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Kraft to target health, convenience and premium trends

By Anita Awbi , 23-Feb-2006

US manufacturer Kraft Foods has announced a "fewer, bigger, better" policy, concentrating on crucial brands in key areas as the firm suffers from lagging performance.

CEO Roger Deromedi said yesterday the company will focus innovation efforts on areas that yield higher revenue-per-pound, such as wellness, value-added and on-the-move products.

To further develop an ongoing restructuring and cost-saving plan, the firm will build up brands that are in line with these key trends - such as the US South Beach Diet brand that spans the three core areas.

 

"While our financial performance has lagged…I'm confident that strong execution of our strategies will deliver improved results in 2006 and beyond," Deromedi said.

 

A recent report by Datamonitor found that the convenience food sector, currently worth €66bn across Europe, is a relatively unexploited area for leading manufacturers.

 

It claims food producers must adapt an innovative packaging design and marketing approach to tap burgeoning consumer demand for on-the-go snacks, as the European inclination to miss meals and opt for light bites is set to rise to 522 billion instances per year in 2009, translating as 1.9 snacks per day per consumer.

 

So far those products doing best are breakfast bars, sandwiches, pies and pasties, and more traditional dried snack foods such as pretzels and crisps - but there is scope for all manufacturers.

 

Kraft is working hard on its cheese sector, pushing ranges such as Kraft To Go snack sets and Philadelphia Dips. These products can also benefit from added mineral and vitamin content, and thus can encroach on the burgeoning wellness market.

 

Datamonitor's Daniel Bone, author of the report, sees Kraft as a forerunner in the convenience category, with its own-brand heating machines in the US "adding credibility to its existing convenience range and adding to the weight of the trend generally."

 

Kraft is also busy expanding its luxury chocolate offering, Cote d'Or, and the Tassimo hot drink system, as analysts predict premiumisation strategy will continue to drive value growth of products, and ultimately profits.

 

Last month the firm announced a massive extension to its existing three-year restructuring plan that will see a further 8,000 jobs and 20 production plants go, as the company struggled to absorb rising energy and ingredient costs.

 

The expanded plan, together with new brand focus, follows revelations that despite Kraft's rigid economy drive, fourth-quarter net revenues were $9.7bn (€8.1bn), up only 3 per cent on last year. And the company claims last quarter's operating income was essentially flat at $1.2bn.

 

For the full year, operating income increased 3 per cent to $4.8bn, held up by cost-cutting and the proceeds of the desserts business sale in the UK.

 

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