Sales slump jolts staid Kraft

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Is marketing art or science? At Kraft it was long the latter, but now the nation's largest food manufacturer must foster creativity and risk-taking or face drowning by numbers.

With its share figures way down in top categories, Kraft Foods has pledged to Wall Street to turn things around with a new global marketing structure, an incremental $300 million in marketing spending and a portfolio transformation that reflects consumers' increased interest in healthier foods.

An acknowledgment of the need to change is in itself a change for the quiet corporate behemoth, but to drive innovation and world-class marketing, Kraft is going to have to take risks that retailers and agency partners claim it has shied away from all too often.

"Things that Kraft can measure, that can be plugged into a spread sheet tend to make upper management much more comfortable ... but there is a certain amount of nothing ventured, nothing gained," said one former agency executive who has worked closely with the company. He said a common adage among Kraft senior executives is that they are "A+++ financial stewards and terrible marketers," which has historically translated into significantly more spending on trade promotions that offer a clear return on investment rather than on brand-focused marketing that can be more difficult to measure.

The marketing programs Kraft does create are put through rigorous testing, which agency executives said bogs down the process and presents an obstacle to developing daring creative or experimenting with non-traditional media-both of which are necessary to building differentiated brands.

Going forward, said one executive close to the company, "They will have to use their guts more than their data."

Lance Friedmann, senior VP-for global health and wellness at Kraft, said the company has always prided itself on innovation and marketing expertise, and not just through financial discipline. Mr. Friedmann pointed to Kraft's Food & Family magazine, which he said has grown into the third-largest circulation magazine in the country, as testament to that innovation. Despite going through the ups and downs that every company goes through, he said, "Staying close to consumers and customers and innovating ahead of the competition is in our DNA."

Another noted success story is Kraft's Altoids brand, which is held up as a major advertising triumph in longtime agency creative Mark Silveira's book, "Ordinary Advertising: How to avoid it like the plague." The danger, though, said Mr. Silveira, is that Kraft takes risks with fringe brands like Altoids that they won't take with larger equities like Stove Top and Minute Rice that are handled conservatively because of their reach to traditional families and moms.

new products

Mr. Friedmann pointed to a variety of new products and ad initiatives Kraft is launching, especially in the health and wellness arena, among them a new Carb Well sub-brand of no-carb Kraft salad dressings and low-carb BBQ sauce; a 10-calorie version of its kid-targeted Kool-Aid pouches dubbed Kool-Aid Jammers 10; and Crystal Light Sunrise, a powdered breakfast drink that has 100% daily requirement of vitamin C and is a good source of calcium. Increased investments toward its ailing cheese and meat businesses will include advertising and packaging changes to reflect the natural low-carb nature of the products as does new positioning for its Planters peanuts.

But retailers feel the new initiatives are yet more examples of Kraft's reliance on extending out from its big brands instead of creating new segments or new brands that differ substantially from competitors' items. And in many cases, like with the Carb Well line that follows on the heels of Unilever Bestfoods' Carb Options, the products are me-too. This is not what the retail world expects from the industry leader.

aggressive pursuit

"Kraft can't just hang on to Oreo, Blue Box [Macaroni & Cheese] and Miracle Whip," said one Midwest retail executive. "They're still top dog, but they're starting to slip because other people are more innovative."

Minute Rice and Stove Top are both examples where competitors have aggressively pursued new items and Kraft has done little to defend its turf. According to the retailer, Kraft introduced flavored rice items to copy similar entries from Unilever Bestfoods' Lipton and Masterfoods USA's Uncle Ben's, but, she said, "they didn't do anything with them and they've died." Similarly, Kraft had launched its own packaged dinner kits, called Stove Top Oven Classics, early in the game but quickly backed away from the brand when ConAgra Foods came in with its successful meat-included Banquet Homestyle Bakes and General Mills with its Complete Meals.

"Kraft lets other people come in and improve upon the idea and then they run away," she said.

Despite the challenges, however, Wall Street and Madison Ave. still have faith in Kraft and in the ability of newly named sole CEO Roger Deromedi to adapt to the new world. As one food industry analyst put it: "Kraft has a long record of success and leading market shares in many of their categories and-though it's a question of time and magnitude-they'll get this fixed."

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