Kraft's Turnaround Plan: New Products, More Marketing

CEO Rosenfeld Plans to Pump Dollars Into Promotion, Nontraditional

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BATAVIA, Ohio ( -- Lumbering giant Kraft Foods is looking to turn around in part at the expense of the fast-food industry and
New Kraft CEO Irene Rosenfeld today for the first time laid out her vision for fixing the slow-growing company.
New Kraft CEO Irene Rosenfeld today for the first time laid out her vision for fixing the slow-growing company.
in part by accelerating marketing spending behind a range of meal-solution products spanning its far-flung empire.

Recovery plan
The $35 billion package-food behemoth is testing a new line of salad kits and rolling out DiGiorno Ultimate, billed as its strongest alternative yet to delivery pizza, as part of a wide-ranging three-year recovery plan under new CEO Irene Rosenfeld.

The PepsiCo veteran who took over as CEO of Kraft in June for the first time laid out her vision for fixing the slow-growing company at the Consumer Analysts Group of New York meeting in Phoenix today. Following the classic playbook of new CEOs entering turnaround situations in package goods, she confessed the failings of her predecessors and promised to spend more on marketing.

Marketing budget increases
In all, Kraft will plow $300 million to $400 million in restructuring savings into more marketing, research and development and other "capability building," Ms. Rosenfeld said.

Kraft also will forgo at least some of its profit growth the next two years to spend more on marketing. Her overall goal is to increase marketing as a share of sales from its current 6.9% to between 8% and 9% by 2009. That amounts to a total increase of between $370 million to $750 million in marketing spending over the next two years.

But that won't all be in traditional media, or in what will be counted as advertising spending as opposed to promotion and other kinds of marketing, she said, promising an unspecified nontraditional effort behind this year's rollout of DiGiorno Ultimate.

Too focused on cost cutting
Kraft hasn't been spending enough to support good ideas and has been too focused on cost cutting at the expense of growth, Ms. Rosenfeld said. Case in point is the new DiGiorno product, a premium extension of Kraft's top frozen pizza that got stymied under her predecessor, Roger Deromedi, but was brought to market in just 18 weeks once Ms. Rosenfeld gave it the go ahead.

In a prerecorded segment, one of the members of the Ultimate team recounted that prior management called the product too expensive, said premium ingredients would be too hard to get, and the product was ultimately deep-sixed under the old regime. "Irene talks about making our products truly delicious again, and thinking of our business in new ways."

Untapped market
The $500 billion away-from-home food market is only growing 4% annually -- the same rate Kraft aspires to reach by 2009 under Ms. Rosenfeld's plan. But it does present a big and still relatively untapped market that package-food marketers have been trying to tap since the "home-meal replacement" craze of a decade ago.

"Wouldn't it be a whole lot easier if we could have restaurant-quality food at home, in the office, wherever we want it, at a fraction of the cost?" Ms. Rosenfeld said. She promised to help leverage Kraft's breadth by increasingly using the company's components to make complete meal kits, and she's also looking to add some components the company doesn't sell now -- such as lettuce. The Fresh Creations salad kits will "take our portfolio to a whole new section of the store, the produce section," she said.

In the tradition of CEOs in turnaround situations, she freely confessed the shortcomings of prior management and promised to do better. Organizationally, she promised less conformity and more candor, less caution and more courage, less consensus and more action.

'Uncomfortable speaking up'
She cited Tassimo, the coffee-pod system Kraft launched in 2005 in partnership with Procter & Gamble Co.'s Braun and a favorite of Mr. Deromedi, as an example where "original assumptions were too aggressive," and "people were uncomfortable speaking up," which in turn ended up taking money and focus off the main coffee business.

Ms. Rosenfeld appeared to surprise some analysts by nixing speculation that Kraft would spin off any major parts of its far-flung empire, such as Oscar Mayer. Instead, it may use its newfound freedom as a standalone company to make acquisitions in overseas markets, she said.
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