Kraft Cuts 8,000 Jobs, Trims More SKUs

Kraft Foods will cut 8,000 jobs, close 20 production plants and cut another 10% of its SKUs in an effort to keep streamlining costs to improve earnings.

At the same time, Kraft will boost consumer marketing spending again, after adding $130 million in 2005.

The job cuts, announced this week, continue a restructuring plan that Kraft began in 2004 to save $400 million a year. Kraft has already cut 5,500 jobs since then, closed 19 plants and sold off a handful of businesses including Stella d’Oro and some Canadian groceries business, saving about $260 million a year.

The new job cuts, set to take place by 2008, are significantly more than the 6,000 Kraft initially planned to make from 2004-06, and will save Kraft another $700 million a year by 2008 ($300 million in 2006). The 8,000 jobs account for about 8% of Kraft’s workforce; cuts will take place across the board. Plants in Hoover, AL and Victoria, Australia are the first to be shuttered; other announcements are pending.

Kraft also will cut about 10% of its SKUs, after cutting 20% in 2004-05. Streamlining its portfolio enables Kraft to close plants and simplifies logistics. The company also reorganized its management in the European Union, where sales have been especially tight.

Worldwide, fourth-quarter net revenues were $9.7 billion, up 10%, Kraft said. Full-year 2005 revenue was $34 billion, up 6%, mostly on the strength of price hikes, strong product mix and an extra week in the fiscal year.

But flat volume and high commodity costs dogged Kraft’s performance. Full-year volume was flat and fourth-quarter volume fell 2%, due in part to the SKU cuts. Commodity costs rose $800 million for the year ($200 million for the fourth quarter), offset only in part by price hikes. Kraft left some brands at existing prices to keep competitive.

Kraft expects to increase sales in 2006 through new products, a boost in marketing spending, a better mix of products, and improved sales in emerging markets. The company also has begun an “Open Innovation” initiative to swap ideas with outside partners, even competitors, to improve products, packaging and business systems (Xtra Jan. 18). “While we expect the challenging environment to continue in 2006, I believe that our combination of stronger brand value propositions and aggressive cost-reduction programs will drive improved results this year and beyond,” said CEO Roger Deromedi in a statement.

Kraft reported some bright spots this week. Its dollar share for the fourth quarter is up a slight 0.4 percentage points across its top 25 categories, its best quarterly increase in three years. (Dollar share for the fiscal year rose just 0.1 percentage points.) New products have helped bump sales, especially the South Beach Diet brand launched in 2005, which racked up $170 million in sales in its first 10 months. Kraft just wrapped up a nine-city sampling tour for South Beach Diet, touting new SKUs in entrees, wraps and snacks.

In the U.S., fourth-quarter sales for snacks and cereals were $1.6 billion (up 10.5%); convenient meals sales were $1.2 billion (up 12.4%); beverages hit $736 million (up 24%); grocery sales were $660 million (up 5.6%); and cheese, foodservice and Canada sales were $2.3 billion (up 8.5%).