Advertising Age reported a new CEO at Kraft could spark fundamental shifts—mostly rooted in cost cutting and efficiencies—in marketing for the food company. Hey, perfect timing after the recent consolidation of shitty White advertising agencies. Nothing like slamming new partners with a sea change, especially when it will probably lead to chump change. The new CEO should be happy to learn Kraft content gets four times better ROI than advertising—and the figure is undoubtedly higher for an advertiser working with lousy agencies such as Leo Burnett, mcgarrybowen, Taxi and Crispin Porter + Bogusky. Plus, there’s money to save by eliminating digital advertising, as the impressions can’t be trusted anyway. Of course, financial reductions are never good news for minority shops already collecting crumbs from clients. The Ad Age story also speculated Kraft might rethink spending on the underperforming Jell-O brand. Hey, Bill Cosby is available to help—possibly for a super low rate.
Kraft’s New CEO Could Put Marketing Under Microscope
Options Include Cost Cuts, Mergers or Unloading Some Brands
By E.J. Schultz
The surprise CEO shift at Kraft Foods Group could signal major changes at the packaged-foods marketer, possibly including less emphasis on marketing and more focus on cost cutting. The company might reduce spending on underperforming brands like Jell-O, or enter a new phase of deal-making that could lead to mergers or acquisitions of other food companies, according to some analysts.
Kraft’s board of directors announced the change late last week, picking board chairman John Cahill to succeed Tony Vernon. Mr. Vernon had led the company since it was formed in October 2012 when the “old” Kraft split into two companies, also forming Mondelez International.
Mr. Vernon, 58, was a big fan of marketing, routinely calling out his favorite campaigns during earnings calls. In outlining his priorities early on he said advertising was “dearest to my heart” and suggested that Kraft would spend more to catch up to peers. He followed through: Kraft, whose brands include Planters, Oscar Mayer and Philadelphia, in 2013 grew U.S. ad spending by 8.2% to $716.2 million, according to the Ad Age DataCenter.
But recently, Kraft sales have stagnated, along with many of its processed-food peers. The big companies that traditionally dominated store shelves are struggling to grow as small brands get more attention from retailers and consumers gravitate to fresh and natural-food offerings.
Mr. Cahill, in a statement, promised to “take a fresh look at the business to prioritize our investments and focus on sustainable profit growth.” He did not offer details, only saying that “we will have more to say about that in early 2015.”
In a note to investors Sanford C. Bernstein noted Mr. Vernon’s affinity for marketing and innovation, while stating that Mr. Cahill “is likely to be a more operationally focused CEO, potentially focused on more cost-cutting or more deal-making.”
“You probably will have some budgeting cuts and efficiency drives on the marketing and sales side of the business,” said Rick Shea, a former packaged-food marketing executive and president of Shea Marketing. That would follow the broader trend taking hold in the packaged-food industry in which “we do see a lot of companies starting to accept low growth and changing their business models to accommodate it,” Mr. Shea said.
Instead of “always chasing volume and spending more on marketing,” companies are putting “more emphasis on the manufacturing and cost side, like closing plants and shedding headcount,” he added. This seems to be “picking up steam as we head up into 2015,” he said. “I don’t think Kraft is any different.”
General Mills, for instance, recently announced 700 to 800 layoffs, while saying it would close a cereal plant in California and a yogurt factory in Massachusetts.
In a report in November, Bernstein assessed a few merger options for Kraft, including acquiring smaller food companies to either “drive cost synergies or to build exposure to faster-growing brands and categories.” The report even raised the possibility of Kraft merging with General Mills to gain cost synergies, although it noted that Bernstein had “no knowledge of any specific deal activity.”
During Mr. Vernon’s final days, Kraft already began making moves to gain advertising efficiencies. For instance, in November the company trimmed its roster of creative ad agencies to four shops: Leo Burnett, McGarryBowen, Taxi and CP&B.
Mr. Cahill has a deep familiarity with Kraft, having joined the company in January of 2012 and becoming executive chairman, while transitioning to a non-executive chairman role in March of this year. His resume includes nine years at PepsiCo in a variety of leadership roles, as well as a nine-year stint with the Pepsi Bottling Group, including serving as CEO from 2003 to 2006.
John Sicher, who covers Pepsi as the editor and publisher of Beverage Digest, described Mr. Cahill as a good leader who is “very smart” and “down to earth.” Kraft, he added, is “lucky to get him.” But Mr. Cahill will immediately be confronted with tough decisions, including determining if some of Kraft’s aging brands are worth new investments, or if they should get less focus, or even be sold.
That includes Jell-O. Kraft hiked measured media spending on the brand from $15 million in 2012 to $49.4 million last year, according to the Ad Age DataCenter, which uses estimates from Kantar Media. But U.S. Jell-O sales fell from $413.3 million in 2012 to $338.2 million last year and a projected $278.7 million for 2014, according to Euromonitor International.
“Despite multiple stabs at putting the Jell-O brand on more stable ground … the business continues to falter, and we think management may now opt to reallocate investment dollars toward more profitable initiatives,” Morningstar analyst Erin Lash said in a note to investors this week, commenting on the CEO change. She stated that “Kraft may eventually look to take more aggressive actions to shed underperforming brands.”