Kraft: Creating Solutions
August 1, 2007
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, beverages.
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 Pomegranate.
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 glass.”
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 store.”
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.
“That’s where 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 up-and-down-the-street accounts.
“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 occasions.
“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 adventurers.”
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 packs.
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 program.
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 years.
“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 plans.
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.