Chicago, Sep. 3 - Kraft Foods Inc will focus on 10 countries and 10 brands to expand internationally, rather than taking a blanket approach to launching U.S. brands overseas, the head of its international business told Reuters.
The strategy is the first public discussion of Kraft's international plans since it hired former Unilever Plc executive Sanjay Khosla to run the division in January 2007, and bought Groupe Danone SA's biscuit operations the following November.
"The idea is not to go all over the place, but to focus on a few places where we can win," Khosla, president of Kraft International, said in an exclusive interview.
Khosla was due to detail the international strategy laterWednesday at an analysts conference. The strategy focuses on 10 countries, 10 brands and five product categories: chocolate, coffee, powdered drinks, biscuits and cream cheese.
Khosla said the international unit -- the fifth-largest maker of packaged foods outside the United States -- should produce more than $18 billion in sales in 2008.
For much of the decade, the international business was a sore spot for Kraft, with profit falling 3.5 percent, on average, annually from 2003 to 2006, while sales, on average, rose only 2.4 percent.
In November 2007, Kraft paid $7.82 billion to acquire Danone's biscuit and cereal products business, which included the LU cookie and Tuc cracker brands, to expand overseas, especially in fast-growing markets like China.
With the acquisition, Kraft's international sales increased to $16 billion, representing 41 percent of Kraft's total sales, while generating 34 percent of the company's operating income.
The Danone business will add to Kraft's earnings this year and will also perform better than the company's internal expectations, Khosla said.
GROWTH ENGINES
China, Russia, Brazil and Southeast Asia are the four "growth engines" in the 10 international markets Kraft plans to focus on, Khosla said.
The company expects sales to increase 8 percent to 10 percent annually in those markets in the long term -- excluding the effects of currency, acquisitions and divestitures -- with margins also rising.
Khosla called the six other markets -- Australia, United Kingdom, Spain, France, Italy and Germany -- "scale markets," where annual sales are expected to grow 1 percent to 3 percent. The company will focus on increasing margins more than in developing markets.
Kraft is not rushing to bring its entire stable of brands, such as Velveeta cheese and Oscar Mayer meats, to the 10 countries.
Instead, Kraft will put most of its efforts behind 10 brands: Oreo cookies; Club Social/Tuc crackers, Jacobs and Carte Noire coffees; Philadelphia cream cheese; Tang drink mix; and Milka, Cote d'Or, Lacta and Toblerone chocolate.
The 10 "power brands" represent almost 40 percent of Kraft's international sales and more than 60 percent of its profits, Khosla said. So the company is spending more on advertising and research and development.
Sales of the brands rose 14 percent in the first half of 2008, up from 11 percent in 2007 and 6 percent annually from 2003 to 2006.
PINK OREO
The Oreo sold in other parts of the world may look nothing like the sandwich cookie marketed in the United States since Kraft develops products to fit local tastes.
"In countries like China, just marketing Oreos as it was marketed in the U.S. was not working," Khosla said, noting that Oreo sales were flat for years in Asia.
So the company developed a less sweet, less expensive wafer form of Oreo to fit Chinese tastes and pocketbooks, a move that transformed Oreo into the No. 1 cookie brand in China, he said.
The Oreo revamp is one example of a major change at Kraft that has allowed, and even forced, local managers to decide how to market products in their countries, rather than follow a mandate from Kraft headquarters in Northfield, Illinois.
"It was really very often one size fitting all," Khosla said of Kraft's prior culture. "What was good for the U.S. was good for other countries."
Two-thirds of the top 30 managers working for Khosla are new on the job, and they can make decisions based on local tastes -- to a point, Khosla said.
"What you can't do is come up with a pink Oreo," he said.
Separately, Kraft is eyeing the fast-growing market of India, but Khosla would not say when it would make an entry.