Kraft plans overhaul as job cuts may loom

CHICAGO -- Kraft Foods Inc. outlined a corporate overhaul Thursday to try to snap out of a protracted slump in sales and new products, reorganizing its business units and going to a more global focus in a strategy aimed at making it more nimble and better positioned for worldwide growth.

The shakeup was announced by chief executive Roger Deromedi, who signaled his intent to take Kraft in a new direction just three weeks after being given sole control of the biggest U.S. food company.

While shifting some units to new locations and giving top executives new roles, Deromedi didn't detail the costs and job cuts associated with the realignment. Those are to be disclosed Jan. 27 when Kraft releases end-of-the-year results and discusses its outlook for 2004 in a presentation to analysts in New York.

Deromedi gave ex-CEO Betsy Holden a key role in the new organizational blueprint, putting her in charge of global marketing and new product development.

Holden, 48, a marketing expert who was one of the nation's best-known female chief executives until Kraft's troubles cost her the job of co-CEO and head of North American operations last month, will report to Deromedi on global category strategies and marketing and head a team of senior executives. Some analysts had expected her to bolt for another company after her demotion.

Kraft, which trails only Nestle among food companies worldwide, said the new makeup is designed to give its businesses a more unified strategy rather than a country-by-country focus. The company, whose brands include Oreo cookies, Jell-O desserts and Oscar Mayer hot dogs, markets its products in more than 150 nations.

"This new structure will help us accelerate our growth and move faster as a company in our decision-making process," said executive vice president Michael Mudd, who was among more than two dozen Kraft executives promoted to expanded roles. "All of it is designed to help us deliver realistic, sustainable growth for our shareholders."

As part of the realignment, all Kraft units based in Rye Brook, N.Y., will move to new locations this year. Kraft's parent company, Altria Group, put the building up for sale Thursday, citing planned employee relocations to facilities in Tarrytown, N.Y.; East Hanover, N.J.; Miami; and Kraft's headquarters location in Northfield, Ill.

The office complex in New York's suburban Westchester County employs about 1,000 people, most employed by Kraft and some by other Altria units Philip Morris International and Altria Corporate Services.

Kraft is moving its Latin American regional headquarters to Miami from Rye Brook, where about 100 executives in that unit were based.

Prudential Equity Group analyst John McMillin said the move to a global structure from one split into domestic and international focuses was logical in the wake of Kraft's CEO-level shakeup last month. He said Kraft's reported earnings for 2004 likely will be lower because of restructuring costs, but 2005 profits could benefit.

"What we don't know is the magnitude of the restructuring charge expected, the size of the potential layoffs and, most importantly, the expected cost savings from these moves," he said in a note to investors.

Kraft has about 50,000 employees in the United States and just over 100,000 worldwide.

Deromedi announced a three-pronged focus: A new global marketing and category development group is being formed to accelerate growth and global expansion. Individual commercial units will focus on the best local strategies, country by country. And key functions will be worldwide in scope, to increase effectiveness and drive cost savings.

"The most important opportunities and pressing challenges we face today and going forward demand that we become a more unified, global company," Deromedi said. "But in becoming more global, we must keep and strengthen the local expertise that has built our success."

Kraft has been in turmoil for more than a year as new products failed, high-level executives left and cheese and cookie sales fell. It reported an earnings shortfall last July as a result of weak sales and said it hoped to compensate by investing an additional $200 million in marketing by year's end. But no big sales bonanza from that extra spending has been evident.

The food giant's market share for some of its best-known products has been eroded in the face of tough competition, some from lower-cost brands, and consumers' growing health concerns. Kraft also hasn't had a blockbuster new brand since it launched DiGiorno frozen pizza in the mid-1990s.

Sales volume has been sluggish for the last several quarters, and Kraft has had some missteps with Oreos and other cookies since acquiring Nabisco for a whopping $15 billion in December 2000.

Shares in the company rose 2 cents to close at $32.30 on the New York Stock Exchange -- up only slightly since debuting at $31 when Kraft went public in 2001.

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