NEW YORK -- Kraft Foods Inc., looking for a way to end a prolonged sales slump, is trying to take a bite out of its real competitionrestaurants.
As the world's second largest food and beverage company, Kraft Foods has pioneered everything from sliced processed cheese to packaged stuffing. But as more families forego the time-honored yet time-consuming homemade dinner for the ease and convenience of takeout, Kraft and other food companies have struggled to stay on the forefront of consumers' tastes.
Now, after watching its sales [image-nocss] slide year after year, Kraft says it is ready to reinvent itself. At last week's Consumer Analyst Group of New York annual conference in Arizona, Kraft announced a slew of new products aimed at fulfilling the consumers' desire for convenience, reported the Associated Press.
"Food trends are all indicating towards more food away from home and prepared out of the home," said Stephen Sibert, senior vice president of the Grocery Manufacturers Association. "The exciting thing about Kraft is it's the largest food company attacking what is the largest trend right now."
Kraft ended 2006 sales up just 0.3%. Revenue in the fourth quarter alone dropped 3%.
To hit the company's new sales growth target of 4% a year, CEO Irene Rosenfeld is banking on "complete meals." In other words, instead of producing the ingredients to a full meal or sandwich, the company would offer the full entree in one package. For example, instead of selling the ingredients to a salad, Kraft plans to introduce prepared salads filled with croutons, vegetables, meat and cheese.
The idea isn't anything new to grocery stores which have started catering to the convenience demand by offering similar types of prepared foods. But food product companies have been slow to catch up, particularly in the fresh food category.
Faced with both higher commodity costs and fewer innovative products, many food companies have had similar sales and profit slowdowns in recent years. Restructuring plans are under way throughout the sector. Both H.J. Heinz Co. and ConAgra Foods Inc.two of Kraft's biggest competitorsare in the midst of retooling their businesses. ConAgra has been divesting a good number of its brands to focus on those that perform best, including frozen meal brands Healthy Choice and Banquet.
And according to the Food Marketing Institute's 2006 Grocery Shopper Trends report, the demand for more conveniencewhether it is in fresh prepackaged foods or frozen dinnersmay only become more noticeable, said AP.
The country's biggest new demographicthose age 15 to 24eat out far more often than any other group before it, the report said. About 24% said they eat out four or more times a week.
"They are the largest population bulge since the Baby Boomers and will have a significant effect on the economy and food retailing industry," the report said.
To attract both the younger generation and the older, Sibert said Kraft should be mainly focused on how its new products taste. At the CAGNY conference, Sibert said he sampled the products and that "from a taste standpoint, they are right on track."
But analysts say that even with the right taste, the products may not be enough to keep consumer from going to the takeout joint down the street or the deli around the corner.
Citigroup analyst David Driscoll, for example, questioned whether Kraft's new deli creations ideaa sandwich kit to make a hot sandwich complete with all the toppingswould stand up against the competition. "We question the potential of this notion, especially given that these kind of bundled meal solutions generally work best out-of-home, where the convenience of being available at foodservice outlets is the compelling selling point," Driscoll said in a note to investors.
Prudential Equity Group-John McMillin, meanwhile, said in an analyst note that although the idea of producing more convenient meals makes some sense given the market dynamics, it will not necessarily allow Kraft to compete against what have turned out to be its biggest competitors. "The bigger picture here is that Kraft is probably still playing 'defense' against the McDonald's, Starbucks and Domino's of the world," he said.
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