With Half of Kraft Lagging, It's Time to Spend or Sell

Food Giant Faces Moment of Truth After Sporadic Market-Share Growth

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It's put up or shut up time for Kraft Foods.

Irene Rosenfeld, chairman-CEO of North America's largest food company made a startling admission to analysts last week: Fully half of the businesses in the $34 billion behemoth's portfolio aren't growing share. "We have not made progress on market share," Mr. Rosenfeld said. "Through the second quarter, we're gaining market share in less than half of our U.S. businesses."
Irene Rosenfeld, chairman-CEO of Kraft
Irene Rosenfeld, chairman-CEO of Kraft

That leaves the food titan with two choices: Sell off or spend more. Kraft seems to be promising investors it will do both, but there hasn't been a lot of evidence of either so far.

Ms. Rosenfeld maintains that's because the majority -- three-quarters -- of the $300 million to $400 million in incremental marketing dollars it's allocating to build brands are being spent in the second half of the year. "We now see a much more robust pipeline of new ideas across the company -- new products, new packages and new advertising campaigns," she said. "About half of our investment dollars will go to fix key laggards."

She cited spending to go behind Live Active probiotic cheeses, Kraft Singles and Kraft Singles Select, Planters snacks, Maxwell House coffee, and convenience meals.

More money
However, Tim Ramey, analyst with D.A. Davidson & Co., said the total isn't enough. "They have to commit to spend a lot more money behind the brands than they've been used to," he said, noting that Kraft's $400 million pledge (about 1% of sales) isn't sufficient.

And for a company so focused on growing share, Kraft's marketing department sure has been a revolving door over the past year. After Ms. Rosenfield took over as CEO last summer, she delivered a lot of tough talk, distributing a memo lambasting company bureaucracy. She cut a handful of marketing jobs at that time and later appointed Jeri Finard as Kraft's first marketing chief. But Ms. Finard stepped down in April, and the post is still vacant.

The company also has tried to send a message that it's serious about brand-building by shifting a number of ad accounts. WPP Group's JWT was the biggest loser, resulting in heavy staff cutbacks in the agency's Chicago office. Last month, Kraft moved its Oscar Mayer business to sibling Ogilvy & Mather, Chicago. In June, it shifted Ritz and Triscuit to Havas' Euro RSCG. And earlier this year Miracle Whip went to DDB, Lunchables to DraftFCB and Kraft Singles to Nitro.

Tax consequences
As for divestitures, Ms. Rosenfield said early in her remarks to analysts last week that the company would cast off brands that don't fit its long-term strategy. But when pressed, she hedged, saying there would be serious tax consequences to selling off the well-known, if sleepy, grocery brands.

"That's why divestitures are not a major part of our plan," she said. "I feel very comfortable that we have the ability to better leverage that breadth of our portfolio, and that's a critical piece of our strategy going forward."

Some analysts believe the sale talk is a lot of baloney, possibly to appease activist investor Nelson Peltz, who recently acquired a 3% stake in the company and has been clamoring for sell-offs.

"I suppose the statement could have been pandering a little bit for the people who have been agitating for it," said Tim Ramey, an analyst with D.A. Davidson & Co. "There was a contradiction in even mentioning it as a possibility."

Ms. Rosenfield declined to comment for this story, but her statement launched a flurry of speculation as to which brands should stay and which should go. Experts pointed to Maxwell House, Seven Seas salad dressings and Post cereals as ones that need to step up or be sold. Oscar Mayer appears to be dangling over the chopping block as well.
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