As commodity costs rise, Kraft looks to advertising

By Emily Bryson York
Posted Feb. 22 at 5:14 p.m.

Northfield-based Kraft Foods Inc. said Tuesday that it plans to bulk up its marketing efforts and introduce several new products in an effort to offset higher ingredient costs.

The company estimates that pricier ingredients will cost it between $700 million and $800 million in North America alone. The higher costs will be particularly important to areas where Kraft competes the most, including meat, cheese, chocolate and coffee.

The company is under heavy pressure to deliver sales and margin improvements following its acquisition of Cadbury last year. With unemployment remaining high, however, consumers are wary of increases in product costs.

“In this environment, we must work even harder at customer and consumer delight,” Tony Vernon, the president of Kraft Foods North America, said in a presentation to analysts.

Kraft plans to increase its marketing and advertising budget in North America, and introduce more TV advertising campaigns for brands like Miracle Whip and Planters. The company did not provide a specific benchmark for this year’s increase.

In 2010, Kraft spent 6.5 percent of net revenues on advertising and consumer promotions, or about $406 million, up from 6.2 percent in 2009. In the long term, Kraft expect the annual investment to be 8 percent net revenues.

Kraft as a whole spent 8.1 percent of net revenues on advertising and promotions in 2010, or about $1.1 billion. Eventually, Kraft expects to spend between 9 percent and 10 percent of net revenues on advertising and consumer promotions.

The company also hopes to get attention from a number of new product offerings, including MiO, a bottle of concentrated flavoring for water, Philadelphia Cooking Creme, Lunchables with Fruit, and Planters Nut-rition, a mixed blend of nuts and dried fruit.

Kraft made the announcements this morning at the Consumer Analysts Group of New York’s annual conference in Boca Raton, Fla.

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