 1.5% in the first 3 quarters of 2014, while companies in its category had revenue growth of 4.12%.
- Long before it was announced that Heinz would buy Kraft, Kraft shares climbed 35% as Mondelez rose 29% after the split and through mid-December 2014, and they both trailed the S&P 500 which rose 39%.
- Mondelez's operating margin trailed Kraft's in the first 3 quarters of 2015 - 10.4% for Mondelez versus 18.5% for Kraft.
- Return on invested capital for Kraft rose 20.6% - nearly 3 times that of Mondelez at 7% over the same 3 quarters.
Could this relatively poor performance be from the name?
While it is nearly impossible to attribute this unexpected disparity in performance after the split solely on the name change of the snack-foods group, there is no doubt that it played an important role. Why?
- Before the change snack foods represented the faster growing segment.
- Snacks were growing even faster internationally.
- There is no other major change that can explain the unexpected results.
Marketing experts know that changing any of the big three brand elements - names, logos, and slogans should not be taken lightly. This is a major decision. It is unlikely Kraft executives would turn to employees if they needed brain surgery. Well, developing brand names is brain surgery of a different kind. Kraft should not solicit amateurs to do it for them. A 1.5% drop in revenue as compared with a 4.12% rise for competitors represents a lot of lost revenue (and opportunity cost) for a big food company. Even though experts predicted problems three years ago, company executives might have avoided them if they had invested a little in some expert advice before proceeding with the name change suggested by an employee contest.