Reuters: Mergers News: UPDATE 1-Kraft pools knowledge as it splits up scientists

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UPDATE 1-Kraft pools knowledge as it splits up scientists Jun 1st 2012, 16:14 Fri Jun 1, 2012 12:14pm EDT * Planters NUTrition peanut butter to roll out in July * Kraft companies to keep emphasis on new products after split * Companies to cross-license technologies after split By Martinne Geller June 1 (Reuters) - Kraft Foods Inc is introducing a new line of Planters peanut butters with ingredients such as dried fruit and granola mixed in, hoping to appeal to adults with a taste for the popular kids' food. The launch of NUTrition peanut butters -- in berry nut, banana granola nut and cinnamon raisin granola nut -- comes as Kraft is preparing to spin off its North American grocery business by the end of 2012. While the team of scientists behind this product will all work at the spun-off company, Kraft's research and development team is working hard to make sure that all that they learned on that project, and others, can be used by the scientists that stay behind. Lessons learned include how to make sure stir-ins are distributed evenly and the fact that consumers don't like the taste of peanut butter and orange together. Once Kraft Foods Group is spun off, the remaining company will be renamed Mondelez International and will sell snack foods like Cadbury chocolates, Oreo cookies and Trident gum, mostly abroad. "We want to create two powerhouse companies. We're trying to make sure we replicate the knowledge that we have right now for two companies instead of just the one," said Jean Spence, Kraft's executive vice president of research, development and quality. A benefit of being a $54 billion company with dozens of brands is that Kraft's different units were able to borrow technology from each other. For example, when Kraft launched Jet-Puffed Mallow Bits, it used the same packaging as Kraft Grated Parmesan cheese. Spence will stay at Mondelez but her current team will be splitting in two, and as such, the people are busy documenting what they know for their counterparts that will go to the other company. "The real focus in R&D has been making sure we understand who owns the IP (intellectual property), but we're giving the other company the royalty-free license to that IP," Spence said. LINE EXTENSIONS VERSUS LOCAL TWEAKS Kraft said in December it was introducing more than 70 new products, including Velveeta Cheesy Skillets dinner kits, Philadelphia Indulgence Spreads made with cream cheese and chocolate, and Kraft MilkBite granola bars. Like most food and beverage companies, Kraft has been raising prices on many of its products to offset higher commodity costs. But consumers, constrained by a weak economy, often balk at paying more for products they already know. Yet they will often shell out for something new. NUTrition peanut butters should cost about $3.99 for a 12-ounce jar, making them 43 percent more expensive per ounce than regular Planters peanut butter, which costs $3.69 for 16.3 ounces. Last year, about 10 percent of Kraft's revenue came from products that are less than three years old, up from 8 percent in 2009. The company has also increased its spending on research and development over the same period at a rate greater than revenue growth. Company executives say the split will not hinder the development of new products in the future, though they say that the types of innovation may be different. "On the snack side, they'll be looking for ideas that have a global element ... that travel," said Barry Calpino, Kraft's vice president of breakthrough innovation. "That's a very different innovation challenge" from what the North American company will have to do. For example, Mondelez will be selling chocolate in countries that have very hot weather and limited refrigeration. As such, it is working to develop chocolate that is more heat-resistant. To appeal to local palates, the company has also been developing different flavors for its Oreo cookies and Ritz crackers. At the spun-off Kraft Foods Group, ideas will just have to appeal to consumers in North America, who are already very familiar with the company's brands, which include Planters, Oscar Mayer, Kraft and Maxwell House. Because of the high brand awareness, line extensions are common. Even though Planters has been selling snack nuts since 1906, it didn't launch a peanut butter until last year. But once the brand launched the original Planters peanut butter, the newer ideas came quickly, said Triona Schmelter, senior director of marketing for Kraft Foods. Schmelter said the new flavors and textures are meant to appeal to adults, who account for two-thirds of peanut butter's consumption but are surprisingly not targeted by marketers. Kraft shares were down 1.5 percent at $37.71 in midday trade on Friday, slightly outperforming the broader Standard & Poor's 500 index, which was down 1.9 percent. Kraft shares have gained 2.4 percent this year through Thursday's close, while the S&P Packaged Food index is up 0.5 percent. Link this Share this Digg this Email Reprints

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