Kraft will almost certainly have to further increase Cadbury retail prices in order to make its £11.9bn buyout pay off, a strategy consultancy has warned.

Credit ratings agencies are reviewing Kraft for downgrade as a result of the extra debt taken on to finance the purchase, though the company is expected to remain investment grade.

Kraft has said it plans to enact cost savings to make its acquisition profitable, but analysts doubt whether these alone will be enough given previous efficiency savings already generated by Cadbury management.

Consultancy firm Simon Kucher & Partners said it had calculated that a retail price increase of 2% on Cadbury SKUs would improve profitability by 27%.

“Further price increases from Cadbury are likely,” said partner Mark Billige. “Kraft needs to generate significant cash to service its new debt obligations and a smart and powerful cash-profit generator is available through pricing.”

The Grocer revealed in December that Cadbury had already recently passed on a new round of price hikes.

Read more
Ferrero won’t bid for Cadbury (25 January 2010)
The big steal: how Cadbury fell into Rosenfeld’s clutches (analysis; 23 January 2010)
Carr defends Cadbury sell-off but admits job losses ‘inevitable’ (20 January 2010)

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