Developing markets have been good to Kraft Foods this year, especially thanks to Kraft's acquisition of Cadbury in 2010. Over a quarter of Kraft's net revenue last year came from developing markets, and Cadbury contributed 60% of the company's 71% developing market growth in the 2010 fiscal year.
Kraft Chairman and Chief Executive Officer Irene Rosenfeld said the company will continue its developing market strategy of focusing on five categories and 10 power brands in 10 priority markets.
Thanks to this strategy, Kraft announced last month that powdered drink Tang is now a billion-dollar brand, doubling in annual sales since 2006. Brazil, Argentina, Mexico, the Philippines and countries in the Gulf Cooperation Council (Saudi Arabia, Kuwait, etc.) contributed significantly to this growth.
Half of Kraft's global sales come from snacks and 70% of those came from countries outside of North America.
The company also expects its Oreo cookie brand to reach $700 million in sales in developing markets alone, up from $175 million in 2006, Rosenfeld said during Kraft's first-quarter earnings call in May, according to a Seeking Alpha transcript.
“We encourage an entrepreneurial approach to adapt our global brands to local tastes,” said Rosenfeld. “And we invest in our people through talent development to grow new generations of leaders.”
Rosenfeld said that the company's 5-10-10 strategy, its encouragement of an entrepreneurial approach and its talent investment have made developing markets the growth engine for Kraft.
The year has posed challenges as well. Kraft turned to the courts after Starbucks Corp. announced in November that it wanted to end its packaged coffee distribution agreement with Kraft. Kraft was unsuccessful in its attempts to prevent Starbucks from terminating the deal.
But, integrating Cadbury into Kraft has proceeded smoothly, according to Rosenfeld. The company anticipates revenue synergies to reach $1 billion by 2013.
Combating the recent, sharp increase in commodity costs that has plagued the food industry, Kraft made the decision to increase its product prices. “No one is happy to increase prices, and costs have been rising for everyone. But for the consumer, it's all about the value our products provide,” said Rosenfeld.
Kraft promotes this value through advertising, and as a result of this effort, Kraft's market share held up well, even as Kraft sought to offset its increased costs, Rosenfeld said. In the company's first-quarter conference call this year, she said that Kraft has increased advertising and consumer support by 14%.
Kraft has also promoted health and wellness and sustainability initiatives through recent campaigns. The company has improved the nutritional profile of over 5,500 products during the past five years. And, it has gotten involved with community efforts, such as a vegetable garden located at the company's Illinois headquarters. The garden, maintained in a partnership with Chicago Botanic Garden, will yield an estimated 14,000 pounds of food for local soup kitchens.
In May, Kraft expanded its sustainability initiatives, promising to buy 25% more sustainably produced agriculture commodities and to reduce energy use, waste, carbon-dioxide emissions and water use in manufacturing plants by 15% from 2010 to 2015.
“We view sustainability as an investment in future profitability. As a food company, we depend on the Earth for the ingredients we use to make our products,” said Rosenfeld.