3 major trends affecting Kraft Foods' stock price

Kraft's future performance will depend on new product launches, rebranding efforts and international expansion.

By Trefis Jun 26, 2012 10:07AM
trefisKraft Foods (KFT) is one of the biggest food and beverage companies in the world with revenues exceeding $54 billion in 2011. Later this year, it will split into two companies: the North American grocery division and the global snacks division to be renamed Mondelez.

Here we discuss three important trends, the success of which is critical to the long-term performance of the company.

1. New product launches

The percentage contribution of new products to total revenues for Kraft has grown over time from 7.4% in 2009 to 9% in 2010 to 10.5% for 2011. Just to emphasize, that is an incremental revenue of more than $1.2 billion in 2011.


The major products launched in 2012 include MilkBite, belVita and Philadelphia Indulgence with plans to soon launch Cadbury popcorns in the U.K. to cash in on the growing popularity of chocolate bags. Moreover, Kraft plans to spend £17 million ($27 million) on research and developments alone in its Bournville plant in the U.K to develop new chocolate products. Kraft also entered into a partnership with SodaStream in January to introduce carbonated version of its popular beverages Crystal Light and Country Time.


2. Re-branding/relaunching

More often that not, sales of grocery and snacks products stagnate after a while so there is a constant need to reinvent the products to keep attracting consumers. Kraft understands this and therefore has taken several marketing initiatives to reinvigorate its existing products. For example, the marketing campaign launched in May this year stressed on the versatility of its dressings and even re-branded its dressings as 'Anything Dressing' to highlight that they can be used on a wide variety of dishes. Similarly, in 2011, the company marketed its Philadelphia Cream Cheese as a food ingredient which significantly boosted the sales.


Kraft Global Market Share in Snacks

Kraft has also relaunched Ritz Crackerfuls by increasing the product's marketing budget significantly and introducing a Facebook game to appeal to a younger audience. Recently, Kraft relaunched its Oscar Mayer's Selects line of hot dogs as free from any artificial flavors and preservatives.


3. International expansion

Although introducing new products in the market and re-branding the products help boost the revenues, achieving growth beyond a point is almost impossible if the company does not expand into new territories. In a large number of countries where Kraft is present, only select items of its portfolio are available. Thus, launching the biggest brands in these territories opens a whole new market for the company.


Of course, not all products are suitable for all countries and thus the company has to take call on when and what to launch where. Moreover, building manufacturing facilities and setting up distribution networks take time. Developing markets contribute more than 30% to its total revenues. Some of the key international markets where Kraft is witnessing impressive growth are China, India and the Middle East.


In the Middle East, the company has announced the expansion of its Nabisco Arabia biscuit plant in Saudi Arabia to double production capacity. The Nabisco Arabia plant produces Oreo cookies, Ritz crackers and belVita biscuits. Earlier in the year, it launched Barni to target the children's snacks segment.


It has also stepped up its focus on the chocolate market in Israel.


In China, the company has introduced new variants of its existing products to appeal to the local tastes. Kraft has already launched birthday-cake flavored Oreos and will soon introduce Ritz in new flavors named 'fantastic beef stew' and 'very spicy chicken'.


After receiving terrific response for Oreos and Tang in India, the company now plans to launch Cadbury's Toblerone to compete in the premium chocolate segment which is dominated by Ferrero at present.


We have a $40 price estimate for Kraft Foods, which is slightly above the current market price.

Tags: KFT
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