Kraft pasta extensions leave retailers unimpressed

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How many different ways can a company package pasta and cheese? For Kraft Foods, it seems the opportunities are endless. But retailers are skeptical that a myriad of macaroni-and-cheese extensions can really help the ailing food giant stir up the pot.

Kraft will introduce more than 70 products at the Food Marketing Institute convention next month, among them microwaveable pouches of its classic Kraft Macaroni & Cheese and a line of Kraft Dinners On-the-Go, single-serve, microwave-in-a-minute versions of its Deluxe and Velveeta pasta dinners. But retailers are quick to cite the entries as yet more additions to Kraft's declining packaged-pasta franchise and aren't hopeful that other launches will be any more innovative.

nothing new

"The problem with Kraft overall is that they're really rehashing a lot of the things they have already and not coming out with anything really new, and I don't know when they're going to," said one Midwest retail executive.

A Kraft spokeswoman said the company estimates that its new-product success rate is around 50%-among the highest in the industry-and that Kraft has led its peer group in numbers of new products launched as well as absolute new product revenue over a three-year period. Neuberger Berman analyst Bill Leach agreed that Kraft has "had a fair amount of new-product success over time."

But past successes are not helping Kraft today. This week the nation's largest food company is expected to announce yet another round of lowered earnings projections, and industry observers note that the problems will likely continue as Kraft struggles to prioritize where in its massive portfolio to place attention. "I don't think the bad news is over," Mr. Leach said.

Kraft's sales in the dry macaroni-and-cheese category dropped 2.6% to $561 million in sales in 2003, according to Information Resources Inc. The one bright spot has been the Easy Mac single-serve microwaveable version of the classic blue box, which grew 6.8% during the same period, prompting Kraft's play to create a microwave section. The single-serve On-the-Go Dinners, already launched in Target stores, as well as the multi-serve Mac & Cheese pouch play to the same consumer trend toward "ultra-convenience," another spokeswoman said.

On-the-Go dinners use a pre-cooked pasta technology Kraft purchased with its acquisition of It's Pasta Anytime!, a brand that declined 8.1% last year and was dropped by some retailers. Sales materials declined to mention any advertising for the speedy versions of Deluxe Original Cheddar Cheese with Rotini, Deluxe Rotini with Marinara and Velveeta Creamy Cheese and Shell Pasta entries except a newspaper insert. The spokeswoman said Kraft will be "gaining learning" on the brand in the back half of 2004 before pushing hard against a national launch.

making a splash

Kraft does plan to make a splash for its new metallic-blue stand-up pouches, which come in Original and Spirals varieties. TV ads from Interpublic Group of Cos.' Foote, Cone & Belding, Chicago, will back the entries beginning in August targeting women 18 to 49 as will a yet-to-be-announced tie-in with Time Warner and cross promotions with other Kraft products such as Capri Sun and Kraft Singles. Kraft spent $41 million in measured media against its macaroni-and-cheese brands in 2003, per TNS Media Intelligence/CMR.

Other launches include a first-time extension into cereal bars with the launch of Honey Bunches of Oats bars in June, and a Tostada Dinner Kit for its Taco Bell brand. One retail buyer, disappointed with Kraft's efforts to build up Taco Bell, said the packaging left half the shells broken.

Meanwhile, Kraft hopes to buy its way in to growth areas with the recent acquisition of Veryfine Products, whose net sales of $150 million last year were led by flavored water brand Fruit2O, and a distribution deal with Starbucks Corp.'s Tazo Tea Co., for which it will leverage its sales network to bring the Tazo brand into mainstream grocery stores.

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