Will So Many Ingredients Work Together?

Not long ago, salespeople from all four major units of Kraft General Foods Inc. would converge on Ted E. Tomczak's suburban Chicago store at the worst possible moment. Representing Kraft, General Foods, Oscar Mayer Foods, and Maxwell House, they would pester the harried shopkeeper for orders just as a freezer broke down or a big shipment arrived. "I'd be foaming at the mouth," Tomczak says.

Now, Kraft wants to make his job simpler. With a new management team and a new name, Philip Morris Cos.' $17 billion North American food division is pulling itself together. Seven years after the merger of Kraft and General Foods, the independently run fiefdoms will finally be unified. The new Kraft Foods Inc.--no more "General"--will present a single face to the 26,000 stores it calls on. With one headquarters and one sales force by the end of 1995, Kraft's relations with buyers and stores will never be the same. Tomczak, whose Asbury Street Market in Evanston, Ill., has been among the first to get the new system, likes what he sees so far: "You don't have all these people bothering you."

TEAM SPIRIT. For Robert S. Morrison, CEO of Kraft Foods since December, the rewards seem obvious. By melding the company's 3,500-strong sales force into a single unit, he can send just one representative to each store instead of a handful, boosting efficiency. Rather than focusing on a single brand, sales managers will be reorganized into 300 marketing-support teams, each devoted to one chain of stores. That should help coordinate the marketing and promotion efforts. But streamlining at the store level could cause its own problems: The Oscar Mayer salesperson who lavishes attention on the deli case may be ill-suited to peddling salad dressing and breakfast cereal. With each rep handling a wider array of goods, small brands and line extensions could get lost in the shuffle.

The changes at Kraft stem from soul-searching among suppliers faced with new demands from their grocery customers. As retailers have learned to analyze scanner data and have upgraded their own highly profitable store brands, they've become tougher sells for national brands. To win retailers' allegiance, Kraft and its rivals must provide better marketing support, tailored to each store. "It's no longer one-size-fits-all," says James J. Jermann, senior vice-president at Hannaford Brothers Co., a grocery chain in Scarborough, Me.

But how to accomplish that? ConAgra Inc., the only other U.S. food outfit of a similar scale, takes an opposite approach, with more than a dozen separate sales forces. That allows each operating company to focus on its own business--and jump at opportunities. "Leverage in the marketplace is important, but we have other ways to do this that are far better than trying to have one massive sales force," says Leroy O. Lochmann, head of ConAgra's Armour Swift-Eckrich, which competes with Oscar Mayer. But Morrison says ConAgra is inefficient: "They're paying an awful lot of money to have a lot of duplication," he says. Quaker Oats Co. has moved toward Kraft's approach recently, as has Procter & Gamble Co., which Morrison views as the closest model.

For Kraft, a unified sales force and account-based marketing are hardly new ideas: Former executives recall suggesting them in 1989. But under Michael A. Miles, who stepped down as Philip Morris CEO last year, Kraft moved cautiously. Now, his successor, Geoffrey C. Bible, wants fast action. Kraft's operating margin of 14% looks good for a food company, but Bible is used to much better: Last year, Philip Morris' tobacco operations boasted margins of 34%. For faster growth in food, Bible recently told analysts, Kraft must capitalize on "the huge manufacturing, marketing, and sales-force synergies that have been within our grasp."

BOTCHED ORDERS. Morrison knows he's under the gun, along with boss James M. Kilts, who heads worldwide food at Philip Morris, and top lieutenant John D. Bowlin, chief operating officer of Kraft. "The theory is right, but it's not simple to implement," notes S. Leigh Ferst, an analyst at S.G. Warburg & Co. Morrison knows that better than anyone: In 1990, as the new head of Kraft Canada, he merged the Canadian sales forces of Kraft and General Foods. Three weeks later, irate customers were at his throat over botched orders. "I had to personally go and make sales calls to hold hands," Morrison recalls ruefully.

A U.S. reorganization is an even bigger task, but the transition won't be so abrupt. Kraft developed a separate marketing team for Wal-Mart Stores Inc. four years ago. It combined the General Foods and Maxwell House sales forces last year. And the year before, it merged Oscar Mayer and Kraft sales.

Each Kraft sales rep will visit fewer stores, and most will serve a single retail chain, rather than different customers in the same neighborhood. With an estimated 30% more time in each store, they'll be able to set up more displays and build better relations with store managers. That will lead to higher volumes, Morrison predicts. Yet even he admits that Kraft will probably lose some expertise in individual brands.

He intends to compensate with unbeatable account-service teams. Every major retail chain will have a Kraft category manager assigned to each of its buyers, with a senior Kraft sales executive supervising. Support staffs in 21 districts, down from more than 70, will help the teams manage food categories and assist with logistics, coordinating shipments so that different brands arrive on the same trucks. The big advantage: Kraft will combine the trade-promotion dollars that were previously fragmented among categories and brands. For instance, Kraft plans to install thousands of refrigerated cases to feature its products in prominent end-aisle displays, a steep investment feasible only if all its refrigerated brands pool their resources. In the past, with each brand pursuing its own strategy, getting them to commit promotion dollars at the same time was tough. And now, Morrison can add to the mix some smaller brands that wouldn't have had the budgets to run promotions on their own.

"FAKE IT." Kraft's high-service strategy won't be cheap, and that will keep competitors from duplicating it, Morrison says. But it also exposes Kraft to risk in an era of rampant cost-cutting. And if brand managers subordinate the interests of individual products to the larger goal of multibrand promotions, they might cede too much opportunity to rivals such as ConAgra. The transition to a single sales force may well take longer than expected, especially since Kraft's computer systems aren't close to being integrated. While retail customers will get a single order sheet and a single accounting of promotional dollars, Kraft will be changing systems on the fly. But, says Morrison, "we can fake it. We can have different backroom systems, and the customer doesn't see it." At P&G, though, a similar integration took years and led to at least a few high-level defections.

The trade won't stand for disruption, but many top retailers say it's about time Kraft made this move. "They were really sending too many people into our stores. It has all the right vibes for us," says Thomas S. Haggai, CEO of IGA Inc., a chain of 2,500 independent grocers. Kraft's toughest judges will be store managers, such as Tomczak of the Asbury Street Market, who have no time for trouble. Morrison can be sure that if his new system fails to perform, the nation's Tomczaks will let him hear about it loud and clear.

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