From new products like Macaroni and Cheese crackers to Oscar Mayer pulled pork, Kraft Foods Group laid out the strategy on Tuesday that took the company's new products "from worst to first."
The Northfield-based maker of Macaroni & Cheese, Planters and Velveeta was spun off from Mondelez International in October.
In 2009, just 6.5 percent of company sales came from new products, whereas 13 percent of sales were attributable to new products in 2012, according to a company estimate.
It's going to be important for Kraft to keep up the pace as it makes its case for remaining an independent company. Competitor Heinz, which has also lagged in innovation, will be snapped up in a Berkshire Hathaway-led consortium of investors later this year.
Presenting at the Consumer Analysts Group of New York Conference in Boca Raton, Fla., Barry Calpino, vice president of breakthrough innovation at Kraft, delineated the company's changes to how it develops and supports new products.
In 2008, Calpino said, "we were the worst by almost any measure," in terms of its innovation. He added that 17 of the year's 19 new product launches were considered failures. Kraft launched products like Bagelfuls, frozen bagels stuffed with cream cheese; Oreo Cakesters, the iconic cookies made out of cake; and cheesy crackers shaped like and named after Macaroni & Cheese that year.
Among 2008 successes were Ritz Stackers and Starbucks discs for the Tassimo machine, a company spokesman said.
Kraft's 2009 new products performed similarly.
In mid-2010, Calpino said the company brought in an outside firm to study its innovation initiatives. They came back with a succinct statement, he said: "Kraft is where good ideas go to die."
Symptomatic of the problem, Calpino said, was a focus on small ideas, lack of rigor and focus, and little investment in product launches. At the time, he said, innovation was considered a "dead-end job," and employees just accepted that Kraft wasn't good at it.
As a result, he said, Kraft developed an innovation playbook that calls for more investment in fewer, bigger ideas that will receive a lot of support, rather than what he referred to as "Field of Dreams" innovation that amounted to a "build it and they will come" mentality.
Kraft now does more work with its sales team, bringing them into the product development so they could better explain each one's significance to retailers, and investing more heavily behind each launch.
In 2011, Calpino said the company focused its efforts on 13 "big bets," including its MiO brand of water flavoring, Velveeta Cheesy Skillet Dinners and Oscar Mayer Selects, a line of higher-quality meat without artificial preservatives.
In so doing, the company raised its average launch support roughly fivefold, from about $5 million to about $25 million for so-called "big bets." MiO got more than $50 million in support.
MiO, Velveeta Skillets, and Oscar Mayer Selects have become $100 million product platforms, which is an industry sales benchmark for successful product launches.
Calpino said that Kraft is also maintaining focus on its big launches for the first three years rather than moving on after the first year. Other initiatives include improving the level of talent within the organization and appealing more to Hispanics in product development and marketing.
Kraft's major 2013 launches include pulled pork under its Oscar Mayer Selects brand, Cool Whip frostings, and Recipe Makers, a pair of sauce packets to be sold in the pasta and sauce aisle. Consumers add vegetables or protein to the sauces to cook popular dishes like pot roast, sweet and sour chicken, or enchiladas.
As part of the presentation, Kraft CEO Tony Vernon said that Kraft has seen an increasing segment of the population shifting to value priced options. According to company data, 26.5 percent of the population was considered low income in 2009, and that number rose to 28.9 percent in 2012.
"We have an obligation to financially strapped low and middle income families - and I do mean families - that drive America's grocery business," Vernon said. He added that with consumers gravitating the high and low ends of the price spectrum, traditional grocers are getting hurt.
Indeed, local heavyweights like Jewel and Dominick's have been closing stores. Last month, Eden Prairie, Minn-based Supervalu said it had agreed to sell Jewel and four other grocery chains to Cerberus Capital Management, a private investment firm.
"It's critical to have the right price and product offering at every rung on this ladder," Vernon said.
In other words, he said, Kraft needs to have the right products for "a Latina mom who prefers Kool-Aid to Capri Sun," as well as a Baby Boomer who is "choosing Velveeta Skillets over Mac N' Cheese."
Kraft's presentation came on the heels of last week's announcement that fourth quarter sales would be lower than expected after Oscar Mayer cold cuts lost market share to a key competitor, presumably Chicago-based Hillshire Brands.
The company said it expects fourth-quarter net revenues to fall 10.7 percent to $4.5 billion. The final numbers will be reported before the end of March.
Kraft also raised 2013 earnings guidance by 15 cents to $2.75 per share.
The new Kraft Foods Group, which assumed all of the pension obligation for legacy Kraft Foods when it was spun off, also announced a change in the way it handles accounting for its pensions last week.
eyork@tribune.com | Twitter: @emilyyork
Kraft acknowledges faults, unveils new path
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