Kraft has very strong brand identities with many of its products, however they recognize the need to reposition themselves to remain competitive, responsive and in control of their market share. They are further challenged by the fact that previous attempts to redirect their efforts have not necessarily been successful. The article points out that Kraft failed to forecast changing consumer demand when it purchased Nabisco. They bet on high-fat snacking at a time when consumers were becoming aware of obesity and food-related health issues.
In the past several years Kraft has relied on expanding its line by adding new features and offering extensions of existing brands, such as Thick ‘N Creamy Macaroni & Cheese and Oreo Double Stuff. Creating brand extensions rather than entirely new products failed to heavily impact sales as the underlying products were the essentially the same. The overall result for Kraft has been a loss of profits and earnings misses.
Other big food companies have successfully modified their products to respond to environmental changes. Campbell’s Soup Co. has focused on improving its soups while Unilever revamped Slim-Fast and other products to respond to the low-carbohydrate diet trend. Nestle is looking for growth in the intersection of food and pharmaceuticals – “phood.”
Kraft is reacting to its recent struggles in several ways. They made a leadership change at the top, demoting the co-CEO who was associated with recent losses and elevating a new CEO who moved quickly to adjust strategy. The company is also working to increase the healthiness of existing products and broaden associations with well known companies such as Starbucks Coffee. New CEO Roger Deromedi stresses that they will continue to focus on traditional, core brands, which represent a majority of profit, while broadening products lines to attempt to serve a range of consumer needs.
The article illustrates how Kraft is adding new product lines thru acquisition of existing brands rather than developing new products thru brand extensions or repackaging existing products - which was extremely successful with their cheese in the past. Kraft is acquiring brands that consumers have already adopted and expanding production and distribution into new markets.
Kraft has recognized that organic and natural products are experiencing larger growth than giant brands and its consumers are an attractive target market. By acquiring well-know brands such as Boca Burger, Balance Bar and Athenos Cheese, they are steadily pushing into the gourmet and healthy market. Now Kraft has purchased Back to Nature in an attempt to buy their way into the organic market. However, pervious attempts to do the same thing with Organic Valley failed.
The question now is whether Kraft as “Big Food” will be able to capture and retain the target market they have identified as “natural and organic seekers” and stay on top of constantly changing consumer demands. There are several large obstacles they must overcome. Specialty and gourmet products require a focus on quality that requires more labor and effort. Can Kraft compete against handmade brie with its automated production cheeses?
Kraft’s experience with Organic Valley highlights potential problems they may have in the organic market. Kraft’s values and operations (mechanized food production and highly technical innovations) are in stark contrast to the principles and values of organic food. Many consumers are drawn to organic products because they value the meaning of organic food – healthier for the body and the environment, produced by companies that with strong ethics. Using organic ingredients in highly processed, artificial food products is in conflict with these values. Will the “natural and organic seeker” accept Kraft as a legitimate producer? By using Back to Nature as an entry into this market, they may avoid some negative branding issue as Back to Nature enjoys name recognition already.
Kraft must also continue to respond to changing food fads. They have met the low-carbohydrate demand thru repackaging and re-labeling of existing products. The key to continued growth will be to continually scan the macro-environment and use their considerable resources to respond to emerging trends and consumer demands.
