Kraft: Creating Solutions
by Sarah Theodore
The beverages sector of newly independent Kraft Foods focuses on health and convenience.
Kraft Foods officially regained its status as an
independent company earlier this year when it was spun off from its former
parent company, the Altria Group. But the Northfield, Ill.-based company
took little time to revel in its newfound freedom. With the spin off, the
company announced big goals for growth and innovation.
Company Chairman and Chief Executive Officer Irene
Rosenfeld announced the company would spend $300 million to $400 million on
developing and marketing new products, with a goal of realizing the
benefits of that investment by 2009. At the company’s annual meeting
this spring, she said the goal was to “rewire the organization for
growth, reframe our categories to make our portfolio more relevant and grow
faster, exploit our sales capabilities to build our scale advantage and
drive down costs without compromising quality,” according to a report
in the Chicago Tribune.
For Kraft’s North American beverages sector,
based in Tarrytown, N.Y., growth and innovation have meant a particular
focus on health and wellness, as well as convenience. The group is
responsible for a varied lineup of beverages that includes coffee and tea,
powdered soft drinks, ready-to-drink beverages,
juice and juice drinks and flavored waters. The company carries brands for
both adults and kids such as Crystal Light, Kool-Aid, Capri Sun, Fruit2O,
Veryfine, Maxwell House, Gevalia and Yuban. It also is responsible for
retail sales of Starbucks, Seattle’s Best and Torrefazione Italia
coffees, and Tazo teas, which are all owned by Starbucks.
Among its refreshment beverages, Crystal Light is one
of the company’s flagship brands. The sugar-free product first hit
the market in the early ‘80s. Today it is available in a variety of
formats, and “continues to grow and continues to be vital in the
marketplace, particularly against the female target that we address,”
says Marigrace Lalli, senior director of new product development,
Crystal Light’s most traditional format consists
of pre-portioned powdered drink canisters, but the brand has expanded into
single-serve ready-to-drink products, On The Go stick packs, and most
recently, 64-ounce ready-to-drink products.
The brand’s platforms include Refreshment, which
consists of traditional flavors such as Lemonade, Fruit Punch, Strawberry
Kiwi and Pineapple Orange. The lineup also features fortified products such
as Crystal Light Teas, introduced within the past year, which are available
in varieties such as Green Tea Raspberr, and honey lemon and White Tea
Blueberry. The green and white teas contain 55 mg. of tea antioxidants,
plus vitamins A, C and E.
The Crystal Light Sunrise line is formulated as a
morning beverage with calcium and 100 percent of the recommended daily
intake for vitamin C, and is available in breakfast-inspired Ruby Red Grapefruit, Classic Orange and Tangerine Strawberry flavors.
The other recent addition to the lineup is the
Enhanced platform, which includes Hydration, Energy and Immunity benefits.
Energy contains caffeine and B vitamins; Immunity has vitamins A, C and E;
and Hydration has electrolytes as well as vitamin A and B vitamins. Each
platform is available in flavors such as Lemon, Wild Strawberry and Cherry
The Crystal Light brand has benefited from the
company’s focus on hydration and Kraft carries that message though to
all of its formats. The addition of the Enhanced platform, as well as the
added functionality in the tea varieties, takes the brand to a new level,
the company says.
“It’s no surprise that hydration is a key
benefit that consumers are seeking,”
Lalli says. “What we tried to give them was the ability to hydrate
but also to fortify simultaneously.”
“It’s a brand that is clearly targeted
toward a wellness positioning,” adds Howard Friedman, senior director
of marketing, powdered beverages.
The introduction of the On The Go stick packs has been
one of the brand’s strongest innovations, as the package ties into
the need for convenience and the popularity of bottled water.
“Sticks have opened up a whole lot of growth
that we believe we can continue well into the future,” Friedman says.
The single-serve packages for powdered drinks rolled
out in 2004, helping increase sales in the powdered drink category.
“What sticks have done is really allow powders
to become a much more personal consumption opportunity,” Friedman
says. “Traditionally, our preparation required two quarts, which you
can imagine requires some consensus around the table as to what
you’re going to have. What the stick allows the consumer to do is to
choose a flavor or a benefit that they want to have in a bottle or
The product also brought new consumers to the
category, resulting in an incremental sales increase for both powdered
beverages and bottled water, the company says.
“The powdered stick, while it is a powder, is
really an on-the-go item and has been made on-the-go by the ubiquity of the
water bottle,” Lalli says.
At retail, “the biggest opportunity for us is
the more we get On The Go sticks by the bottled water, the more
incrementality we’re seeing as a benefit to the categories,”
says Lou Mastriano, senior director of customer solutions. “It goes
hand in hand and that’s one of our key objectives in
The company offers an On The Go pack of three stick
packs for 99 cents that typically is placed near the retail check out to
drive trial purchase, and says sales of stick packs actually result in more
sales of bottled water for retailers.
“Medium buyers of bottled water actually
increase their bottled water purchase so they become heavy users as
well,” Friedman says. “From a customer perspective, the
customer winds up selling more water where sticks are thriving than they would otherwise.”
In addition to boosting bottled water sales with its
powdered stick packs, Kraft has its own bottled water product with Fruit2O flavored waters. The company acquired the
Fruit2O brand when it bought Veryfine Products Inc. in 2004. The
acquisition included Veryfine juices, which are available mainly on the
East Coast, and the Fruit2O zero-calorie flavored water brand.
Early this year, Kraft rolled out enhanced versions of
Fruit2O in Immunity, Energy, Hydration and Relax varieties. Immunity is a
Berry Pomegranate flavor with vitamins A, C and E; Energy is a
Raspberry-flavored product with a caffeine content equal to a cup of
coffee, plus B vitamins. Hydration is a Tangerine-flavored beverage with
electrolytes, and the Relax platform is a tropical fruit blend flavor
fortified with Chamomile and Hibiscus.
Where Crystal Light skews mostly toward women, the
enhanced Fruit2O products have a wider target audience. In addition to the
new enhanced varieties, the line also includes Fuel2O, which was created
for a predominantly male audience and contains more than a cup of
coffee’s worth of caffeine, as well as B vitamins.
Achieving the right distribution mix has been key to
the company’s work with the Fruit2O brand since its acquisition.
Where Veryfine had used a broker system, Kraft pulled the brand into its
own system, increasing its availability.
we felt we added value, bringing it into our national distribution
system,” says Vinay Sharma, senior brand manager.
More recently, the company has begun working with
direct-store-delivery companies to get the products into more
“A huge portion of the marketplace out there is
the immediate consumption, up-and-down-the-street business that we
don’t get to,” Sharma says. “The best way to do that is
to partner with distributors.”
Kraft has DSD relationships with the Snapple
Distributing Co. in the New York City metropolitan area; Atlantic Beverage
in the Baltimore/Washington, D.C., area; and Great State Beverage in the
Boston/New Hampshire market. In addition, Big Geyser carries the
ready-to-drink Crystal Light products in DSD accounts in New York.
“We continue to look to expand on that,”
Sharma says, indicating DSD will be a significant push for the
company’s ready-to-drink products in the future.
In children’s beverages, Capri Sun is one of
Kraft’s most active brands. The company licenses the Capri Sun name
from Rudolf Wild GmbH & Co. (owner of Wild Flavors) in Germany. The
brand introduced the concept of pouch packaging for beverages in the United
States when it rolled out in the early ‘80s, and the company has been
expanding the brand to cover the gamut of children’s consumption
“The brand has grown every year for the past 15
years,” says Neil Leinwand, senior director of marketing for
kids’ ready-to-drink beverages. “Today Capri Sun still has a
dominant position in its category. It has a lot of equities with moms,
including a heritage as a kids’ beverage without artificial flavors,
colors and preservatives, and is portrayed as a beverage for outdoor
The Capri Sun line today consists of the traditional
line of juice drinks; a 64-ounce family size package; a line of 100 percent
juices; Capri Sun Roarin’ Waters, a line of low-calorie flavored
waters; and Capri Sun Sport in pouches and Sport On The Go powdered stick
Although it has a leading position in the category,
advertising children’s beverages has become a sticky area with
concerns over childhood obesity. Kraft has been a leader in developing
standards for advertising to kids. The company limits children’s
advertising to products that meet Sensible Solutions criteria, a program
the company developed to designate better-for-you products among all its
food and beverage brands (see page 37). For kids, the company limits
advertising to products that meet specific criteria for kids between ages
six and 11, and will not advertise at all to kids under six years old.
The base Capri Sun line is
not marketed to children, despite the addition of vitamins C and E, made
earlier this year. With 35 calories per container, Capri Sun Roarin’
Waters fall into the Sensible Solutions program, and thus are marketed in
children’s venues. Marketing for the 100 percent juice line is
limited to moms.
“Juice skews a little younger than juice drinks,
so all the communication has been to moms,” Leinwand says.
When it comes to new
product development for both children’s and adult beverages, Kraft
says much of its work is focused in the area of health and wellness. In
fact, most of its new adult beverages fall within the Sensible Solutions
The beverage division is keeping any future product
plans close to the vest, but like Kraft Foods as a whole, says it is
focused on growth.
“The majority of our fastest-growing businesses
traditionally are the ones that meet multiple needs, whether it’s the
need for convenience or a health and wellness concern,” Friedman
says. “Our goal is to try and hit multiple levels of benefits so that
it can truly be unique and compelling to the consumer.”
“The trickiest part comes in not identifying
what consumers know they want, but identifying or trying to meet the needs
that are anticipated, that are not yet satisfied, that [consumers]
can’t even express to you that are unsatisfied,” Lalli says.
“By that I mean how to build the pipeline for the next two or three
“Beverages happen to be a great carrier for
health and wellness benefits,” she adds. “This is something we
feel an obligation to satisfy our consumers with. There is a tremendous
emphasis on health and wellness.”
The Sensible Solution
Kraft Foods introduced the Sensible Solutions program
to designate better-for-you products in both its adult and children’s
lines. Products that meet the criteria carry a green Sensible Solutions
flag on packaging with a bullet point list of health benefits. Products
that carry the flag have benefits in the areas of weight management, heart
health, diabetes management, digestive health, “healthier
eating” and kids snacking.
Wall Street speculation
Ever since Kraft Foods completed its spin off from
tobacco company Altria Group this spring, Wall Street has been keeping a
close eye on the company and the changes it has been making. The company
announced ambitious plans for investment and sales increases by 2009, but
financial watchers are predicting big-name shareholders might have other
Billionaire investors Warren Buffett and Nelson Peltz
both recently bought small shares of the company. According to reports,
Peltz would like the company to sell underperforming brands such as Maxwell
House and Post cereals. Buffett, on the other hand, “has a history of
betting on companies that have strong brands and are comeback
stories,” reported The Wall Street
Journal in July, indicating that
Buffett’s investment could be a vote of confidence in the
company’s current strategy.
The company’s second-quarter results, the first
since the spin off, show sales were up 6.8 percent compared with the same
period a year ago. Organic revenues were up 4.1 percent. Company Chairman
and Chief Executive Officer Irene Rosenfeld said, “Our early
investments in product quality and marketing have led to sequential
improvements in top-line growth. In addition, we are encouraged by the
progress in rebuilding our new product pipeline and plan to spend at the
high end of the $300-$400 million range we previously communicated.”
She indicated, “It is critical that we invest now in order to lay the
foundation for our future growth.”
The beverage division reported a sales increase of 4.3
percent for the quarter, the largest increase among Kraft’s core
North American businesses. The company indicated the growth was led by the
introduction of Crystal Light with antioxidants, the continued success of
powdered drink stick packs and premium coffees. Mainstream coffee and
ready-to-drink beverages were down for the quarter.