Mike Polk, new president for Kraft Foods' Nabisco Biscuit & Snacks Group, plans to boost ad spending substantially above what Taylor Nelson Sofres' CMR numbers show was $112 million in media outlays in 2000 as he expands powerhouse brands such as Oreo, Ritz and Chips Ahoy! Keebler, now owned by Kellogg Co., is expecting to hold steady at what it estimates is $35 million in advertising for its $1 billion Keebler megabrand as well as its leading cheese cracker, Cheez-It.
"The fact that we are part of Kellogg doesn't change the economics of our business," said David Vermylen, president-CEO of the Keebler division. "Because the industry is highly driven by impulse purchase, we put a huge investment behind our [direct-store-delivery] system and the in-store advertising or `theater' that we create," Mr. Vermylen said. "The key for us is having displays in 90% of stores every week ... and that continues to be our primary communication vehicle."
Nabisco-the far larger of the two marketers with roughly a 42% share of the $8 billion cookie and cracker segment in food, drug and mass outlets vs. Keebler's 24% share-follows a more traditional model in which advertising plays a crucial role, despite the fact the unit also employs an expensive direct delivery system.
"Advertising on these businesses has some of the highest returns that I've seen in terms of driving incremental purchases," said Mr. Polk, a veteran Kraft executive appointed in March to accelerate growth for the division that accounts for roughly a quarter of Kraft North America's total revenue. "To the degree that you can find the mechanism in your P&L to drive more money into advertising, it makes sense to do that." Kraft has said it will deliver $100 million in savings from synergies achieved from the integration of Nabisco this year and hopes to achieve $600 million in savings globally from those synergies within the next three years. While certainly much of that money will go toward the bottom line, it also creates "a significant pool of dollars available for reinvestment," Mr. Polk said. He wouldn't quantify how much of the savings would go toward advertising.
COOKIES AND SMILES
Both Nabisco and Keebler believe that innovation is the key to besting private-label competition, even in the face of a worsening economy. "Dealing with a recession on the basis of lower prices is not as effective as dealing with it through innovation," said Mr. Vermylen. "Cookies are a pretty inexpensive way to put a smile on people's faces."
Nabisco's coming innovation will focus on expanding its core trademarks. Already this year, the unit pushed Oreo to chocolate lovers with the introduction of a Chocolate Creme variety (expected to be a $100 million brand by the end of its first year). Buoyed by that success, it is tapping the premium segment with an indulgent line of chocolate-coated Oreos.
Mr. Polk said an entry early next year will mark "a whole new place for Oreo to live," although he wouldn't elaborate.
Nabisco's Chips Ahoy!, too, will move beyond this year's simple candy-filled and peanut-butter line extensions spurred by similar Chips Deluxe varieties from Keebler, to "breakout ideas" that better tap the cookie brand's potential, Mr. Polk said.
"Chips Ahoy! is a big brand that we haven't necessarily cracked the code on with innovation, and next year is our year to do that," he said. Chips Ahoy! had $400 million in sales in food, drug and mass merchandiser outlets for the 52 weeks ended Oct. 7, according to Information Resources Inc.
Advertising for Nabisco's cookie brands, which will be "up big" next year, according to Mr. Polk, is handled by Interpublic Group of Cos.' Foote, Cone & Belding Worldwide, New York. Crackers, including the ever-expanding Ritz franchise with varieties Ritz Bits S'mores Sandwiches and next year's Ritz Bits Peanut Butter and Fudge Sandwiches, are handled by WPP Group's J. Walter Thompson Worldwide, Chicago.
Kraft will also lend its long-held brand equities to Nabisco brands to help them win competitive battles. One example is Nabisco's Cheese Nips, which plays distant second to Keebler's leading Cheez-It, with sales of $84 million in food, drug and mass channels for the 52 weeks ended Oct. 7 as compared with Cheez-It's $296 million, according to IRI. Cheese Nips packaging and new print ads now proclaim "Made with Real Kraft Cheese."
Kraft equities will also assist Nabisco in its battle against Keebler's in-store presence. That presence is strengthened by the iconic Keebler Elves and the Hollow Tree that collectively promote Keebler's individual brands, among them Chips Deluxe and Fudge Shoppe cookies and Town House and Club crackers. For back-to-school as well as for the coming holiday season, Kraft and Nabisco now partner for large-scale in-store promotions that span the wider portfolio. The combined effort "gives [Nabisco] much more visibility and leverage with the retailer," said Credit Suisse First Boston analyst Dave Nelson.
CAR SEAT BATTLES
Both Nabisco and Keebler are at work to grow their business in convenience stores and mom-and-pop shops, or what Mr. Polk refers to as "down-the-street snacking," with products and packaging relevant to those channels.
"We're going to do more and more to win the battle for the car seat," Mr. Polk said. Nabisco has already introduced Mini Oreos and Mini Chips Ahoy! in stand-up resealable bags (which have a faster use-up rate than boxes, Mr. Polk said) and Ritz Bits sandwiches will now roll out in bags.
Keebler has responded with its own mini versions of its core cookie brands, Chips Deluxe, Sandies and Fudge Shoppe, and new Mini Club Sandwich Crackers with Peanut Butter, similarly packaging them in resealable bags. "We're building on our franchise, making it more contemporary and on-the-go so people can take it and throw it into a briefcase or the back of the minivan," Mr. Vermylen said.
While Keebler held back this year on new-product introductions as it integrated Kellogg's Nutri-Grain and Rice Krispies Treats brands into its direct-store delivery system, Mr. Vermylen said he plans to launch a host of "fresh ideas" in 2002 to help restore total cookie and cracker category growth, which slipped recently to a mere 2.5% from 1999 levels of as much as 5%. Keebler's ad agency is Bcom3 Group's Leo Burnett Worldwide, Chicago.