Kraft Foods: The center of the store is still important

by Monica Watrous
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Kraft has a strong presence in the center of the store, with a portfolio that includes nuts, coffee, salad dressings and boxed dinners.

 

BOSTON — As many packaged foods companies chase consumers to the perimeter of the supermarket, Kraft Foods Group refuses to ignore the declining center of the store.

“What you need to understand today about the center of the store is that it is tremendously important to the grocery retailer today,” said Deanie Elsner, executive vice-president and chief marketing officer of the Northfield, Ill.-based company, during a Sept. 3 presentation at Barclays Back-to-School Consumer Conference in Boston. “Center of the store represents about 75% of total grocery sales, and about 75% of total profit. The perimeter would have to grow by more than 2.5 times to be the size and the scope of what center of the store is today for the retailer. So given the margins and the labor it would take to grow a perimeter, you can understand why the retailer is motivated to reinvent the center of the store.”

Kraft divided the categories within the center of the store into three parts: those that are driving grocery trips, those that are lagging the rest of the market, and those that are losing.

Among growing categories are coffee, lunchmeat, nuts and breakfast meat. Kraft competes in these segments with its Maxwell House and Gevalia coffee brands, Oscar Mayer lunchmeat and bacon products, and Planters Nuts. But Kraft also maintains a large presence in the lagging categories of cheese and salad dressings and the losing categories of boxed prep dinners and shelf-stable juices and drinks.

“Now within this scenario, the Kraft Foods portfolio is relatively well positioned … but the question becomes how do you change the trajectory of the environment we’re in today?” Ms. Elsner said. “It’s a big question. And the answer is you follow the consumer. Today within C.P.G., we are in the middle of a transformational shift in the landscape, and it’s all being driven by the consumer.”

Since renovating its Philadelphia Cream Cheese business, Kraft said the brand has driven double-digit velocity increases.

Keying into consumer segments

Kraft tracks three key consumer segments: low-income shoppers, who represent 6 in 10 households; millennials, accounting for 27% of U.S. consumers; and Hispanic consumers, representing 17% of the population.

Millennials seek minimally processed foods and are tech-savvy, and Hispanic consumers are recipe-based cooks with great brand affinity, Ms. Elsner noted.

“These new consumers are transforming our customer base, and you’re seeing this play out with the explosion of the value channel, the continued growth on club, the increase in instant consumption and the emergence in e-commerce,” she said. “That is being driven by these consumers. And their rapid adoption of digital and mobile is reinventing the communication landscape. This consumer transformation is challenging the investments the C.P.G. industry is making in our historical vehicles.”

To tap into these growing consumer groups, Kraft has set out to reinvent its marketing playbook and renovate some of its brands. An example is the company’s Philadelphia Cream Cheese business.

“The Philly team was challenged with users walking away from their business,” Ms. Elsner said. “They renovated and reinvented the soft Philly cream cheese line by simplifying their ingredient line, getting to a better package, adding more fruits and vegetables, but once they finished the product and were ready to launch it, our data platform gave them the confidence to understand the different consumer segments. Tying it to purchase data, we were able to define and locate where those consumers were. Understanding what motivated them between sweet and savory, we served up messages that were appropriate to the target in the right medium at the right moment. And the results have been tremendous.”

The updated cream cheese brand has driven double-digit velocity increases since it was launched at the end of June, she added.

Kraft’s efforts are part of a bigger strategy to navigate what the company calls “an unprecedented confluence of factors” that has challenged the food and beverage industry in a major way.

“What has surprised us most, however, has been the pace of that change in the markets that we serve, what is being bought, where it’s being bought, and how purchases are influenced,” said Tony Vernon, chief executive officer, during the presentation. “While the pace is faster than expected, it presents real opportunities for Kraft, and the food and beverage industry as a whole. Those who can adapt, who can contemporize their offerings, and who can get their products in the right location, at the right price, will prosper.”
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READER COMMENTS (1)

By Kyle 9/4/2014 9:03:15 AM
Kraft does not own the Folgers brand