Kraft's New Grocery Company Plans Marketing Boost in Search of 'Renaissance'

CEO Tony Vernon Outlines Plans in Advance of Oct. 1 Split

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The CEO of Kraft Foods' new standalone North American grocery business on Friday set lofty goals for the company, pledging to pour more advertising behind top "power" brands while slashing overhead to create a more nimble corporate culture.

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Tony Vernon, who will helm the newly named Kraft Foods Group when it launches on Oct. 1, said his goals are "nothing short of creating a renaissance in North American food and beverage." He added: "We will create a new Kraft, one with the spirit of a startup and the soul of a powerhouse."

Mr. Vernon's presentation to Wall Street analysts gave the most detailed look yet at his strategy for the $19 billion company, which will house brands such as Oscar Mayer, Planters, Velveeta and Jell-O. In a plan put in place last year, these grocery brands are being split from Kraft's global snacking and candy products such as Trident and Oreo, which will become part of a company called Mondelez International.

Kraft is betting that the split will bring more focus to brands while creating two distinct investment choices for Wall Street . Mondelez is positioned as a high-growth company with penetration in developing markets, such as Brazil and India, while Kraft Foods Group is full of category-dominant meat and cheese brands, which act as cash cows that will generate consistent dividends for investors. When the split is final, Kraft Foods Group will become the fourth-largest food and beverage company in North America, trailing PepsiCo ($36 billion), Nestle ($26 billion and Coca-Cola ($21 billion), according to Kraft.

The trick for Kraft Foods Group will be to differentiate its grocery brands in categories that risk becoming commoditized. Mr. Vernon signaled that marketing will be a key cog in that endeavor. In outlining his priorities, he said that advertising was "dearest to my heart" and suggested that Kraft would spend more to catch up to peers. Kraft Foods Group brand spent 2.9% of its net revenue on advertising in the latest fiscal year, compared to the 4.5% average spent by competitors, including 8.6% by Kellogg Co., 6.4% by Campbell Soup. Co. and 5.5% by General Mills, according to a slide Mr. Vernon showed analysts.

"We can and we must do more to support our brands," he said.

He did not offer specific numbers but indicated that the brand investments would come from savings generated by new cost-cutting initiatives, such as supply-chain simplification.

Mr. Vernon also pledged that the company would become a "lean, horizontal" organization, moving away from a culture at old Kraft that had he characterized as being too reliant on "entitlement." Part of the reorganization is already underway, including the elimination of 2,000 positions in the past two years, while "layers of management" have been removed, he said. The goal, he said, is to "let our bright, talented people create and innovate without having to look to headquarters for answers and directions at every step." At company headquarters in suburban Chicago, office walls are being taken down to create a more open environment. "The stately cherry paneling of our previous executive offices will soon be history," Mr. Vernon said.

As it puts more money in marketing, Kraft Foods Group will continue the strategy already underway in which top power brands, will get the lion's share. Those brands include Lunchables, Planters, Velveeta Shells & Cheese, Capri Sun, Jell-O, Philadelphia, Kraft Macaroni & Cheese, Kool-Aid, Miracle Whip, MiO and Gevalia. Ad agencies working on some of the largest brands in that group include McGarryBowen (Philadelphia); CP&B (Mac & Cheese); and TBWA-Being (Planters). Recently, power brands have received about twice as much advertising and consumer promotion support as the rest of the portfolio. In response, the brands have averaged 7% growth for eight consecutive quarters, according to Kraft.

Key non-power brands, such as A1, Athenos and Cool Whip, will be supported with more "entrepreneurial" methods, Mr. Vernon said, including with digital advertising such as YouTube videos. Among the ads Mr. Vernon showed off to analysts is this YouTube spot for Cool Whip, featuring characters from TV show "Family Guy."

"These brands are a social media maven's dream and YouTube is the playground that our talented young marketers love most," he said.

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