Kraft executives laid out a strategy to deliver more growth and higher returns following its Cadbury acquisition, at the company’s annual investor conference in New York Wednesday.
In a presentation some analysts described as short on specifics, chief executive officer Irene Rosenfeld and key members of the executive team described a strategy of focusing on so-called “power brands” and regional brands in each area of the world, and a system for sharing best practices throughout the world.
Over the last four years, and particularly since the Cadbury acquisition, Northfield-based Kraft has transformed itself into a snack-centric proposition, with global leadership in biscuits, chocolate, candy and nuts, as well as an increasingly competitive second-place gum business, behind Mars.
“Cadbury was the final piece of the puzzle,” Rosenfeld said, of the turnaround begin in 2006, fixing or selling underperforming businesses and renewed investment toward marketing and innovation. “There’s a significant tailwind to future growth,” she said.
However, Kraft’s snack business had a difficult 2009 in North America, citing weakness in its biscuit brands. The company also lost space at Wal-Mart, and sales fell 3 percent. Wal-Mart sales suffered as well, however, and the retailer has worked to return space for some of the products it trimmed last year.
“Base marketing excellence is the single biggest thing we can do to step up our growth,” said Tony Vernon, president of Kraft Foods North America. He noted increased investments in key brands like Ritz, Oreo and Planters. Vernon added that the complete data isn’t available yet, “but we’ve turned the Planters business around this year,” he said. Planters NUT-rition bars are already at $100 million business, he said.
Several analysts, however, noted that Kraft has described a similar strategy for several years, increasing marketing investment, and working to improve the performance of its Nabisco businesses.
“Marketing was the root of this,” Vernon said, adding that Oreo, Chips Ahoy, Wheat Thins and Triscuit didn’t get enough support. With Chips Ahoy in particular he said, “We didn’t innovate, didn’t advertise, Keebler [was doing it] better.” New Chips Ahoy advertising is forthcoming.
The company has taken heat in recent years for marketing investment that paled in comparison to competitors as a portion of sales. Kraft’s 2006 spend was 6 percent of sales, and the company hopes to step that up to 8 percent in 2010.
The support has taken some time to drum up. Ms. Rosenfeld had hoped to get marketing support above 8 percent of sales by the end of 2008, albeit from a smaller base.
“It’s about getting the act together,” Vernon said, listing marketing, the business with Wal-Mart, and the “great brand blocking and tackling.” “We got away from it,” he said. “And it attacked as category.” Now, he said, Kraft is looking at its turnarounds on a brand-by brand basis.
The brands that have gotten big ad pushes, he said, are responding. “The Oreo business has never been better,” he said, adding that the trend away from trans fat marked a low point in the business, and that increased marketing and new line extensions have rebuilt the business.
