Are “Kraft” and “Greek” synonyms? You’d be excused for thinking so, given recent events.
Kraft will separate into two publicly traded companies later this year - one for its grocery business, one for its snacks. Never mind that snacks, such as Kraft’s Oreo cookies for example, are mainly sold in grocery stores. We await each prospectus for the tasty details of which Kraft products go in which Kraft company.
What to name the “new” companies? Follow this logic. The grocery business will be North America focused, and be called Kraft Foods Group. Not the “Grocery” Group, mind you. And, by the way, are snacks not “foods” ?
In any event, snacks will be a global business (see Cadbury acquisition), and will be called Kraft Snacks Group. What? Wait. What? Um, sorry, the snacks company will be called Mondelez. So bad, it comes with a pronunciation guide.
All that craziness swamped a much better strategy story. This one will make a great Harvard Business Review case study for future MBAs.
With no fanfare, Kraft announced in mid-April that it was bailing out of the Greek yogurt market. By the end of March. So, change the tense to “bailed” out.
(By the way, is yogurt a “food” or a “snack”? Discuss.)
Astounding. A market that is barely five years old, with TRIPLE-digit growth rates the past three years, now making up 25% of all yogurt sales in the U.S. And Kraft’s Athenos brand, a follower to market pioneers Chobani and Fage, already drops out.
Why?
It’s a tale of the product lifecycle, its impact on marketing, and profit. In the early stages of a product, every competitor must spend a ton on marketing to develop the market and grab fair share. The product needs to be good, too – another expensive proposition. Not a big deal when prices are near-perfume level, as Greek yogurt is, around 50 cents per ounce.
But when the leader has dominant market share – Chobani in this case, at 60% - Kraft can only look at its single-digit share and know it will never amount to much more. Look out a couple more years, when prices fall to around 40 cents per ounce, and Kraft sees there is really no path to growing a profit in this venture.
Profit. The only true measure of marketing ROI. For yogurt, at least, profit sounded Greek to Kraft.