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Kraft Contemplates Connecting With Older Consumers

Meanwhile, analyst suggests breakup into bite-sized units

NORTHFIELD, Ill. -- Kraft Foods Inc., maker of Lunchables kids meals and Oreo cookies, is trying harder to reach out to older consumers, the head of its North American Commercial Division said on Wednesday, according to a Reuters report.

Many of the products in Kraft's portfolio have traditionally been geared more toward children, David Johnson, president of Kraft's North American Commercial group, said at the Reuters Food Summit in Chicago.

"As the kids leave the household and you've got that older consumer, there are a lot of [image-nocss] needs that we see," he said. "I think it heightens the need for health and wellness...heightens the need for taste delivery."

Even issues such as making packages easier to open are being considered to attract older consumers, he said.

Johnson said he has seen some shift in research and development spending toward consumers 50 years and olderwho Kraft calls "liberated boomers"by the largest North American food company, though he and Kraft could not quantify the shift in spending.

The Northfield, Ill.-based company will consider coming out with adult flavors of traditional children's foods like Kraft macaroni and cheese, while also looking at more singe-serving offerings, Johnson said.

He pointed to the company's Tassimo coffee system, a machine that brews coffee from single-serving pods. Liberated boomers, said Johnson, "are not going to be brewing pots of coffee."

After starting in Europe, Tassimo was launched in the United States last year, where it is sold in department stores and specialty retailers like Bed Bath & Beyond; however, unlike systems by competitors Procter & Gamble Co., Tassimo coffee is not sold in grocery stores, requiring consumers to make a special trip to buy refills or order them online. Johnson said the company will start selling Tassimo coffee in traditional grocery stores by fourth-quarter 2006. The company also has expanded the Tassimo line to include versions of its Maxwell House coffee, a brand more familiar in the United States.

One benefit to focusing on older consumers is they are willing to pay more for premium products, Johnson said.

Overall, Kraft is trying to keep up with the quickening pace of change in the food industry, Johnson said, adding that another trend the company is seeing is more multiculturalism. "The biggest overarching trend is just the growth in the Hispanic consumer," Johnson said. The company has tried to customize some products to that market and has utilized bilingual packaging, he said.

Kraft is in the midst of one of the largest restructurings in the food industry as the company tries to pare down a business some analysts have said grew too big and unfocused. The company in January announced plans to cut up to 8,000 more jobs and close up to 20 more plants after cutting 5,500 jobs and closing 19 plants in 2004 and 2005. Kraft has also sold brands like Life Savers candies and Stella D'Oro cookies in order to focus on products like beverages, cheese and cookies.

Johnson declined to say if the company would sell other brands, but did say that Post, its cereal brand that many analysts have said could be sold, still fits the Kraft portfolioespecially as the company tries to offer more whole grain and convenience products to meet demands of consumers who are trying to eat more healthily.

Meanwhile, Credit Suisse First Boston food-industry analyst David Nelson has issued a research note suggesting that Kraft might benefit from a break up, said Crain's Chicago Business. The company, he said, has been suffering from high commodity costs and competition with retailers that mimic Kraft brands and then sell them for less.

Nelson suggested that Kraft think outside the blue box, a nod to Kraft's blue Macaroni & Cheese box, by splitting into four separate businesses: snacking, grocery, frozen and refrigerated.

The $5.7 billion snacking unit, which would consist of Kraft's cookies and crackers (Oreo and Ritz among them) could trade for a higher earnings multiple than the other businesses, Nelson argued, while its nonperishable grocery brandsa $15 billion portfolio that includes Jell-O, Maxwell House coffee and Mac & Cheesecould be restructured as a high-dividend income trust.

He pointed out that Kraft's $1 billion frozen-foods business, which consists mostly of pizza, would be a good fit for HJ Heinz Co., while its $12.4 billion worth of refrigerated brands (Oscar Mayer meats, cheese and Cool-Whip) are good candidates for being taken private.

We are always looking at our business and at ways to deliver shareholder return, and everyone is entitled to his opinion on how, a Kraft spokesperson told Crain's. At present, we feel the value of our business is stronger together than what it might be in separate entities.

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