Kraft, General Mills Hold the Line on Marketing in Tough Environment

Even as Economy Recovers, Food Marketers Squeezed by Restaurants, Private Label

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The slight uptick in the economy has yet to reach the grocery aisle, where packaged-food marketers are still dealing with stingy consumers loathe to pay higher prices. But two of the industry's largest advertisers have no plans to pare marketing budgets in this tough environment, top executives said today at a financial conference.

In one ad set in olden times, a woman wears the Miracle Whip logo like a Scarlet Letter and is ridiculed until a reverend declares,
In one ad set in olden times, a woman wears the Miracle Whip logo like a Scarlet Letter and is ridiculed until a reverend declares, "she speaketh the truth."
General Mills and Kraft Foods vowed to continue investing in their brands during presentations today at the annual meeting of the Consumer Analyst Group of New York, which is being held this week in Boca Raton, Fla. The two marketers and other food companies spent much of 2011 raising prices to combat higher commodity costs, or risk losing profits. Analysts expect inflationary pressures to ease in the coming year -- which can't come soon enough for marketers.

Managing "input costs, prices, promotional activity and volume is proving to be as challenging as we expected," said General Mills CEO Ken Powell. The food giant -- which markets big brands such as Yoplait, Cheerios and Pillsbury -- was forced last week to lower earnings forecasts for its current third quarter. "That said," Mr. Powell noted today, "we generally see our business performing as expected and we intend to maintain the consumer-marketing initiatives we planned for the remainder of this year."

Kraft Foods, meanwhile, met its fourth-quarter earnings targets, reporting today that net revenue grew 6.6% to $14.7 billion. In 2011, the company raised prices on brands in categories such as coffee, natural cheese, bacon and nuts, executives said. But while Kraft took "moderate share losses" in those categories to protect profits, "we grew both our top and bottom lines last year, while also holding margins," North America Exec VP Tony Vernon told analysts. "Our brands can bloom and grow despite record commodity costs."

If the economy continues to improve, food companies might still be caught in a squeeze as they lose some customers to restaurants and private-label goods. "We see increased bifurcation in consumer behavior -- while some are trading back out to restaurants, which will likely put pressure on packaged food, others are continuing to trade down to private label and boosting its market share at the expense of branded players," Wall Street analyst firm Bernstein Research said in a recent note to investors.

Even as it dealt with inflation, Kraft said it increased its advertising and consumer spending by about $355 million in the past two years, with total spending as a percentage of revenue remaining flat at about 6.3% of revenue in the last year. Going forward, "there is still significant room to increase our advertising support and drive our brands even harder," Mr. Vernon said. That new investment will come as Kraft plans to split in two companies by the end of the year, a North American grocery business worth about $18 billion and global snacks business valued at $35 billion. Executives said today that the restructuring would lead to $1.6 billion to $1.8 billion in one-time costs.

In the shorter term, Kraft plans to continue to focus marketing on its so-called 21 "power brands," which include stalwarts such as Velveeta, Philadelphia and Planters. Mr. Vernon, seen as a key force in Kraft 's move to step up its advertising, told analysts that it is "my firm belief that there is no such thing as a mature brand, just tired marketers."

Kraft 's newest campaign is for Miracle Whip, another power brand. It will debut this weekend during the Academy Awards. The brand in the past couple years has sought to build curiosity by highlighting its polarizing nature with taglines such as "We're not for everyone." The new effort, by brand agency McGarryBowen, is called "Keep an Open Mouth," and is meant to "help people rethink their stance on Miracle Whip," Kraft told Ad Age . TV ads seem to have a rather lofty goal for a sandwich-spread campaign: They "use a unique cinematic style that plays like an epic film and cleverly use allegory and historical context to demonstrate the absurdity of allowing the crowd to influence your opinion."

General Mills pledged to continue to increase its digital investments, Mr. Powell said. "Our spending on digital advertising has been growing three times as fast as our TV spending in recent years and we expect our digital investment will be up double-digits again this year, " he said.

He touted last year's "Magic Brownie Adventure" web video campaign starring Cheech and Chong for Fiber One 90-calorie brownies. Mr. Powell credited the effort for helping the brownie brand set a pace of $120 million of annual retail sales in its first year.

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