No. 2 food company Kraft Foods continues to be squeezed like the filling in an Oreo cookie.
#2 Kraft: Well-centered in today's food market
The company’s status as a purveyor of middle-market foods puts it squarely between two powerful forces. Rising prices for commodities like milk and flour, as well as for packaging, puts pressure on Kraft from the supply end. But ever-present private-label competition in mainstay categories like cheese, crackers and processed meats prevents Kraft from passing along these price increases too readily.Luckily, Kraft also is poised to benefit from a positive trend for the processed food industry as a whole: tough economic times that encourage people to eat at home. A recent Mintel survey reported that 54% of consumers who eat out regularly are cutting back on restaurant visits due to economic anxiety. The center-of-the-store items that are the mainstay of Kraft’s portfolio are in a good position to profit from this situation.Kraft can make money from “consumers with very limited budgets buying more boxed macaroni and cheese as opposed to other, higher-quality food products,” says Christopher Shanahan, a research analyst for Frost & Sullivan.These mixed market forces have led to mixed financial results. Over the last 12 months, Kraft’s stock has fluctuated a bit, but has ended up roughly where it started, at about $32.50 a share. Revenues from food products in 2007 rose 8% over 2006, to $29.2 billion, but overall earnings dropped 15%, to $2.6 billion. In the first quarter of 2008, Kraft reported an overall net revenue increase of 20.8% over the same period in 2007, but income was down 13.4%. The drop in income despite rising revenue reflects the squeeze from commodity prices and other expenses.Kraft is under pressure not to raise prices, but it will have to resist that pressure at some point, says Irene Rosenfeld, who became in CEO in 2006. “We’ll see increased prices on a number of our products,” Rosenfeld said at the company’s annual shareholder meeting in May, without specifying which products she had in mind.Along with raising prices, Rosenfeld has embarked on an aggressive program of cost-cutting and new product introductions. The company announced in April plans to introduce up to 80 new products this year.“We are spending much more time and focus on reinventing our iconic brands,” Bob Becker, senior vice president of new products of Kraft Foods North America, told Crain’s Business Journal.Many of these new products probably will be line extensions that will need a boost from packaging, either to establish their links to the existing products or to set them apart in a new format. Several such products were unveiled at the recent Food Marketing Institute show in Las Vegas. They include:• Kraft’s iconic Cool Whip dessert topping, previously available only frozen in plastic tubs, is now in an aerosol for the first time. Sold in the refrigerator case, the new aerosol features a plastic overcap shaped like a dollop of Cool Whip. The slim can holds 7 ounces of product and has a push-button nozzle.• Kraft’s Macaroni & Cheese is undergoing a line extension into snacks. Kraft Crackers are baked snacks in the shape of macaroni pieces. The carton uses the distinctive royal-blue-and-orange color scheme and logo typeface of Kraft’s Macaroni & Cheese. Flavors include Cheddar, White Cheddar and Mild Cheddar.• A new version of cheese slices comes in more easily reclosable packaging. Kraft Deli Fresh slices are shingled cheese slices, interleaved with paper, inside a rigid tray that closes with a click to assure consumers of a complete seal. Deli Fresh slices come in five flavors, in 7- or 8-ounce packages with 10 to 14 slices per package. F&BP
