Kraft Hikes Spend to Fuel Turnaround

CEO Claims Cost Cutting has Hurt Growth, Pours $400 Million into 'Capability Building'

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Irene rosenfeld, who took over as CEO of Kraft Foods 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 last week. 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.

In all, the $35 billion behemoth 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. Ms. Rosenfeld's overall goal is to increase marketing as a share of sales from 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 during 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.

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 DiGiorno product, a premium extension of Kraft's top frozen pizza that was stymied under her predecessor, Roger Deromedi, but was brought to market in just 18 weeks once Ms. Rosenfeld gave it the go ahead.

The $500 billion away-from-home food market is growing only 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.

Ms. Rosenfeld 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. Kraft's Fresh Creations salad kits will "take our portfolio to a whole new section of the store-the produce section," she said.
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