Kraft Tackles Restaurant Competition, Boosts Marketing
Kraft Foods will boost marketing spending and rev its new-product pipeline to compete with restaurants. Both initiatives are part of a three-year plan to improve the company’s lackluster growth, which could push the food giant’s consumer marketing spending to $2 billion.
Kraft will invest $300 million to $400 million this year to fund four initiatives, including an increase in marketing. (The three others include product quality, product pipeline, and infrastructure).
The company’s goal is to eventually spend 8% to 9% of sales on consumer marketing, up from the 6.9% of sales that it spent on advertising and consumer marketing last year, said CEO Irene Rosenfeld. That puts the North America marketing tab at nearly $1.6 billion, based on $23.1 billion in 2006 sales.
Rosenfeld didn’t clarify how much of the added spending would go toward TV and how much to below-the-line marketing, saying only, “We’re not exactly sure which vehicles will be most effective for any of our particular brands. There are lots of terrific ways to tell consumers that we’re back.”
Rosenfeld unveiled Kraft’s growth plan to analysts yesterday, outlining four strategies: rewire the organization for growth; reframe our categories; exploit the sales organization; and cut costs.
Kraft will “reframe” its categories by thinking more broadly about competition. For example, its $1 billion frozen pizza business will now take on the $20 billion local pizzeria market, in addition to the $4 billion pizza-chain business that Kraft pits DiGiorno against. To that end, Kraft is launching DiGiorno Ultimate pizza to compete with local pizzerias.
Meanwhile, Kraft and grocer Hy-Vee are testing a “healthy snacking” display in the dairy aisle, positioning Kraft cheeses to compete against other snacks.
Kraft also is testing Fresh Creations salads to compete with deli and restaurant take-out salads in a shift away from meal components to selling complete meals. And the company is studying health-conscious consumers to find other opportunities to launch a wide-ranging brand like South Beach Diet, spanning all meal occasions and targeting a specific consumer type.
And finally, to better use its sales force, Kraft plans to expand its two-year-old test of a “wall to wall” merchandising program that puts one sales rep in charge of the entire store, handling all Kraft’s products across all store departments. The company expanded that pilot last year and will now roll it out “in a measured way,” Rosenfeld told analysts.
“We can combine the executional benefits of DSD [direct-store delivery] with the cost efficiency of direct and broker sales,” she said. “Only Kraft can afford to do this.”
