The Food Chain; Supermarketers' Share Loss Has Arketers Like Kraft Expanding ECR Technology To Apply To The Demand Side As Well As Well Suppy Segment

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Kraft foods aims to bring the shopper back into the Efficient Consumer Response equation.

While Kraft President John Bowlin applauds the progress food marketers and retailers have made in getting inefficiencies out of the food chain, there's clearly more work to do, he says.

TWO-POINT SLIDE

Pointing to the fact that supermarkets' dollar share of total food sales has fallen from 50.4% in 1991 to 48.6% last year, he notes: "We have to find ways to get consumers into the store so they can enjoy the experience more. Once we get them in, we get them to buy more."

Kraft, generally considered on the leading edge of the food industry's ECR program and a solid No. 2 behind Procter & Gamble Co. in executing such initiatives, wants to use ECR to drive demand as well as supply.

"ECR came about because the traditional grocery retailer was concerned about being uncompetitive with alternative formats and mass merchandisers," notes Hugh Roberts, senior VP-strategy and Kraft's point man on ECR. "A tremendous part of the initial focus has been on getting costs and inventories down.

RESTAURANT CHALLENGE

"Somewhere we lost sight of the bigger picture-which is, if you look at the marketplace, more and more food is being bought outside that marketplace," Mr. Roberts says, at outlets such as Boston Market.

Although ECR does bring consumer prices down, he acknowledges, that's not enough.

"We have to build volume, build a compelling reason for consumers to come into the stores," he says.

Not that Kraft, the self-proclaimed 800-pound gorilla of the food industry, hasn't done its supply-side homework.

The company has moved to a single invoice per customer from as many as nine it used just two years ago.

Last year, it consolidated formerly disparate sales forces for Kraft, General Foods and Oscar Mayer Foods into a single entity comprised of 200 customer business teams each dedicated to a single retail customer.

$1/2 BIL USING CPR

More than $500 million of its business is done on Continuous Product Replenishment (electronic reordering) with 11 of Kraft's retail customers. The company uses a joint category management system with 40 customers in 15 categories, and plans to have 20% of its volume on category management by the end of this year.

But Kraft sees the most new opportunity is joint retailer/manufacturer activities to drive consumer demand through customized consumer promotions.

"We've figured out how we can best contribute to ECR," says Mr. Roberts, "and it rests on the consumer-demand side, where we can bring particular understanding of consumers' wants and needs."

To that end, Kraft's customer business teams, comprised of a marketing expert, a category manager for each of Kraft's major categories and an information specialist-who Mr. Roberts says "does nothing but understand the Nielsen numbers"-attempt to customize promotions for retail chains.

SLASHED TRADE DEALS

Kraft has reduced trade deals in Texas (working with H.E. Butt Grocery Co.) and Florida (Publix Supermarkets) from 1,100 a quarter to 35, Mr. Bowlin says.

"Suppose we want to run a feature on a number of Kraft products," says Mr. Roberts.

"We can do that by setting up individual funds for each of the product categories; we can do it by paying an amount per case if they run the ad for us; or we can develop a long-term program that says, `We'll work together to develop the merchandising program and we'll give you [the retailer] a check at the end,'*" the executive says.

"[The latter] is what we're trying to do more and more."

The Kraft program, moreover, allows the retailer the ability to customize the promotion to his market.

"Each customer has a different way of going to market and we have to adapt our approach to suit that way," says Mr. Roberts.

For example, "Publix may have a way of going to market that they may like to use their own store circulars," he says. "We'd pay the advertising charges to do that. Or maybe they'd like to do local TV; our vehicle is flexible enough to let us do that, too."

Kraft sets a sales goal with the account, and if the program exceeds the goal, the customer receives additional trade dollars, "so there's incentive for them to do more," Mr. Roberts adds.

FLEXIBLE CUSTOM PROGRAMS

While the customer business teams can't change the suggested retail price or the advertising without headquarters approval, they do have a lot of leeway in customizing programs.

Mr. Roberts used the example of Kraft's "Holiday Homecoming" promotion last year. Within it, the retailer chose what participating Kraft products to feature and how to merchandise them.

"If there's a coupon in the market it's likely to be the same amount [throughout the trading area] but the retailer might choose in their own advertising to put a different face value on it," he says.

These themed promotions, adds Mr. Bowlin,have been well received by the trade.

"One of our top 10 customers, Albertson's, thinks so highly of this they came to talk to us to use it to try and build store traffic," says Mr. Bowlin. "This was one of the best, if not the best, ways they were able to do this."

THREE STEPS, NOT SEVEN

In terms of category management, Kraft also has come up with a simplified format, requiring three steps instead of the seven recommended in the food industry's Best Practices Report.

"It gets 80% of the benefit with 20% of the work," says Mr. Roberts. "What we're doing is trading off a little bit of the depth for more breadth" to move ECR forward among customers that don't currently use category management.

Using category management, Kraft has eliminated its own stock-keeping units, he notes, in some cases. "There were a whole bunch of new cheese items that weren't making money for us or the retailer."

He adds, "If you establish a reputation for coming up with a self-serving category management system, most retailers aren't going to listen."

Taking the customized program to the next logical step, Kraft is trying to develop promotions with retailers based upon their frequent-shopper cards.

USING MERGED DATABASES

Called "Project Prime," Kraft worked mainly with Wegmans Food Markets in upstate New York and Roundy's in Milwaukee with a program that combined the retailers' frequent-shopper databases with Kraft's database of 20 million households.

For example, Mr. Bowlin says, a household that doesn't purchase Kraft salad dressings would be provided a coupon as an economic incentive. Another way of using the data is to find households with kids that buy, say, Kraft Macaroni & Cheese but not Oscar Mayer hot dogs.

The purpose, says Mr. Bowlin, is to acquaint the family with its product line through direct mail.

"The big issue is how you do this on a national basis if your customer doesn't have a frequent-shopper card," notes Mr. Bowlin. "You can muscle your way with one or two of your customers, but to do it broad scale you need sophisticated systems."

From its ECR initiative, Mr. Roberts says, Kraft has seen 4 to 5 percentage point growth in share for some products and category growth rates one or two percentage points higher than normal.

But whether Kraft is "there yet" in terms of ECR efficiency isn't easily determined.

"The question is whether ECR is a destination or an ongoing journey," says Mr. Roberts. "In terms of working to develop consumer demand through stores in a way that we [manufacturer and retailer] can measure together, how far away are we from that?

"I'd like to believe we'll be there by the end of 1997. Then we can point to that and say, `well, we've made a difference."'

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