Kraft takes on private label competition

As it tries to compete with store brands, Kraft Foods Inc. launched its largest online coupon promotion this month, reports Crain’s Chicago Business. The strategy could boost sales but cut into profit margins.

Last week, the company offered $1-off coupons for 50 of its top products, including Kraft Singles, DiGiorno Pizza, Oscar Mayer meat and Maxwell House coffee, to help consumers who are shifting to private label because of recessionary pressures and win them back.

Northfield-based Kraft raised prices last year to offset rising costs, and although that bolstered profits, it led to falling sales volumes this year. In fact, the company is losing sales to competitors in 60 percent of its U.S. businesses.

Kraft and other food companies face a stiff challenge from store brands. During the 12 weeks ended April 18, U.S. private-label sales volume rose by more than 10 percent across all food categories, compared with a 5 percent drop for branded products, according to a report from Robert Moskow, a New York-based analyst at Credit Suisse. The report, based on data from A. C. Nielsen, excludes sales at Wal-Mart Stores Inc.

Bob Golden, an executive vice president at Chicago-based food consultancy Technomic Inc. told Crain’s, “Food companies are getting clobbered by private label, and coupons are how they fight back,” 

Coupons and promotions can win back customers, but they can eat into profits and weaken a brand’s image.

Only time will tell.