Kraft in the Crosshairs

Last Updated Aug 20, 2007 6:28 PM EDT

Kraft Foods Product AssortmentNelson Peltz, the activist investor that riled Heinz, Wendy's, and spurred the Cadbury-Schweppes break-up, now reportedly has Kraft Foods on his hit list. Through his investment firm, Trian Fund Management, Peltz has accumulated a 3 percent stake in the company, and he isn't happy with Kraft's downward performance. While recent independence from the tobacco-laden Altria group has given Kraft more room to move, Peltz wants to see the divestiture of Post cereals and Maxwell House coffee. Kraft could also be using capital more efficiently by issuing more debt, and a stock buyback program could help raise the company's share price -- two recommendations Peltz is expected to make next week. In a New York Times article, Andrew Martin and Andrew Sorkin say that Kraft makes an easy target for investor activism because:
Like many other packaged food companies with popular brand names, Kraft Foods has struggled to keep up with rapidly changing consumer tastes. The company thrived in an era when consumers bought all their food at grocery stores lined with aisles of brand-name products. [...]
But now, consumers are shopping at superstores like Costco and specialty stores like Whole Foods and Trader Joe's that offer organic products or private-label brands that have cut into brand-name dominance. And at a time when consumers are demanding healthier, more natural products, Kraft's portfolio of processed foods has struggled to remain relevant.
Kraft management isn't dumb to its problems, however. The company is working to expand its healthy lifestyle initiative and grow the corresponding Boca and Back-to-Nature brands. It also added the Sensible Solutions labeling system across its portfolio to highlight "smart" food choices that meet certain nutrition criteria. Kraft's branding and product developmet in the healthy lifestyle category falls in line with competitors' moves, like ConAgra's recent additions to its Healthy Choice line. But with Nelson Peltz wielding a red-hot branding iron, Kraft may have extra impetus to take the lead.

(Image of Kraft Foods Product Assortment by Kraft Foods Australia)