Kraft boosts adspend, cuts back on promotions

09 August 2010

NORTHFIELD, Illinois: Kraft, the food group, is planning to increase its adspend in the second half of 2010, and will not "tolerate" the widespread use of promotions to enhance its position.

"Our focus has been and will continue to be on advertising and marketing investments that will build our brands for the long term," said Irene Rosenfeld, the company's chief executive.

Kraft's "priority brands" - which include Kraft Singles, Philadelphia cream cheese and Velveeta processed cheese - received a considerable share of its expenditure in H1 2010.

Among the other ranges that have benefitted from recent successful campaigns are Capri-Sun and Kool Aid soft drinks, as well as Maxwell House Coffee.

Elsewhere, Tang and Oreo delivered growth of between 30% and 40% in a number of emerging nations due to effective advertising and communications initiatives.

"We continue to move our business toward our ultimate endpoint of 8% to 9% of revenue in A&C," Rosenfeld said.

"We're making very good progress there and as you heard, we made significant investments in the first half of the year, we're up double digits, which takes us to about 7.5% or so."

This rises to 8% when Cadbury's figures are added to the equation, as the confectionary specialist has typically committed a greater percentage of its sales to this activity than its parent.

Innovation is set to be a key contributor of the uptick in Kraft's media budgets, after the firm held back certain launches due to challenging trading conditions in areas like the US and Western Europe.

"We were concerned about the consumer environment and we chose to keep our powder a little bit dry there and so we have a pretty good roster of new products as we look into the back half," said Rosenfeld.

"Our advertising will in fact be higher in the back half. We have planned it that way in our base plan."

Rosenfeld suggested that discounts and other similar schemes would play a reduced role in Kraft's strategy.

"As category leader, we will not continue to tolerate share gains being driven by aggressive promotional pricing," she said.

"You will see some increase in our promotional spending in select US categories in the second half. But our primary focus will remain on investing in longer-term brand-building, because that's what will pay the dividends for us going forward."

One factor that could assist the company is that the surge in popularity of own-label products which has accompanied the recession is starting to slow.

"Without a doubt private label share has stabilised, that's been true over the last couple of quarters, and in fact in some cases we're seeing it begin to decline," Rosenfeld added.

"Our approach to dealing with private label, as well as any of our competitors in any of our categories, is to continue to differentiate our brands by investing in equity and investing in the innovation pipeline."

Data sourced from Seeking Alpha; additional content by Warc staff