【2010.03.14 芝加哥论坛报】Food companies look to developing markets to fatten sales

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Food companies look to developing markets to fatten sales
http://www.chicagotribune.com/business/ct-biz-0314-developing-markets--20100314,0,5352183,full.story

By Mike Hughlett, Tribune reporter March 14, 2010


Tang packaged for distribution in Mexico. (Lane Christiansen, Chicago Tribune / March 4, 2010)

Remember Tang? Astronauts used to drink it, so it got a lot of ink in the 1960s and 1970s. Nowadays, it gets about as much notice as the space program, holding just a small slice of the U.S. powdered-drinks market.

But in developing markets from Brazil to China, Kraft Foods Inc. has turned its Tang brand into a juggernaut with $750 million in annual sales.

Kraft's boxed macaroni and cheese, on the other hand, is a famous product that dominates its market in the United States. But in developing markets, Kraft doesn't even focus on it. The upshot: Powdered cheese food doesn't travel well; powdered beverages do.

It's not just a trivial-pursuit sort of fact: Deciphering which products will sell well in emerging markets, and then correctly marketing and distributing them, is the Holy Grail these days of packaged-food companies such as Northfield-based Kraft.

Bolstering its emerging-markets presence was a key driver behind Kraft's recent $19 billion purchase of Cadbury PLC. And companies from General Mills to Campbell Soup have made emerging markets a key plank of their corporate strategies.

It's where the best growth prospects are for many companies, as a middle class emerges and grows with mushrooming economies. But packaged-food firms face a special challenge: Food, more than most products, is an expression of culture.

"It's something where regional tastes are really strong," said Mike Mazzeo, a professor of management and strategy at Northwestern University's Kellogg School of Management. "It's much more clearly tied with culture, so it's much more difficult to penetrate our products in their markets."

Plus, many countries have strong, locally made packaged-food brands that serve up tough competition to food multinationals like Kraft, Mazzeo said.

Those factors help explain why U.S.-based packaged-food companies generally have less exposure to foreign markets than other U.S. industries. The U.S. packaged-food and meats business got 29 percent of its sales from foreign markets in 2008, compared with an average of 38 percent for 23 industry groups followed by Standard & Poor's Capital IQ division.

Even before the Cadbury deal, Kraft was one of the more internationally oriented U.S. food companies, last year deriving 41 percent of its $40 billion in sales from foreign markets, not including Canada. And almost half of those foreign sales came from developing markets. Developing markets posted the largest sales gain of any Kraft division from 2007 through 2009 — 33 percent.

Kraft, maker of diverse products from Oscar Mayer meats to Ritz crackers, retooled its developing-market efforts three years ago, moving away from a scattershot approach.

"Planting flags all over the world was the old strategy," said Sanjay Khosla, Kraft's president of developing markets and global categories.

Now, the company focuses on 10 "power" brands and 10 countries. The idea is to push brands that are the most easily translatable across borders.

"Mac and cheese is iconic, but it's not one of our 10 power brands," Khosla said. That's because aside from Kraft's Philadelphia cream cheese, cheese-related products don't resonate as well outside of the U.S. and Western Europe, particularly in Asia. That's not the case for Tang, though, which is one of Kraft's 10 power brands in developing countries, right up there with the powerhouse Oreo brand.

Tang's heyday in the United States came when it was known as a beverage astronauts toted into space. Nowadays, it has a 2.5 percent share of the U.S. powdered-fruit-drink market, well behind the category leaders, Kraft's Kool-Aid and Crystal Light brands, according to Information Resources Inc., which tracks sales in traditional grocery channels.

But the United States accounts for less than 10 percent of Tang sales. The rest is spread out across more than 30 countries, and the beverage is particularly big in Latin America and in Asia. And last year was a blowout, with Tang's global sales growing 30 percent in developing markets as Kraft stepped up marketing.

Tang's success in developing markets also stems partly from the fact that as a powdered beverage, it's cheaper than premixed drinks, Khosla said. And Kraft has launched Tang packaging and flavoring innovations overseas, particularly over the past year.

There's "ponkan" – a type of mandarin orange – Tang in the Philippines, tamarind Tang in Mexico and guava Tang in Brazil. And when pouches of Tang in China proved too big and expensive for consumers, Kraft introduced a single-serving stick pack.

Catering to local tastes is vital for success in the packaged-food business, as New Jersey-based Campbell Soup Co. found out the hard way in its first foray into China in the early 1990s.

The company essentially slapped a Chinese label on its classic U.S. condensed soups, said Larry McWilliams, president of Campbell's international operations.

"They sold well for a while, but they were a novelty. They had no staying power," he said.

Campbell returned to China in 2007, but only after two years of thorough research with Chinese consumers.

"We talked to people: how they live their lives, how they cook their soup," McWilliams said.

They found that in China, as well as Russia, there's a cultural disposition to cooking soup from scratch. In both countries, about 98 percent of soup is homemade, he said.

So, in both countries, Campbell has introduced products that reduce the time to make homemade soup from 2 1/2 hours to about 45 minutes. In Russia for instance, Campbell sells a 350 milliliter package of concentrated broth, which comes in several varieties, that makes 1.1 liters of soup.

Russian consumers then add their own vegetables, though this month Campbell began marketing precut and stir-fried vegetables for soup that come in shelf-stable pouches.

Campbell's business is Russia and China is small, not enough to even show up in a pie chart of its international sales, McWilliams said. But the potential is immense. Together, the two countries account for about 50 percent of global soup consumption, with China being the world's soup king.

Consumers in each country typically eat soup four to five times per week, compared with once a week in the United States, McWilliams said. He estimates that if Campbell could capture 3 percent of the soup market in the two countries combined, it would create a business as big as the entire U.S. soup market.

Like Campbell and Kraft, Minnesota-based General Mills Inc. has also made China a prime target for its developing-market efforts.

General Mills has been in China since 1998 and has particularly been successful with its Haagen-Dazs ice cream and its Bugles corn snacks. Haagen-Dazs is seen as an "affordable luxury" by upwardly mobile Chinese, said Chris O'Leary, chief operating officer of General Mills' international business.

Meanwhile, Bugles have become the country's second-leading salty snack, after potato chips. General Mills worked with one particular Chinese village to grow the right kind of corn for the snack, and Bugles are offered in several local flavors, including seafood.

But General Mills also found limits to its snacking success in China.

Kix, a salty snack made of what Americans know as Chex cereal, was introduced along with Bugles but didn't click with the Chinese. So General Mills dumped it to focus solely on what was working: Bugles.

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