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Move Swiftly and Set a Good Example Says Kraft CEO Deromedi
November 2004
STANFORD GRADUATE SCHOOL OF BUSINESS—When Roger K. Deromedi was appointed sole CEO of Kraft Foods in December 2003, he was determined to move quickly. Within three weeks he rolled out a new organizational structure complete with a fresh vision, updated mission statement, and unifying global strategy.
"People thought I was crazy, but one of the biggest questions when you run a big company is, can you move fast enough?" Deromedi said, adding that he felt it was critical to show by example the type of corporate culture he wanted Kraft to embrace. "Part of the reason I reorganized so quickly was to provide a demo of how I wanted the company to operate. People start seeing a certain behavior, they know what they are responsible for. They mimic that behavior."
Deromedi, MBA '77, who has spent more than 27 years in the food business, spoke to a packed crowd as part of the 2004-05 View from the Top series. In 1977 he joined General Foods as a brand manager. When that firm and Kraft merged in 1988, he was charged with devising a strategy for the company's newly conceived fat-free product line. He was rewarded by being asked to head up Kraft's cheese business, and from there it was straight up the corporate ladder. Deromedi was, in succession, president of Kraft Europe, president of Kraft Asia, CEO of Kraft International, and finally CEO of the entire firm in a career that has spanned all of the company's major geographies, businesses, and brands.
"The food business is a tough business," Deromedi said. "While we were achieving good bottom-line results, our top line was not growing fast enough. Clearly, we needed to do something different."
Targets are very important, but it is critical to set the right ones, he said. Aim too high by setting unachievable targets, and you are asking for trouble. "The challenge is how to set targets that put you where you want to be within your industry, but which are not so unrealistic that you force the wrong decisions within the company." For example, Kraft is aiming for 3 percent top-line growth at a time when other food manufacturers are shooting for 5 percent. "They're kidding themselves," Deromedi said. Kraft currently commands 58 percent of the North American food market. "Market share is how we live our lives," he said, adding that he intends to get that up to 67 percent.
The No. 1 food company in the United States, with more than $31 billion in revenues, Kraft Foods' business includes both the world's largest cheese brand (Kraft) and the largest cookie and cracker business (Nabisco). Other brands include Jell-O, Kool-Aid, Minute Rice, Miracle Whip salad dressing, and Velveeta cheese. The company's top seven brands—Kraft, Maxwell House, Oscar Mayer, Post, Nabisco, Philadelphia, and Jacobs—each bring in more than $1 billion in sales annually, and the top five brands account for almost 75 percent of the company's revenues. Kraft has the top market share in 17 of its 20 top product categories in North America.
A critical part of Kraft's strategy for "sustainable growth" is to drive out costs. This means making some tough choices, said Deromedi. He is closing 20 of the almost 200 factories Kraft runs around the world and eliminating 6 percent of the workforce. The company also has the goal of slashing the cost of goods sold by 3.5 percent annually. "We're achieving that through functional excellence, by greater efficiencies in running our plants and managing our supply chain," said Deromedi.
Developing markets are another key to Kraft's future success. Revenues from these sales have grown from $1 billion a decade ago to $3.5 billion today, representing 11 percent of total revenues. "Putting that in perspective, that's a huge opportunity, since 84 percent of the world's population lives in developing markets," he said.
Deromedi also talked about the "beauty" of a diversified strategy. "Over the past few years, thanks to the Atkins diet, cheese has been our fastest growing category. So, although it's bad for our cookie business, our cheese is doing wonderfully."
Corporate responsibility tops the list of Deromedi's challenges. He said he spends a "huge" amount of his time on social issues. Obesity is a problem, as are nutrition deficiencies, even in the developed world. "Sadly, even in the United States, two out of three kids and three out of four adults don't get enough calcium," he said. Then there's the fact that the United States has an aging population with increasingly special needs. "In just a few years, 1- or 2-person households will be 70 percent of the population," he said. "These social issues present opportunities as well as challenges to the food industry."
Throughout his talk, Deromedi kept returning to the theme of corporate agility. "I'm a big believer in visions, but not big on the kumbayah method of getting there," he said. "My executive team and I formulated the whole framework for the company—the vision, the mission of the company, and the values—in one day. On the one hand, you need to do it collectively, as an organization, but I've seen companies spend years and years working on their visions without getting on with their lives. When I took over the company, I just wanted to get on with it and execute."
—Alice LaPlante