Kraft looking at the Halal market?

| 12/12/2008 | Reply

CEO Forum: Rosenfeld keeps Kraft from being too cheesy

DURHAM, N.C. — People have to eat, even in a recession. So you might think that Kraft CEO Irene Rosenfeld has a cushy gig selling some of the world’s most iconic packaged comfort foods.

Kraft (KFT)
says that 99% of the nation’s homes have at least one of its products,
which include Oreos, Philadelphia Cream Cheese, Ritz crackers,
Kool-Aid, Maxwell House coffee, Oscar Mayer lunch meats and DiGiorno
pizza.

But since 2006 — when she landed the
top job at Kraft after its spinoff from Altria Group (formerly Philip
Morris) — Rosenfeld, 55, has struggled to reinvigorate a giant that was
losing market share at a time of rising costs.

One
of just 12 female CEOs at the top 500 corporations, the 27-year
food-industry veteran made innovation a top priority. She introduced
products including Bagel-fuls (a frozen bagel prefilled with cream
cheese) and Oreo Cakesters (a soft version of the classic cookie),
while selling sleepier lines including Post cereals.

Her
moves impressed legendary investor Warren Buffett, who became Kraft’s
biggest shareholder in late 2007 when he bought 8.6% of its stock. This
year Kraft shares have fallen 18%, but that is less than half the 39%
drop in the benchmark Standard & Poor’s 500 index.

Now,
the USA’s largest food company, expected to generate more than $40
billion in revenue this year, is grappling with a weak economy and
questions about the industry’s contribution to childhood obesity.

Rosenfeld shared her thoughts about her company, the economy and leadership with USA TODAY’s David Lieberman at the ninth USA TODAY CEO Forum in conjunction with Duke University’s Fuqua School of Business.

The interview took place in front of an audience. Edited for length and clarity, here are Rosenfeld’s thoughts on:

The economy

Q: It’s now official: We’ve been in a recession for a year. What does your crystal ball tell you about 2009?

A:
We see more of the same. We (in the U.S.) are at the forefront of some
of the economic challenges that we’re seeing elsewhere in the world.
Europe is starting to be affected. We’re seeing even developing
markets, where our growth rates are still quite robust, they’re slowing
down relative to where they had been.

The
great news is that as the economy has softened around the world, we’re
seeing people eating more at home. And as they come home, they’re
coming home to Kraft. So we are battening down our hatches and
preparing to continue to compete in a difficult environment.

Q: What particular products are doing well?

A:
We’re certainly seeing (strength in) products that provide obvious
value: powdered beverages like Kool-Aid and Crystal Light, for example,
in comparison to ready-to-drink alternatives. We’re finding that people
are eating grilled cheese a lot more.

We’re
seeing products like DiGiorno pizza, in contrast to pizzeria pizza or
restaurant pizza, are performing quite well. Even products like Oscar
Mayer meats are having a resurgence. People are eating hot dogs more
for dinner.

Innovation

Q: Can you take us through the thinking behind two of your new products: Oreo Cakesters and Bagel-fuls?

A:
We have an incredible powerhouse trademark, called Oreo, which competes
in a very defined segment in the U.S.: the sandwich-cookie segment.

Cakesters
was an opportunity for us to compete in a whole new segment of the
snack market, soft moist cakes, which is about a $1.5 billion segment.
We have an original version, we have a vanilla version, which we called
Golden Oreo, and we’re about to introduce a peanut butter version which
will be our Nutter Butter version of it.

Bagel-fuls
was another opportunity for us to make one of our crown jewel, iconic
trademarks, Philadelphia Cream Cheese, more convenient. For those of
you who aren’t familiar with it, it’s essentially a bagel with cream
cheese in it that’s easily microwaved in the morning.

Q:
You have something online called “Innovate with Kraft” where ordinary
people can submit product ideas. Is it useful or just a gimmick?

A:
They’re gimmicks if you don’t use them. Very often people submit ideas
and, if they don’t see anything happening to them, they stop very
quickly. They have a really good smell test on those kinds of programs.

One of the things that has been most helpful to us as we are transforming Kraft is to unleash the power to our people.

For
example, there’s a guy in our Canadian operation who has a passion for
Halal products. He practices Halal himself and adheres to the dietary
restrictions of the Muslim religion. He has been a terrific advocate of
our opportunity to make more of our products available to those
consumers. He has single-handedly taken on the task, laying out a
business proposition, talking to the sales group about what they need.
And we should have some products I would hope in the course of the next
year in that market place.

Q: How can you
distinguish between an opportunity and a fad? For example, a few years
ago everyone was making low-carb products, and most have died.

A:
Sometimes it’s hard to tell. There’s no question, we see products come
and go. The more that their foundation is based on good scientific
knowledge, we find, they’re more sustainable.

Q: How did you handle the situation? You now offer similar products for the South Beach Diet.

A:
We had products that offered low-carb benefits. But we were very
careful to make sure we weren’t inventing new brands to do it, that we
were managing our inventories, because it wasn’t clear whether it would
be a long-term phenomenon.

I think South
Beach has turned out to be a terrific platform for us, because it
provides proven weight-management benefits, and that’s why it’s endured.

Marketing

Q:
Will you continue to spend money on advertising, which may require you
to keep prices up, or would it be better for you to discount?

A:
We have never looked at pricing as a means of affording our
advertising. Our prices will go up and down as the cost of our
ingredients goes up and down. But that will not preclude our investment
in our brands.

Q: Are you changing the branding messages?

A: We’ve definitely shifted to more of a value story. So far, it’s serving us quite well.

Q: Where do you get the biggest bang for your buck in advertising?

A: As we continue to look for opportunities for a mass message, TV is one of the cheapest vehicles around.

Increasingly,
though, that’s not where people are spending their time. I had an
opportunity at lunch today to talk with a number of students, and
increasingly they’re turning to digital media and the Internet for
their information. Even in developing markets, we’re seeing the growth
of digital communication is proceeding at a very rapid pace. And that’s
where we’re putting our money.

Competition

Q: Consumers looking for value may prefer less-expensive store brands. Is that an issue for you?

A:
There’s no question that consumers are looking for value today. Our
obligation is to ensure that the products that we are providing offer
them adequate value, and so we have spent the last couple of years
investing in the quality of our brands, the marketing of our brands and
our innovation pipeline.

Q: Will this continue to be a threat?

A:
Private label’s been a pretty significant phenomenon in many markets
outside the U.S. for a number of years. In markets like Europe and
Canada, for example, the market share of private label is upward of 30%.

For
too long we in the U.S. — and I would say, quite frankly, we at Kraft —
did not take seriously the private-label threat. We are working with
our customers to create win-win economic propositions so their private
labels can thrive at the same time that our branded products can thrive.

The
good news is, in many cases, our products will still drive category
demand, and the investments we’re making in marketing and new product
development have everything to do with the growth of those categories.
That’s what will continue to keep us healthy over time.

Biofuels

Q: Like most companies, you have lobbyists in Washington. What’s their agenda with the new administration coming in?

A:
One of the most important agenda items for us is the whole biofuels
phenomenon. Forty percent of the food supply is being diverted for use
in fuel. There’s not a lot of indication that it has a beneficial
impact on the environment. Corn-to-ethanol has had a very difficult
impact on the cost of food, and I’d like to see the administration take
that challenge on.

Q: Can you put a number on how much your costs have gone up?

A:
Our costs have gone up significantly in 2006 to 2007 and again in 2008.
The particular impact of our biofuels policy is hard to tease out. But
there’s no question that those policies have had some unintended
consequences. We need an administration that is willing to talk about
the facts and science as opposed to bending to political pressure to
address some of these issues.

Q: You said a couple of times: science-based. Have we gone through a period where decisions in Washington weren’t science-based?

A: Yes. Would you write that down?

Kids

Q:
The Federal Trade Commission reported in July that one-third of kids
are overweight, and the food and beverage industry spent $1.6 billion
in 2006 marketing to 17-year-olds and younger. Should Washington limit
marketing to kids?

A: We do not market to
children under 6. Our products for 6- to 12-year-olds meet certain
criteria that are consistent with the food pyramid. We will continue to
assure that we are acting in a socially responsible fashion.

I
am delighted that so many of our peer companies have gotten on board,
because we were actually one of the early pioneers in that policy and,
quite frankly, suffered some share loss as a result.

Q: A law governing marketing practices would ensure that you’re all playing by the same rules?

A:
There’s no question we would like there to be a level playing field. We
believe the way to get that is for the food companies to work together
to cause that to happen. I don’t think there’s any indication that
having the government involved will necessarily make that a more
effective process or have the desired outcome. There’s ample evidence
that we can in fact work together in a productive way, and that’s a
more effective way to address the issue.

Strategy

Q:
About a year ago, you described four growth areas: snacking, quick
meals, health and wellness, and premium products. Has the change in the
economy forced you to change that emphasis?

A:
Premium, the phenomenon of consumers trading up, is going to be less
relevant than the mainstream products. We’re focusing our efforts on
the other three areas: snacks, on quick meals and on health and
wellness.

Q: How far along are you in your turnaround plans?

A:
The biggest problem I faced as I came back to the company was that the
cost focus had overtaken so much of our decision making. Our reaction
was to centralize more of our functions, to take quality out of our
products and to cut into overhead, like sales, because they were viewed
as costs rather than capabilities.

And so
probably the most important thing I did as I came back was to try to
get a better balance. Costs will continue to be a critically important
focus area for us, particularly in the face of the challenging economic
environment. But we need to be as focused on effectiveness as we are on
efficiency.

So we invested over $400 million
over the last two years in product quality, in our marketing efforts
and in our innovation pipeline. We have invested heavily in our sales
infrastructure, because I do believe it can be a source of competitive
advantage. And probably one of the most significant things we’ve done
in the last two years is to decentralize our organization so our local
managers have far more authority to be able to make the decisions
affecting their local markets.

Glass ceiling?

Q: Few big corporations are run by women. Is there still a glass ceiling?

A:
I was most encouraged, when I and a number of my colleagues moved into
the CEO roles, that there wasn’t a lot of talk about the fact that we
were women. There was a lot of discussion about the fact that we were
very competent business people. The good news is we’ve got a lot of
that behind us.

Having said that, there’s
still not enough diversity of any kind in our boards, in our companies
and certainly in our leadership, and we all have a particular
obligation to continue to bring those behind us along with us. There’s
no question that our companies will benefit as a result.

Q: Is there anything institutionally that’s holding women from getting those top jobs?

A:
The biggest institutional challenge is that in so many businesses there
isn’t enough discussion along the way as part of succession planning
about the kind of experiences that one needs to reach the top jobs. A
big part of Kraft’s advancement-planning process is to talk about who
our top talent is, what sorts of experiences they need to have in order
to move up to the jobs that they aspire to. And then we spend a lot of
time talking about what we need to do to give them those jobs.

Q: Lots of people think they can’t get the right balance between their personal life and their work life.

A:
Well, I think all of us are multitasking a little more today than we
used to or than we would like to. And I think that the issue of
work-life balance is a critical issue for every company around the
world. We have found the issue of work-life balance is not about a
policy. It’s about our ability to listen and be flexible.

Q: Is that a luxury in this economy?

A:
No. The first piece of advice I give is to know what you want, know
what’s important to you and make sure you’re taking care of that. The
rest of it will fall into place.

Leadership

Q: You’re reading Doris Kearns Goodwin’s Team of Rivals.
That’s had a big impact on President-elect Barack Obama. It’s an
interesting concept, getting your enemies to be on the same team.

A:
I don’t view that book as actually talking about getting your enemies
on your team. I think it is getting people that might have had a
diverse perspective from you on that team.

The
problems facing our country and our global economy are far too complex
to be the province of one party or one individual. And I think one of
the things that I am most impressed by in the early days of
President-elect Obama’s administration is his willingness to gather
around him a variety of points of view. That notion of fighting it out
to get consensus is a very powerful idea that I hope will continue into
his administration.

Q: Could that work in
business? Usually when one person gets the top job, the people who are
passed over send out their résumés.

A:
It happens every day in a business setting. The challenge (is to create
an) environment where people are comfortable speaking their minds. The
more we can encourage that kind of culture in our companies and our
government and in any other institutions that we’re dealing with,
that’s how we’re going to be able to get better solutions.

Q: Do you make special accommodations to get skeptics in and avoid group-think?

A:
I believe very strongly in the value of having a diverse team around me
that comes from very different backgrounds and different points of
view. My chief financial officer comes from Ingersoll-Rand, which is
about as far from a consumer company as you can get. And he brings a
very different perspective than my head of strategy, who comes from
Bain Consulting, or my head of international, who comes from another
consumer company.

Having a diverse set of
perspectives around the table in an environment where they are
encouraged to speak their mind and to bring their differing
perspectives to the solution to our problems has served us
exceptionally well. And it’s a model that can work in the government,
it can work in business and in academics, and any institution can
benefit.

Category: Food Manufacturing, The Americas

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