Kraft’s “unique combination” can’t be matched by competition: CEO

Posted by Daniel Palmer on 18th February 2009

Kraft Foods is bullish about the position it has worked itself into with just one year remaining in its turnaround program and is set to launch a new brand identity to signify the change in their focus.

“We’re well-positioned to win going forward,” Kraft CEO, Irene Rosenfeld, suggested. “We have a strong plan. We’re making the right investments. And we’re executing well. The majority of our businesses are now delivering, and all geographies are contributing.”

Ms Rosenfeld noted that the company had delivered strong results in 2008, including the best performance in North America since 2001; 4 per cent growth on the top and bottom lines in Europe; and 18 per cent growth on the top line and nearly 40 per cent on the bottom line in Developing Markets.

“We’re turning Kraft Foods into a unique combination of focus and scale,” she explained. “It’s a combination none of our competitors can match – one that will allow us to deliver the top-tier, sustainable growth that we, and our investors, expect.”

The company provided additional perspective on its 2008 fourth quarter volume and share performance.

“Against a backdrop of high absolute price points due to unprecedented input cost inflation and a crisis of consumer confidence, Kraft Foods’ volumes held up much better than predicted. Looking forward, the company expects volume growth to improve as 2009 progresses,” the company advised.

Ms Rosenfeld admitted that fourth quarter US market share was disappointing but believes that around the world private label is no stronger in Kraft’s categories than in food and beverage overall. She contends that the company’s investments to differentiate its brands are enabling Kraft Foods to outperform its branded competitors.

The turnaround process
Ms Rosenfeld explained that general managers are now empowered with full profit-and-loss and balance sheet responsibility and metrics aligned with shareholder value. As a result, they are now reacting faster to market changes and delivering improvements in revenues, operating income and cash flow.

Next, Kraft Foods focussed on efforts to reframe categories, its second growth strategy. In 2008, the “growth diamond” guided investments aligned with key consumer trends in quick meals, health and wellness, snacking and premium products. These efforts have reportedly assisted a revitalisation of new product growth.

The growth diamond also has helped improve the relevance of brands like Oreo cookies (22 per cent global growth), Milka chocolate (20 per cent organic growth and now the No. 2 chocolate player in Europe), and Rainforest Alliance-certified Kenco coffee (double-digit revenue and 1.2 points of share growth in the fourth quarter).

Ms Rosenfeld noted improvements to Kraft Foods’ portfolio had taken place in recent years via acquisitions and a pruning of less-profitable brands and products. The company also reinforced its clear focus on priority categories, core brands and key markets. Last year the company reported they would direct their attention on five categories, ten brands and ten markets and have credited this strategy with an improved ability to skew investments to maximise growth opportunities.

As a third strategy, Kraft Foods has been investing in sales as a sustainable competitive advantage. Ms Rosenfeld announced ‘High-Visibility Wall- to-Wall’, the next evolution of its successful sales initiative in North America. The enhanced program is anticipated to drive 1 per cent of incremental revenue annually, adding to the 1 per cent increase delivered by the current program.

The company also reported improved customer collaboration, which led to double-digit growth with global customers in 2007 and 2008, up from just 4 per cent in 2005. The food manufacturer will invest at least $100 million in collaborative customer marketing programs and plans to increase market share through higher-growth channels in North America and in Developing Markets.

Regarding its fourth strategy, ‘reduce costs without compromising quality’, Ms Rosenfeld pointed out that the restructuring program that ended in 2008 helped streamline and simplify operations, with 36 manufacturing facilities shutting down and 19,000 positions eliminated. This has delivered $1.1 billion in savings to date and will deliver $200 million in incremental savings in 2009, the company advised.

Ms Rosenfeld also outlined the new brand identity that will hopefully define the company going forward – ‘Make Today Delicious’.

“‘Make today delicious’ defines, unites and inspires us,” she explained. “During the past two years, we’ve built a solid foundation by reinvesting in our brands, putting a new organisation in place and improving our cost structure. As the next step in our turnaround, we’re adding three new ingredients to our recipe for success — a higher purpose that acts as a common call to action, values in action that guide our behaviour and a new look and feel to visually depict our renewed energy.”

Despite positivity about the future, the American-based manufacturer said that the effects of the company’s pruning programs, weak consumer sentiment and retailer inventory reductions are likely to drive a volume decline in the first quarter of up to 5 per cent.

“We’ve rebuilt our brand equities, and our pricing power is the strongest it’s been in some time,” Kraft CFO and Executive VP, Tim McLevish, concluded. “We delivered our earnings guidance for the second year in a row and generated strong cash flow. We remain confident that we will build market shares and expand profit margins this year and that we’ll be well-positioned to deliver sustainable growth in line with our long-term targets.”