Spin Proctoring
How to grow a brand?
Spin it off
Barry Silverstein
When it comes to growing brands, seems as if it’s a case of divide & conquer.
Look at the current M&A (Mergers & Acquisitions) scene in U.S. business and you’ll see signals, especially in the food
industry, that big conglomerates are falling out of favor:
• In June 2012, Sara Lee jettisoned its famous name, splitting the company into two units: Hillshire Brands, focusing on
mostly meat products, and D.E. Master Blenders 1753, a European maker of coffees and teas.
• Last year, the country’s largest dairy company, Dean Foods, said its Whitewave unit, which accounts for about 40
percent of Dean’s operating income, would split from the company and file an IPO. Whitewave produces Horizon
Organic milk and the Silk brand, which includes soy and almond milk, products that have been growing faster than
Dean’s regional milk brands.
• In October 2012, the giant Kraft Foods will split the company in two, separating its U.S. business (Kraft Foods Group)
from its international snack foods business (Mondelez International).
Corporate breakups are on the rise, according to Bloomberg Businessweek, which reports that there were 19 U.S.
corporate public company spinoffs in 2011 vs. 16 in 2010. Eleven spinoffs were finalized in 2012 and thirteen more
were announced.
Why the flurry of activity? Apparently, the business strategy of consolidating companies into conglomerates is now being
viewed as a drag on profits. Instead, big companies are seeing a bump to shareholder value when they play a different
corporate game: divide and conquer. Bloomberg Businessweek’s Larry Popelka explains: “Not long ago many of these
companies were chasing acquisitions in the belief that scale was critical to their success and that acquisitions would bring
synergies. But in many industries that’s changing. The synergies garnered by large companies today are shrinking, while
organizational inefficiency from size has become a greater burden.”
Small brands seem to be getting more attention from big retailers. In the food industry, for example, Costco Wholesale,
Walmart, and Whole Foods “go out of their way to support products from smaller companies as a way of increasing
competition and reducing the clout of big, inflexible manufacturers,” according to Popelka. Of course, dominant players
like Walmart can also call the shots with smaller companies when it comes to setting the wholesale price they’re willing
to pay.
The big company breakup phenomenon extends beyond the food industry into travel (Expedia spun off TripAdvisor in
2011), pharmaceuticals (Abbot Laboratories split into established and proprietary pharmaceutical divisions last week),
and manufacturing (Tyco International spun off its North American residential and small business security company
and its flow control business, late last year). The media industry has made great note of News Corp’s plans to split its
entertainment from its newspaper divisions.
Big companies may find that unbundling their business holdings actually increases efficiency -- the opposite argument
to economies of scale. In fact, smaller, more nimble brands are starting to compete more effectively. Big companies are
harder to manage and grow, while smaller organizations can move faster. Because of the online global economy, small
companies increasingly have access to the same sources as big companies. Often, smaller companies can provide better
customer service as well because they are focused on just one or two brands instead of a large brand portfolio.
Small brands take heed: Bigger isn’t always better.