Kraft develops new model

14 September 2012

NEW YORK: Kraft is planning to take a more targeted approach to marketing, R&D and resource allocation in North America following the food company's split into two next month.

In October, the organisation will divide into entirely separate entities, with the Kraft Foods Group focusing on grocery in North America and Mondelez International serving as a global snacks firm.

Tony Vernon, who will become CEO of the Kraft Foods Group, suggested the downturn had left the new firm major issues to tackle. "A weak economy with highly volatile commodity prices is now the new normal," he said, as reported by Food Navigator.

"What's most worrisome is that no-one, absolutely no-one, has grown volume over the time period - that has to change and Kraft must lead that change," he said.

Innovation will be one key tool to achieve this aim. Vernon argued that Philadelphia cooking creme and MilkBite milk and granola bars had effectively invented categories. He also afforded MiO liquid water enhancers, now logging annual sales of $200m, the same status.

Such activity will support the strategy of providing bespoke pack sizes, prices and products to different retailers. "We have 'good, better and best' offerings on only eight of our top 20 categories," Vernon said.

Among the priority sectors for Kraft will be coffee and nuts, two of the three fastest-growing food categories in the US. Health and nutrition is another target, and "better-for-you" lines should yield over 50% of sales in 2015.

"Big bet new products must meet new standards covering purchase intent, margin, and sustained profitably over many years," Vernon said.

In keeping with this objective, Kraft will abandon the "peanut butter" approach of spreading funds too thinly in the fields of innovation and marketing, which may require making "tough choices".

"In the new Kraft, you will see us take this head on by clearly defining the state of our brands and allocating resources based on margin, materiality and the momentum of each of those brands," said Vernon.

Turning to advertising, Kraft will be more creative with established brands, as has been the case for Velveeta and Philadelphia cheeses "There is no such thing as a mature brand, just tired marketers," Vernon said.

One audience attracting more attention will be Hispanic customers. "We have underspent on ads to this group. We will spend two and a half times what we spent this year in Hispanic ... support next year," said Vernon.

Data sourced from Food Navigator; additional content by Warc staff