James L. Kraft began a wholesale cheese company in 1903 in Chicago, IL. However, the current entity, Kraft Foods, Inc., has roots in companies that were started as far back as 1767. Kraft today is the result of a series of mergers of food product manufacturers including Nabisco, Oscar Meyer, and General Foods. Current well known brands are Breakstone, Chips Ahoy!, Cool Whip, DiGiorno, Jell-O, Kraft, Kool-Aid, Maxwell House, Nabisco, Oreo, Oscar Mayer, Philadelphia, Ritz, Tang, and Velveeta.
Kraft produces and distributes its products to 150 countries, with more than 180 manufacturing and processing facilities worldwide. Kraft claims their products are present in more than 99% of US households and that nine of their brands exceed $1 billion in revenue. These brands are Kraft, Jacobs, LU, Maxwell House, Milka, Nabisco, Oreo, Philadelphia, and Oscar Mayer.
Ninth on the 2007 Forbes list of the 100 most powerful women1 , Irene Rosenfeld is a woman to be admired. She enjoys rollerblading and playing the piano and once aspired to the Presidency of the United States2. She is no lightweight academically either. Ms Rosenfeld holds a Ph.D. in Marketing and Statistics (1980), an M.S. in Business (1977) and a B.A. in Psychology (1975) from Cornell University. In 2004, after 20 some years at Kraft, she became Chairman and CEO of Frito-Lay, a division of Pepsi. Some say it was because she did not get the CEO position at the time.3 That notwithstanding, she was asked back in 2 years, and took the job gladly in 2006 with a fresh perspective.
Her first action was to realize the company was in dire trouble. She did not go in with a plan in mind. Instead, she traveled the world, having town hall sessions with employees throughout the company asking for ideas. Irene even set up an Internet site called “Ideas for Irene” that received hundreds of responses. From employee input she developed her strategic plan.4
She asked the employees to tell the truth. Apparently, Kraft wrote off a great deal of money because individuals involved in the Tassimo project prior to Irene’s involvement did not speak up for fear of retribution. As part of her “rewiring” strategy, Rosenfeld asked her employees to come to work with a different attitude. She wanted them to be more courageous and to worry less about consensus and more about action. She openly tells the Tassimo story to convince employees to speak freely, ensuring that the issue does not happen again.5
Rosenfeld’s restructuring plan involved re-aligning business units so that management had full P & L accountability. In addition, she restructured product categories into snack groups, health and wellness, (including items with probiotics such as cheeses), convenience meals, and grocery. She has recently developed a premium segment with chocolates and coffees in Europe. Finally, she asked her team to look at the products differently and to consider the consumer instead of the manufacturing side of the business. This led to creative new products such as the Oreo cakester, and the entry into the frozen pizza market competing with delivery – the DiGiorno brand.
In addition, Rosenfeld continues to look for products to divest that no longer fit with Kraft’s new mix, and looks to buy companies that do. In fact, Kraft recently acquired LU Biscuit company, which fits with the Kraft product mix on the premium side.
Rosenfeld has also looked at revamping how she uses her sales force. She implemented what is called a “Wall to Wall” program, which focuses on having one sales lead manage all Kraft brands at retail. It has potentially helped Kraft realize substantial incremental revenue growth in 2007.6
Rosenfeld has time for a family too. She met her husband on the job at General Foods. Irene has two daughters: one is an environmental engineer; the other, a senior at Cornell, her alma mater. She also sits on the board of trustees at Cornell University and participates in The Economic Club of Chicago.
Warren Buffett’s Berkshire Hathaway has invested in Kraft Foods, Inc. The investment amounts to a 6.9% stake in Kraft. Typically, Buffett invests in well-managed businesses that have good potential and sell at a discounted stock price. This is good news for Kraft investors.7
The Wall Street Transcript“Outlook” for packaged food companies came out on August 25, 2008. This article pointed out that consumers are currently trading down from restaurants in favor of “in home” eating due to economic pressures. It is very good for packaged food companies, who are seeing steady profits during the weak economic period. Kraft Foods, Inc. was specifically mentioned for price increases: consumers are more tolerant of price increases in packaged foods as they are trading down from the out-of-home eating environments.8
Thinking about a Stock Purchase?
Kraft’s 52-week range is $ 28.04 to $35.29, a relatively tight range. Kraft has been trading around $32.00.
During Rosenfeld’s tenure, the stock was at an all time low of $27.67 in Jan. 3, 2006. Rosenfeld’s changes moved it to another high June 18, 2007 of $36.25. In 2008 due to economic pressures, the stock has gone down slightly to $32.25 on August 25, 2008. Of the analysts watching the stock, 14 recommend “holding” the stock, 1 recommends a “buy” and 1 recommends a “strong buy.”
Rosenfeld’s changes are beginning to reap benefits. She has set the structure for the turnaround in place, and launched several innovative growth products. Now is a good time to watch this stock!