K is for Kraft

And Everyone eats something from Kraft. Take a look at this from my RAB Newsletter:

Innovation is Key for Kraft

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 says that 99 percent 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 six 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 percent of its stock. This year Kraft shares have fallen 18 percent, but that is less than half the 39 percent 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 percent.

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.

(Source: AdAge.com, 12/08/08)