June 11/Western Europe Food and Drinks Insights-- Multinational food giant Kraft Foods has created a new subsidiary called Kraft Biscuits Iberia (KBI) to take responsibility for its Spanish and Portuguese biscuit operations. The new unit has annual sales of around 200 million euros in Spain, controlling around 30% of the sweet and salty biscuit market, and sales of around 50 million euros in Portugal, where its market share is even higher.

Kraft's position in the region's biscuit market is thanks to its acquisition of the Iberian operations of British biscuit maker United Biscuits in September 2006 and the worldwide biscuit operations of French dairy giant Danone in November 2007. With the new CEO of KBI, Giuseppe Colotte, ruling out further acquisitions, the future growth of this new subsidiary will depend on the buoyancy of the biscuits sector in Spain and Portugal.

Kraft's own figures suggest that per capita biscuit consumption in Spain is around the European average at 4.7kg per year. This is well below the U.K. -- Europe's largest biscuit market -- where consumption is over 8kg per year, but the sector has been recording vigorous growth until recently thanks to the country's buoyant economy and associated increase in consumer affluence.

However, Colotte has revealed that sales growth in the sector has been less obvious in the first quarter of 2008 than in the preceding three years, and there are several possible explanations for this slowdown.

A significant increase in prices, which was necessary to offset rising costs, is likely to be partly responsible for this downturn in demand. However, the overall Spanish economic situation is also likely to have played a part and may become more significant as the year progresses.

In 2007, despite a massive slump in house prices, consumer spending and GDP growth held up. However, in 2008, there are signs that consumer confidence has now taken a downward turn and that both GDP growth and consumer spending growth will be significantly lower than in the last 10 years.

This will clearly have an effect on demand for biscuits, which are generally treated as a non-essential luxury item. With growth in consumer spending not currently forecast to pick up until 2011, the new KBI subsidiary may find the going tough for at least the next two years.

From the June 23, 2008, Prepared Foods e-Flash