Successful, polished and> media-trained within an inch of their lives, corporate executives rarely surprise. But when we meet Irene Rosenfeld, CEO of Kraft Foods (KFT),
Tales like this have become hallmarks of the restructuring Rosenfeld began when she took charge at the $37 billion food company. She promised to revive flagging brands where she could and sell the ones she couldn't; Kraft has since jettisoned products like flavored-water Fruit2O, Veryfine juices and Post cereals. Among the brands the company retained household names like Oscar Mayer, Jell-O and Nabisco Rosenfeld has focused on updating the products to reflect the trend toward natural foods (see: cherry-pomegranate Immunity Crystal Light). Kraft is expanding internationally, too, with a recent acquisition of LU Biscuits, formerly owned by Danone. Even in weak economic times, results have been strong: Profits were up 10 percent in the first quarter of 2009.
But the challenges facing Kraft when Rosenfeld took over certainly haven't gone away. The stock is down 25 percent in the past year better than the 38 percent drop in the broad market, but nothing to crow about. Some commodity prices are still high, and while Kraft was able to raise prices in 2008, further hikes will be tough for consumers to swallow. The weak dollar has taken its toll on revenue, which was down 6.4 percent in the first quarter. And shoppers are reaching for private-label and store brands in record numbers; private-label products have been growing four times as fast as branded products, according to the Private Label Manufacturers Association. Persuading customers to pay up for brand-name food gets even harder in a recession, says Morningstar analyst Erin Swanson. It's a real threat, and it's worse today than it was a year ago.
In other words, even though people are eating in these days, it's going to take more than a mac 'n' cheese makeover to keep Kraft on America's tables. We traveled to the Kraft campus in the Chicago suburbs to ask Rosenfeld about the private-label threat, revamping brands without destroying their traditional appeal and the growing push for more food-safety regulation.
With fewer people dining out, Kraft seems to be one of the few companies that could benefit from this recession.
This economic environment is as difficult for Kraft as it is for most other companies, but people have to eat. Food is a staple. As consumers are starting to eat at home more, we are finding that it benefits our business disproportionately, because when they come home, they come home to Kraft.
They're also coming home to private-label food and store brands.
In the current economic environment, we will see private labels continue to grow. Our focus is to ensure that it's not growing at our expense. Last year's results and this year's so far show we're holding our own.
Last year, when commodity prices went through the roof, you were able to raise your prices to compensate. How long will consumers put up with it?
We've got most of the price increases behind us. But it was a very significant factor in 2008, and frankly, it was the first time in a very long time we were able to pass along the high input costs.
What made last year so special?
For a long time, our brands didn't command the increase. We had sacrificed quality. When I came back in 2006, only about 44 percent of our products were preferred to the competition. Now that's up to 65 percent.
Impressive. Give me an example.
We had significant share losses in salad dressing for almost a decade. Then we reformulated the dressings with natural ingredients, took out the preservatives, made the packaging more contemporary, improved the advertising. Last year for the first time, we began to see that share performance turn around.
If you're not going to raise prices, and people can eat only a finite amount of food, where will growth come from?
We look at it as share of stomach. Our categories are growing because we're seeing consumers shift from eating restaurant pizza to eating frozen pizzas at home. And we're expanding into adjacent categories. We're continuing to innovate on Oreo, for example new flavors, different package sizes, Oreo sticks and Oreo wafers. But we're also introducing things like Oreo Cakesters, which is a soft, cakey version. That allows us to compete in a whole other usage occasion.
Do you worry about competition among brands? If grilled cheese and soup isn't just lunch but dinner also, does that hurt, say, the frozen-pizza business?
The share of lunch meals or dinner meals that grilled cheese represents is a fraction of the overall servings. We have ample room to grow without cannibalizing our other dinners. We're reframing. We just launched a Planters nut bar, for example, which is one of the first snack bars targeted to men.
The Planters nut bar is for men?
Peanuts in particular and nuts in general happen to have a strong male usage profile. So the object for us is to leverage that, to capitalize on the sweet and salty properties of a nut. And at the same time, we can benefit from the trends toward grab-and-go.
Women don't want that?
We chose to target our Planters brand to men, and we are finding it's working.
For a company with such a long history, how do you maintain the legacy without getting out-of-date?
We're always looking at the formulation and the presentation of the products. A number of our packages have graphics that feel fresher, more natural, more contemporary. Triscuits, for example, are loaded with whole grains, and the ability to make the packaging itself as wholesome and natural as what's inside is a big opportunity for us.
A few years ago, it would have been hard to imagine goji berry Jell-O.
When you see the products now, it looks totally natural.
Other companies have modernized through acquisition, like Unilever buying Ben & Jerry's or Coke buying Odwalla.
In 2007 we bought LU biscuits, but that was to give us another category to compete in internationally. And it's an opportunity to compete in upper-mainstream biscuits in the U.S.
Are you still shopping?
We'll continue to look, specifically at opportunities to expand in developing markets, but I feel quite comfortable with the portfolio we have today.
Food safety must be a huge concern. Would you support more regulation, or a stronger Food and Drug Administration or U.S. Department of Agriculture?
We've been helping the agencies to decide what the appropriate regulatory position ought to be, and we will continue to be an important partner to any of the government agencies.
Do you support more staff, a bigger budget and tighter regulation?
I do. There's no question that we are suffering from the fact that the FDA was particularly hard hit over the last few years. I'm delighted that President Obama has made it a clear priority of his administration.
I have to ask: Are there products you keep around for their nostalgia value? I'm thinking, particularly, of Cheez Whiz.
In the U.S. it's not a particularly popular brand, but it's a huge product up in Canada, and that's why it's here. There is no nostalgia in our strategy.