Kraft's Self-Inflicted Revenue Problem: Try Some Investment, Ms. Rosenfeld
Kraft Foods (KFT) announced it’s beefing up advertising of its core brands like Velveeta and Jell-o. As AdAge explains, it has spent a smaller amount of net revenue on advertising than its peers – 2.9% versus 8.6% at Kellogg (K), 6.4% at Campbell Soup (CPB), and 5.5% at General Mills (GIS). That list closely mirrors their profit margins.
And might that be the culprit behind this?
In many cases, big food companies sell products that are more expensive than cheaper grocery-store labels. Especially in economically tough times, they have to convince consumers it’s worth spending some extra money to get the brand-name products.
Last year, Kraft's grocery division specifically brought in 16.3% of its operating income, down from 21% in 2009. And that grocery business is getting spun off along with Kraft's beverage, cheese and convenient meals segments. Together, they brought in 34.7% of operating income, down from 46.8% in 2009.
So while Tony Vernon, who will lead Kraft's grocery business after the spin-off, didn’t give specific numbers, increased spending at Kraft could mean increased sales and profits.