I was reading the Grocery Manufacturers of America daily newsletter today and learned that Kraft is considering putting Post cereals up for sale.
Well, this is no great surprise. When Kraft bought Nabisco cereals in 1992, they increased their market share by over ten points. At the time, it was pretty clear that they didn't know what they were doing with the cereal category. Kraft is a company that's very good at being number one or two in a category, competing primarily with private label. But they don't know how to compete particularly well with aggressive, creative marketers. An old friend once called Kraft a "coffee and cheese company with hobbies". I'll come clean here. I worked at Kraft Canada for three years, although not on the cereal category.
In the ten years since Kraft's purchase of Nabisco cereals, they have lost every single share point they gained in the Canadian market. That's because Kraft runs its operations with a tight focus on productivity. While that may be admirable, it lead to things like removing the capability to drop those great little toys inside the package (known as "inpacks"). Not having inpacks meant that the cost of producing the cereal was a bit lower. But at the same time, the bean counters eliminated one of the most powerful motivators in cereal sales -- those goofy little prizes in the cereal box.
Lesson learned: You can't save your way into a profit, you have to sell your way there.
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