Kraft CEO: Increased promotional spending has not resulted in volume lift or sales growth

By Elaine Watson contact

- Last updated on GMT

John Cahill: '2014 for Kraft, and for that matter, the broader food industry, was both difficult and disappointing.'
John Cahill: '2014 for Kraft, and for that matter, the broader food industry, was both difficult and disappointing.'

Related tags: Revenue

While Kraft Food Group’s growth outpaced that of many rivals in Q4 with organic revenue growth of 3.4% vs North America food and beverage industry growth of 2.4%, 2014 as a whole was “difficult and disappointing”, said new chairman and CEO John Cahill.

Speaking with analysts on Thursday about the firm’s fourth quarter results, Cahill – who took over as CEO from Tony Vernon in late December – said: “While our disposition maybe encouraging, it's clear that our world has changed, and our consumers have changed, but our company has not changed enough, and certainly has not kept pace.”

He added that for the full year 2014, Kraft’s organic net revenue growth of 0.9% trailed North America food and beverage industry growth of approximately 2%, adding that, “In 2014, we did not grow share in any individual category.

"We merely held flat at 60% of our US businesses, and lost share in the other 40%.”

In 2014, we did not grow share in any individual category

And while price increases to offset commodity costs “were largely accepted by customers and consumers​” in its cheese and Oscar Mayer businesses,aggressive promotional activity in other areas didn’t deliver the desired volume lifts, which dented profitability in beverages, meals, desserts, and liquid water enhancers, he said.

“Increased promotional spending has not resulted in volume lift or sales growth.”

We need a more robust pipeline

On the innovation front,he said, “Oscar Mayer P3, McCafé coffee and the rejuvenation of our Philadelphia soft cream cheese line have all been well received.”

However, more work was needed to generate a more robust innovation pipeline, he said: “AsI've dug into this in the last couple of weeks, I've found that our consumer insights have… frankly our resources against that particular area have not been a strong as I thought they would be…

“[We must build] an innovation pipeline that anticipates and addresses changing consumer needs, preferences and channels. We need a more robust pipeline, products of a quality that more people want to buy, and products that meet evolving consumer preferences.

“We need to adopt a turnaround mindset in many ways.”

ON the marketing front, he said: “We must better-leverage consumer insights and emerging digital tools to achieve an advantage in this area and reach the right consumers at the right time. We also must instill new return-on-marketing disciplines at every relevant level of our organization. We can't continue to spend without adequate returns.

We need to adopt a turnaround mindset in many ways

As regards the allocation of resources, he said: “Our intention is to resource those brands that have greater margin potential and have great margins to start with and have great upside – top line potential and where we have great ideas.”

Asked about acquisition opportunities, he said: “With respect to what we own or we don't own, we'll save that for another day. But suffice to say, we've got our eye on the world.”

Q4 results breakdown

Kraft’s fourth-quarter net revenues grew 2.2% to $4.7bn. An operating loss of $614m was driven by a non-cash loss of $1.36bn from “market-based impacts to post-employment benefit plans​”, said the Illinois-based company.

  • Beverage​ revenues declined 3.4% to $577m.  
  • Cheese​ revenues improved 8.4% to $1.17bn largely due to higher pricing.  
  • Refrigerated Meals​ revenues improved 6.3% to $793m.  
  • Meals & Desserts​ revenues declined 6.6% to $627m.  
  • Enhancers & Snack Nuts​ revenues declined 1.2% to $488m mainly due to a pricing decline. 
  • Canada​ revenues declined 1.5% to $533m due to currency headwinds.  
  • Other Business​ revenues increased 8.8% to $508m due to pricing gains of 2.7 pp and volume increase of 9.2 pp.

Click HERE​ to read about the leadership changes at Kraft.

Related topics: Manufacturers

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