For Kraft Foods, Recalling 2.4M Macaroni & Cheese Boxes Isn’t the Only Challenge

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As Kraft Foods’ new CEO John Cahill commented on a quarterly earnings call last month, times are tough for the consumer packaged goods giant—and that was before the company voluntarily recalled 242,000 cases or 6.5 million individual boxes of Kraft Macaroni and Cheese today, or fell out with dietitians over a “Kids Eat Right” logo on Kraft Singles.

“Our brands can be found in 98% of the United States and Canadian households. They are some of the most well-recognized in our markets, if not around the world. Yet Kraft Foods hasn’t gained share as a company for some time,” Cahill told analysts on last month’s earnings call. “And 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%.”

So if you’re Cahill or a fellow Kraft Foods executive these days, you realize that your competition isn’t just other CPG giants such as ConAgra or Unilever or even Mondelez International, the Kraft spinoff where you’ve probably got several former colleagues.[more]

No, what you’re thinking about—more and more every day—is Amazon and Chipotle. That was the message delivered by a leading Kraft retailing executive at a major US food marketing conference on Tuesday.

Earlier today, before Kraft announced it’s recalling Kraft Macaroni & Cheese over fears of possible metal contamination, Art Sebastian, vice president of category leadership and shopper insights, addressed the Western Michigan University Food Marketing Conference.

He talked about the company’s realization that the key to revitalizing the center aisles of the supermarket—where Kraft brands ranging from Jell-O to Kraft Mac ‘n Cheese are sold—will begin with understanding exactly how e-retailers and even fast-casual restaurants are redefining the food-shopping and consuming experience.

“The path to purchase [of CPG products] has evolved to multiple message points, a variety of offline and online elements that mean the consumer can shop from anywhere,” Sebastian said.

And the trouble for Kraft and traditional bricks-and-mortar retailer, he said, is that so much of the increase in omnichannel shopping “takes trips (away) from the grocery store (and) takes opportunities away to inspire people in the stores.”

For example, Amazon Dash, announced 11 months ago and targeted at ordinary households, allows consumers at home to scan a product that needs a replacement and add it to the household’s Amazon shopping list. A four-month-old Amazon innovation, Echo, “talks” with consumers about the weather, their calendars—and shopping lists.

Such e-tailer innovations “worry me,” Sebastian said, “because they comprise another trip that you don’t take to the grocery store. You can’t be influenced or make impulse purchases … These are more ways to keep you out of brick-and-mortar stores.”

Kraft sells its products via e-retailers, but it has a vast “installed base” of investments in shelf space, distribution systems, marketing and relationships with traditional retailers whose business increasingly is endangered by the likes of Amazon.

“And there’s the fast-casual restaurant business that troubles the likes of Kraft as well, with chains such as Chipotle and Panera increasingly taking sales away from the stagnant CPG food and beverage business as well as from stressed direct competitors such as McDonald’s,” he commented.

“We’re fighting them for share of eating occasions and battling for the same share of dollars that are flat across the United States,” Sebastian said.

Kraft is attempting to fight back in a variety of ways, including tests with partners of new retail experiences that includes “disrupting” traditional straight center aisles physically, using ceiling-mounted image projection to create compelling animation on the store floor (think of dancing macaroni-and-cheese noodles).

Following on tests with Intel for in-store facial recognition signage and “diji-taste” sampling experiences, it’s continuing to experiment with front-of-store, three-sided digital signage kiosks that offer consumers curated recipes on one big screen, an “education” channel on the second side about how to do food-preparation chores as mundane as properly chopping an onion, and on the third side a relevant and contextual channel for the retailer’s messages.

Kraft also is trying to find ways to leverage its infusion of marketing energy into the Jell-O line with a JELL-O-V-E campaign.

Overall, Sebastian said, Kraft’s turnaround strategy aims to “reinvent” the center of the brick-and-mortar grocery store. In so doing, Kraft is attempting to bring to bear the “spirit of a startup, with the soul of a powerhouse” CPG giant.

Meanwhile, the compay has a lot to fix. As CEO Cahill told analysts on that earnings call last month, drastic times demand better use of digital insights and more discipline:

“Our advertising levels have fallen, as effectiveness in marketing spending has deteriorated, and increased promotional spending has not resulted in volume lift or sales growth,” he stated. “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.”

That’s why he cleaned house last month with a C-suite shakeup that included the departure of longtime CMO Deanie Elsner. But there may be nothing more important to Kraft’s future than what happens in the center of the store—and at the forefront of digital technology.

As Cahill told analysts, “Marketing remains paramount in its importance to Kraft, and we would like to spend more money, but we want to do it in an intelligent way. And so we’ve got to develop the programs that are worthy of substantial dollars, and that’s where we’re headed.”

Below, a look at Kraft’s digital innovation tests with Intel:

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