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October 10, 2008

In the Spotlight – Irene Rosenfeld, Kraft Foods

Irene Rosenfeld, CEO of Kraft Foods, has moved up the rankings of Fortune magazine's 50 Most Powerful Women in Business from fifth to second on the back of the success of her ongoing turnaround strategy for the company. Ben Cooper reports on the changes Rosenfeld has initiated and the reaction they have received.

Irene Rosenfeld, CEO of Kraft Foods, has moved up the rankings of Fortune magazine’s 50 Most Powerful Women in Business from fifth to second on the back of the success of her ongoing turnaround strategy for the company. Ben Cooper reports on the changes Rosenfeld has initiated and the reaction they have received.

Fortune Magazine believes Irene Rosenfeld to be the second most powerful businesswoman in the US, something that around 400 of her employees at Kraft Foods will probably not take issue with this week.

Rosenfeld has moved up the Fortune 50 Most Powerful Women in Business rankings from fifth to second because of the fairly widely held view that the turnaround she is leading at Kraft is progressing well. Intrinsic to that recovery is the restructuring plan first unveiled in 2004 that would cut the company’s workforce by 13,500 in a bid to deliver US$1bn in annual cost savings. The 400 job losses announced this week across the company’s North American operations represent the latest tranche of redundancies.

The job losses are primarily in the company’s headquarters locations in Chicago; Tarrytown, NY; Madison, Wisconsin; East Hanover, New Jersey; and in Toronto and Ontario. According to a Kraft spokesperson, they will be made across a variety of departments and levels throughout company.

So the upside and the downside to the life of a high-profile business leader – the glory and the tough decisions – are well illustrated in the space of a week. But the more fortunate Kraft employees who have survived the cull may have cause to thank Rosenfeld in the long run.

Rosenfeld took the helm at Kraft in June 2006, and early in 2007 unveiled a three-year turnaround plan, aimed at “rewiring” the organisation for growth, reframing Kraft’s categories to make them more relevant to consumers, exploiting Kraft’s sales capabilities and driving down costs without compromising quality.

Halfway through, the signs are that Kraft has made progress. Last month, Kraft raised its full-year EPS guidance to US$1.88 on the back of the sale of the Post cereals business. Speaking at the Lehman Brothers Back-to-School conference, Rosenfeld said: “At the mid-point of our three-year turnaround, we’re successfully rebuilding our brands through investments in quality, innovation and marketing across our global portfolio.”

Greggory Warren, analyst at equity investment research firm Morningstar, believes Rosenfeld “has definitely been what Kraft needed”. Although Rosenfeld joined Kraft from PepsiCo, she had previously worked for Kraft and General Foods for some 20 years. “Knowing a lot of these businesses helps her because she understands how they go to market and what they need to do to be successful,” Warren tells just-food.

However, the fact that she had spent some time away before rejoining as CEO may well have given her the necessary perspective to make much-needed changes in how the company operates.

Certainly, there is no disputing that Kraft was suffering when Rosenfeld took over. Although the company went public around eight years ago, it remained 85%-owned by Altria until the middle of April 2007. Warren sees this as hugely significant in driving change. “Up until last year when they were fully spun out they were a publicly-traded company in name only. They were only answerable to Altria so it really didn’t matter what they did internally, or how well restructuring plans were going, or how well their strategies for the future were succeeding. Whereas now Irene is responsible to the shareholders.”

Irene Rosenfeld, CEO of Kraft Foods

Warren continues: “I felt like for five or six years there they were really just sort of struggling around trying to get a handle on what their problems were. When she came, she’s like we need to do this, this and this.”

The changes in marketing strategy implemented under the turnaround plan have proved successful in Warren’s view, with new products getting to market much quicker, while with regard to disposals, he says Rosenfeld has been “very smart about what she has been doing and how she has been doing it”. The most recent of these, the spin-off of Post, “was very smartly done”.

Warren is rather less complimentary, however, about Kraft’s handling of its cheese business in the US, suggesting the company does not react quickly enough to competitors on price and has possibly over-ambitious aspirations for marketing-led development of the category.

“Marketing and R&D is not necessarily what the category needs, he says. “They basically need at some point to start running it as a commodity-based business, make sure they are priced appropriately to the competition, and just generate the cash flows and use the cash flows to grow other parts of the business.”

Another key factor that is said to have hampered Kraft is the protracted indigestion it has suffered following the acquisition of Nabisco when Kraft was part of the Philip Morris group back in 2000. “For me the Nabisco deal just made a much larger organisation, created more levels of bureaucracy,” says Warren. “They became much less nimble.”

There is a prevailing sense that the changes Rosenfeld is putting in place may now finally resolve the structural difficulties created by the Nabisco acquisition. Moreover, Warren feels the company’s acquisition of Danone’s biscuit business, which Rosenfeld brokered in July last year, was a positive step, allowing the company at long last to build on the Nabisco deal.

All of which may go some way to explaining Rosenfeld’s rise up the Fortune Top 50 charts. Fortune said of Rosenfeld: “When she took the helm of the food and beverage giant, Rosenfeld implemented a three-year plan she calls ‘the big cheese of all turnarounds’. She’s ploughing money into brand building, empowering local managers in developing countries, and launching more ready-to-eat fare such as heat-and-serve Deli Creations flatbread sandwiches. This year the stock, which has remained relatively flat, replaced AIG on the Dow, and Warren Buffett recently upped his stake to 9%.”

For all that, however, her success does not necessarily set her apart in the food industry. It is interesting to note that Rosenfeld is second in the rankings to PepsiCo CEO Indra Nooyi. Indeed, the top three businesswomen all lead food companies, and four CEOs of food groups feature in the top ten.

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