Kraft Cuts 6,000 Jobs, Boosts Marketing

Kraft Foods will cut 6,000 jobs and close or sell off 20 plants over the next three years as part of a global restructuring begun earlier this month. The money saved by the cuts—about $140 million—will be channeled to boost budgets for R&D, marketing and price cuts.

The changes are part of a four-part "sustainable growth plan" to boost volume long-term. The plan includes a revamp of Kraft's portfolio to adjust to consumer trends. That's most likely to impact the Nabisco business: Biscuit, Snacks and Confectionery sales fell 6.7% in 2003 as consumers ate fewer cookies. Net revenues fell 6.2% on lower volume and higher promotional spending.

Northfield, IL-based Kraft also will push global growth, especially in emerging markets. In its reorganization earlier this month, Kraft North America and Kraft International merged key functions (including R&D and marketing) and former co-CEO Betsy Holden was named to the new post of president-global marketing & category development.

The 6,000 job cuts affect all staff levels and comprise 6% of Kraft's global workforce. Kraft will cut 1,300 salaried positions in North America by April, with the rest to come over three years. Kraft estimates it will garner $400 million in annual pre-tax savings by 2006.

The company initially plans to close three plants in Canton, NY, Farmdale, OH and one in Central Europe.

Kraft projects volume will grow 2% to 3% in 2004, driven by higher marketing spending, new products and growth in developing markets. Momentum should hit in the second half as marketing and R&D increases kick in. First-quarter earnings will be down, Kraft warned.

"While Kraft's fourth quarter results were in line with our expectations, we clearly are not satisfied with our performance in the quarter or for the full year," said CEO Roger Deromedi in a statement. "The corrective actions we began in late 2003 are showing progress, and [these] stronger steps ... will get us back on track for sustainable growth."

Kraft's 2003 volume rose 1.1%, with up in five of six business divisions (biscuits volume fell).

Kraft North America's operating company income for fiscal 2003 fell 0.7% to $4.92 billion, dogged by higher promotional spending and commodity costs. Volume rose 1.6%, much of that on the strength of new products and growth in Beverages, Food service, Canada, Mexico and Cheese divisions. Volume growth was dragged down by declines in Biscuits volume and trade inventory reductions.

Fourth-quarter 2003 income for North America fell 8% to $1.09 billion, hurt in part by promotion spending increases to boost market share in key categories. Volume was up 1.5%, dogged by Biscuits sales declines and the grocery workers strike in California.

International operating income for fiscal 2003 fell 3.6% to $1.28 billion, with volume down 1.6%. Fourth-quarter operating income fell 7.7% to $442 million. Volume was up 0.3% based on volume growth of 2.6% that was offset by divestitures.