Kraft bolsters grocery business ahead of spin-off

The food company is pushing its Planters brand and launching new initiatives to address the challenges of a maturing market.

By Trefis Mar 9, 2012 3:05PM
Image: Salty peanuts (© Anna Yu/Photodisc/Getty Images)Kraft Foods (KFT) is reinvigorating its grocery business with increased marketing and productivity initiatives as the company prepares to split into the North American Grocery division and the Global Snacks division.

Kraft has launched a Planters marketing campaign that targets adults, who account for two-thirds of the U.S. peanut butter market. Kraft is more aggressively pushing groceries, as the division had stagnated somewhat, with skeptics pointing out that the North American grocery market has matured. 

Kraft's investment in Planters, an iconic brand best known for processed nuts, had declined in recent years. As a result, market share fell from 32% in 2006 to 24% in 2011. 


However, after extending the Planters brand to peanut butter in 2011, the company could look to follow Smucker's footsteps in innovation. In February, Smucker's introduced two new hazelnut flavors to expand its current offerings in the specialty nut butter market, which it claims is growing more quickly than the overall peanut butter market.


Planters' market share of the U.S. peanut butter market, which is worth an estimated $1.8 billion, increased from 1.8% last year to mid-single digits. Overall, the Planters brand witnessed a 7% increase in revenues in 2011.  


Kraft Global Market Share in Groceries

Productivity initiatives


In 2011, the company was able to increase the conversion productivity in 28 of its 57 plants at a double-digit rate through Lean Six Sigma. Moreover, overhead, as a percentage of revenues declined 60 basis points to 11.4%, which meant an overall savings of $100 million for the entire year.


The grocery segment is one of the most important divisions within Kraft as the EBITDA (earnings before interest, taxes, depreciation, and amortization) margins are almost double those of the other divisions.


Kraft Grocery EBITDA Profit Margin

We expect a slight increase in the margins in the near term as the full effect of the productivity initiatives begins to feed through to its EBITDA margins.


Kraft competes with players like PepsiCo (PEP), General Mills (GIS) and Kellogg (K). We currently have a price estimate of $34.68 for Kraft Foods.

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