Draft: Kraft’s Marketing budgets under pressure

Draft: Also see Cadbury’s

Easy Mac, Singles, Nabisco portfolio and Cheese

BW Crunchy Story

Kraft Foods Inc. (KFT ) sure has bulked up. In the past five years, the company has gobbled up 10 rivals, including Nabisco Holdings Corp. for $19 billion in late 2000. The result: the biggest packaged-food maker in the U.S., with expected 2004 sales of $32.3 billion and products in almost every aisle of the grocery store, from Kraft cheeses and Oreo cookies to Oscar Mayer meats, Post cereals, DiGiorno pizzas, and Maxwell House coffees.

Now Chief Executive Roger K. Deromedi has decided it’s time for Kraft to slim down. He began with the Nov. 15 sale of Kraft’s Life Savers and Altoids candies to Wm. Wrigley Jr. Co. (WWY ) for $1.5 billion in cash. And more will follow, he says, as Kraft divests itself of other laggard and peripheral product lines to concentrate on the blockbuster brands that can be tops in their categories worldwide. Says Deromedi: “We want the products that consumers and retailers are more excited about.”

Clearly, the pressure is on the 51-year-old Deromedi, who became Kraft’s sole CEO a year ago, when Co-Chief Executive Betsy Holden was demoted to global marketing president. Like other consumer-goods companies, Kraft is scrambling to give Wal-Mart Stores Inc. (WMT ) and other retailing giants what they want. Bulking up to gain leverage with the retail behemoths fueled much of Kraft’s expansion in the first place, but that strategy hasn’t worked. With Wal-Mart and others increasingly interested only in the briskest-selling products, it turns out that suppliers are better off with a clutch of category killers than a cartful of so-so sellers.

But dealing with Wal-Mart isn’t Kraft’s only problem. Many are of its own making, from turmoil within its executive suite to oversaturating store shelves with too many variations of the same old product. How many different kinds of Oreos do consumers really want? At the same time, other consumer-products companies, notably Procter & Gamble Co. (PG ), have been far more skillful in navigating the retailing shoals with nifty new products. What’s more, management at Kraft’s parent, Altria Group Inc. (MO ), is putting the squeeze on Kraft to shape up in advance of a possible spin-off of its controlling stake next year.