CAGE 2014: Kraft upbeat amid "unprecedented" change
Kraft looking at digital marketing, brand "renovation" and new channels to drive sales
Kraft Foods Group has expressed optimism it can prosper despite what its CFO Teri List-Stoll called the "unprecedented" change affecting the US grocery sector.
Speaking at the Consumer Analyst Group of Europe conference in London, List-Stoll said "a confluence of factors" meant manufacturers and retailers operating in the US had to adapt to continue to grow.
List-Stoll said the US economy was seeing a "barbelling" of incomes, with the numbers of low-income and high-income consumers increasing but with those in the middle falling in number. "It's the reality our industry must embrace and it's something that must be acted upon by any industry where most if not all if the marketing energy is targeted more towards the premium."
The Kraft finance chief also said manufacturers must react to consumers shopping less often but in more types of outlet than before, with visits to what she called "non-traditional channels" like club stores, dollar outlets and online on the rise.
And the former Procter & Gamble executive said the rise of digital and mobile communication means FMCG companies had to change the way they marketed to consumers.
"We're facing an unprecedented confluence of factors that has the potential to change the way we operate for perhaps decades to come. Frankly, what's surprised us the most has been the pace of change in the markets we serve - what's being bought, where it's being bought and how purchases are influenced for consumers," List-Stoll said.
However, List-Stoll said Kraft did not share the "pessmism" on Wall Street about the impact the changes could have on the sector.
"Many sell-side analysts have written about it and find it easy to paint a bear picture of the implications of these changes but we, as Kraft, are not as pessimistic over the impllications of the changes on our industry's performance."
Addressing an audience of analysts and investors at the annual CAGE conference yesterday (17 March), List-Stoll said manufacturers in the US should focus on the growing "cohorts" of shoppers in the country - and pointed to Hispanic and "millennial" consumers.
Hispanic consumers represent for 17% of the US population but would account for "60% of the growth" in the sector between 2011 and 2016, she said. "What's frankly more exciting for the food industry, is that this group is primarily made up of ingredient-based cooks and they are more involved in their meals," List-Stoll asserted.
So-called millennial consumers, roughly between 18 and 34, account for 26% of the US population and, List-Stoll said, their "purchasing power is growing". She said millennials were "largely single, ethnic, channel agnostic and tech savvy - and greatly in need of meal-based solutions, particularly the boys I know".
Kraft, the owner of brands from Oscar Mayer meats to Velveeta cheese, has set out a number of initiatives to grow its top line, including "reinventing" its marketing to tap into consumers' growing use of digital technology.
The company is rolling out new products to tap into consumer demand in areas including simpler ingredients and protein. Kraft is looking to "renovate" all its brands, some of which are decades old, to make them more relevant to today's consumers.
Kraft also wants to make its brands "ubiquitous" across all retail channels. List-Stoll admitted Kraft's presence in outlets like dollar and cub stores was below that in mainstream outlets. Building Kraft's "fair share" in such stores could add US$1bn of net revenue over the next three years, List-Stoll claimed.
She said the growing popularity of dollar outlets and club stores meant manufacturers would have to change the products that put on sale.
"The retailers that make up these non-traditional channels of trade are more what you call item merchants versus category merchants," List-Stoll said. "This means if we want our brands to compete effectively across these channels, we have to have the unique price-pack-variety combination in a single unit to satisfy the consumer for that specific purchase occasion. In more cases than not, it's a significantly different price-pack architecture than in the traditional grocery store."
While looking to grow the top line in these ways, Kraft management said the company would focus on "total cost management" to also support its profits on what is a low-growth environment in the US. "We are looking at processes end-to-end, rather than in silos," List-Stoll said. "We think this has the potential to make a difference for each and every one of our businesses across Kraft."
Chris Jakubik, vice president of investor relations at Kraft, said the company had "driven industry-leading net productivity" at the company in the last two years.
However, Jakubik indicated the entry of private-equity firm 3G Capital into the US food industry through its acquisition of Heinz, meant manufacturers had to continue to focus on costs.
"The reality is with the likes of 3G in our space the best in class keeps getting better. The good news is that we have good visibility on additional opportunities."
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