The innovative new speed-to-shelf initiative includes reallocating the payment of hundreds of thousands of dollars in fees Kraft pays retailers annually to shelve new products, which accounted for $1 billion in revenue last year. The goal is to gain a competitive advantage by shaving the three- or four-month shipment-to-shelf process by at least a third.
Under the system, which goes into effect next year, Kraft will offer half the payment when the retailer accepts its product and the other half only after the new product is placed on shelf. The move to put the funds, often called slotting allowances, to better use comes as Kraft prepares an onslaught of more than 100 new items. The assault includes FreshPreps refrigerated meal kits and LifeSavers Minis and Fusions extensions among others, which are expected to grow Kraft's new-product revenue to at least $1.3 billion in 2003.
"Historically, the focus was on getting headquarter authorizations [from retailers to accept new products,]" said Irene Rosenfeld, Kraft's newly named president of North American Businesses. "But the real money to be made for us and the retailers is when products can get into consumers' hands faster, and we're taking the necessary steps to do that." Ms. Rosenfeld, charged with leading new-product development at Kraft, said that being able to get products on shelf faster and move up marketing support represents a "considerable" increase in revenue for every week earlier the products and ads appear.
Burt P. Flickinger III, managing director at retail consultancy Strategic Resource Group, said the speed-to-shelf initiative in fact stands to double or even triple Kraft's return on invested capital. "One of the reasons that 95% of new products fail is that by the time they get on shelf, brand managers have blown their budgets communicating to a consumer and creating demand for a product that simply isn't on shelf."
Another reality is that, with new products, "everyone likes to use the word innovate, but a lot of [what gets introduced] is copying, so it becomes a first-to-market game," said Prudential Securities analyst John McMillin. Kraft, clearly, is showing it is smart enough to change the rules of that game, he said.
It's likely other package-goods marketers will follow suit, Mr. Flickinger said, using the hundreds of millions of dollars the industry shells out to retailers annually for introductory slotting and display fees to create incentives to shelve products faster.
Some have already begun to employ their own initiatives. Kellogg Co., for example, shifted its new-item funding earlier this year, paying retailers on a per-case rate for those products shelved only within the first 12 weeks. The strategy has helped Kellogg get its new products on-shelf within eight weeks and the company is now shooting for as few as six, according to an executive close to the situation. "In the old system, manufacturers would pay whatever the retailers asked, but now it's becoming more prevalent to say, `We've been paying a lot and it hasn't been working, and we need to make those trade dollars work harder for us," the executive said.
Kraft discovered the potential impact of getting on-shelf faster after acquiring Nabisco, which employs a direct-store-delivery team that gets new products on shelf almost instantaneously and has, as a result, netted greater new-product trial than Kraft's warehouse-shipped items, Ms. Rosenfeld said.
Retailers, though, don't seem thrilled with the shift in payment structure, despite Kraft's assurances that faster shelving will mean faster sales. "We're going to end up with the same funds, but it will take more effort to get them," one retail executive said, irked also that Kraft's new structure amounts to an accusation that retailers have not done their job correctly.
Kraft expects the new system to kick in with the introduction of a slew of new products bowing in January in the areas of convenient meals, beverages, snacks and health and wellness. Among them is the national rollout of Kraft FreshPreps, a refrigerated meal kit line shelved in the fresh-meat case that Kraft test marketed successfully last year under the Freshmade Creations banner.
In addition, Kraft will introduce new Peppermint and Mixed Fruit LifeSavers Minis in flip-top containers trying to reach out to younger audiences, and LifeSavers Fusions, a dual-flavored line featuring a translucent ring to show the flavor inside. Kraft will also roll national its Hispanic-targeted Manchego variety of Kraft Singles and launch new Jell-O Pudding Bites among other entries.