Food execs lay out strategies for 2007

March 27, 2007
Annual analysts meeting airs talk of resurrected brands, new products and takeovers.

Everything old was new again, in a sense, at the annual Consumer Analysts Group of New York conference in Scottsdale, Ariz., in late February.

Kraft Foods’ new CEO Irene Rosenfeld talked about a return, essentially, to the home meal replacement movement of the 1990s, including the resurrection of an old brand — Fresh Creations — originally tested and rejected in 1991.

PepsiCo North America CEO John Compton went back even further — to the Flat Earth. He wasn’t renewing the four-century-old heresy trial of Galileo. He was chatting up a fairly novel concept for PepsiCo’s Frito-Lay business: the new Flat Earth brand of fruit and vegetable chips, an extension of the Stacy’s brand PepsiCo acquired last year.

Those two companies generally are at opposite ends of Wall Street’s approval scale, with Kraft having been a fairly consistent underperformer and PepsiCo a consistent overachiever in recent years. Yet they probably had the most news to talk about among food companies at the annual gathering of financial analysts.

Rosenfeld wasn’t just serving reheated concepts from the 1990s. She was laying out for the first time since taking over as CEO last summer her turnaround plan for struggling giant Kraft.

Included in her recipe are big doses of marketing and R&D spending. She said Kraft would plow $300-400 million in restructuring savings into those areas by 2009, as well as much of its anticipated annual sales growth of 3 percent. In all, that would amount to an extra $370 million to $750 million in marketing spending by 2009.

The results, she promised, will be “delicious,” a word she used repeatedly. “We have been far too focused on cost and efficiency at the expense of quality and effectiveness,” Rosenfeld said. “As a result, we have lost our edge in a number of areas like product quality, share of voice and sales execution.”

All that will change, she promised, starting with such new products as recently launched DiGiorno Ultimate, a product that aims to take the brand from competing against pizza chains to competing against local pizzerias, too. It’s a higher-quality product that got scrapped under her budget-focused predecessor Roger Deromedi, but which she promptly green-lighted and fast-tracked.

She also vowed to use Kraft’s scale and breadth of components to take it into new areas with meal kits, including a test of an entry into the fast-growing salad kits business with Fresh Creations. Another example is Deli Creations from Oscar Mayer, a new line of heat-and-eat deli sandwiches Rosenfeld sees as the company’s entrée into the $50 billion away-from-home sandwich business.

PepsiCo, already growing sales at 9 percent last year (well ahead of the 4 percent Rosenfeld promises by 2009), doesn’t needs neither a turnaround nor apologies. Yet it’s also opening the spigot on a substantial new-product pipeline, including Flat Earth, which will launch with a fairly novel campaign focused on sampling in produce departments this year, Compton said.

It’s the latest element in an aggressive health-and-wellness movement for PepsiCo, that included the elimination of all trans fats from its snack foods last year and the Smart Spot campaign, which began in late 2004.

Compton noted PepsiCo also is looking to reinvigorate a Gatorade brand that has lost a little juice of late, launching Gatorade A.M., the first time Pepsi has tried positioning its sports powerhouse as a breakfast drink.

Elsewhere, some major players signaled new interest in getting bigger. Kellogg Co. CEO David MacKay acknowledged that while the company is “late in the game,” it is looking for acquisitions and joint ventures overseas.

Smithfield Foods, despite having gobbled up just about every processed meat business it could get of late, is still looking for more. CEO Larry Pope said that, despite being in the process of closing on Premium Standard Farms and integrating businesses acquired from ConAgra and Sara Lee last year, it wants to buy Swift Foods, though only at the right price.

While organics may seem sexy to some, they’re not to Hormel CEO Jeffrey Ettinger.

“The typical organic item we’ve run across doubles or triples your costs,” he said. “We don’t think in general that is what the consumer is looking for. We can deliver a no- preservative, natural tasting item under the Natural Choice brand without significantly increasing the cost, so that is where we’re putting our money.”

One thing new in the beverage industry is the carbonated soft drink. Not the product, just the name. Echoing Coca-Cola Co. Chairman-CEO Neville Isdell, PepsiCo’s Compton signaled that his company, too, was moving toward calling fizzy drinks, “sparkling beverages,” as they are coming to be called. PepsiCo’s next sparkling beverage, he noted, will be Tava, fortified with vitamins and chromium to help with metabolism and weight loss.

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