Geoff Herzog, product manager for coffee development at Kraft Foods Canada
(Kraft), sat in his office after reviewing encouraging results for the single-serve
coffee pod system in Europe. On a typical day, Herzog would have used the office
coffee station for his morning cup of coffee, but today he had brewed his own cup
using a single-serve coffee pod machine. It was July 6,2004, and Herzog had just
learned that Kraft Foods North America was planning an aggressive launch of
coffee pods in the United States. He had less than a month to decide whether Kraft
should proceed with a simultaneous launch in Canada, or await the U.S. results.
If Herzog went ahead with the launch, he would have to make several decisions.
First, since Kraft owned two major coffee brands inCanada, Maxwell House and
Nabob, a suitable branding strategy would be needed. Herzog would also have to
set a wholesale and a suggested retail price for the coffee pods, choose which
flavors to offer and decide whether Kraft should use traditional distribution
channels or direct-to-store delivery (DSD). In addition, he would have to develop
an effective advertising and promotion strategy on arelatively limited budget.
Herzog knew that whatever recommendations he made, he would need to make a
convincing case that his plan would help Kraft expand its share of the Canadian
coffee market, while generating a satisfactory return on the company’s marketing
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KRAFT FOODS INC.
Founded as a cheese manufacturer in 1903, Kraft Foods Inc. (Kraft Foods) had
evolvedinto North America’s largest food and beverage company and the number
two player in the world. In 2004, Kraft Foods had operations in more than 155
countries. Although the company had previously been a division of Philip Morris
Companies (since renamed Altria Group), it had become a public company in June
Kraft operations consisted of Kraft Foods North America and Kraft FoodsInternational, and its business was divided into five product categories: beverages,
convenience meals, cheese, grocery and snacks. The Kraft brand portfolio was
among the strongest of the global consumer packaged goods players, with more
than 50 $100-million brands and five $1-billion brands. Along with its size and
impressive brand portfolio, Kraft Foods boasted a strong distribution network and
awell-earned reputation for developing innovative new products and food
applications. The company’s mission was to achieve leadership in the markets it
served, which it pursued by fostering innovation, achieving high product quality
and keeping a close eye on profit margins. Five operational objectives had been
established to achieve these goals:
1. Build superior brand value for consumers bydelivering greater product
benefits at the right price, compared to the competition.
2. Enhance product demand among consumers by building relationships with
3. Constantly adjust the product portfolio to align with consumer trends,
especially in fast-growing channels and demographic groups.
4. Expand global scale by increasing business internationally, especially in theworld’s fastest-growing developing countries.
5. Build a leaner cost structure through better use of assets to generate savings for
reinvestment in brand building.
Kraft Foods was the world leader in coffee sales with 15 per cent of the global
market. In Canada, Kraft’s Maxwell House and Nabob brands enjoyed a combined
32 per cent share, followed by Nestlé at 17 per cent and Procter and Gamblewith
nine per cent. Private labels accounted for nearly 23 per cent of the market, with
smaller companies making up the remaining 19 per cent.
The company’s Maxwell House line was Canada’s top retail brand of roast and
ground coffee, while Nabob was the leader in Western Canada and number two
nationally. Both were available in a variety of flavors, sizes and formats (see
Exhibit 1). All...