Oreos in India: Emerging Markets Are Key to Kraft's Turnaround

Kraft CEO Irene Rosenfeld's recent travel schedule reveals just how little of the company's future hinges on what happens in the US. Instead, Rosenfeld and the rest of Kraft's (KFT) management team have set their sights on boosting Kraft's brands in emerging markets.

Rosenfeld told Bloomberg that she has spent much of the year globetrotting -- to Zurich two weeks ago, Singapore this week, England next month. And the company is making a big investment of $50 million to build a processing plant in Brazil that will make Tang and Cadbury chocolate.

"The focus of our investments will be disproportionately in developing markets," said Rosenfeld.

This is true for a lot of food companies, who -- let's face it -- don't have huge prospects for growth in a market where people already eat too many snacks and way too much processed food. But developing markets are particularly important for Kraft, whose stock has spent the past year and half languishing at pre-IPO levels and whose North American sales (minus acquisitions, divestitures and foreign currency fluctuations) fell last quarter by 1.3%, making it the company's only declining region.

It's not as if Rosenfeld has written off growth in Kraft's US business, but few analysts are expecting anything exciting from its brands, many of which are past their heyday for American shoppers. When was the last time you added Tang or Cheez Whiz to your shopping list? Well, in Brazil, Tang is all the rage.

Sales of the powered drink leaped 40% this year, prompting Rosenfeld to declare that "Tang in Brazil is on fire." Kraft's Club Social crackers, the top-selling cracker in Brazil, are also flying off shelves, up 27% this year. Overall, Kraft's emerging market division's sales climbed 8.1% in the second quarter, more than twice the pace of Europe.

It all goes to show why Rosenfeld was smart to cast off critics and doggedly pursue the acquisition of Cadbury, even to the displeasure of Warren Buffet, who promptly cut his holdings of Kraft shares by 23%. Cadbury, which has solid inroads into emerging markets, has helped boost Kraft's share of business from emerging markets to 25%.

Kraft could go it alone, trying to sell Oreos to Indians, but it's going to be much easier working with Cadbury's already existing network of mom and pop stores.

Image by Flckr user kbaird
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