A recent article in Businessweek by David Welch highlighted Kraft's recent expansion into the peanut butter market. After years of establishing itself in the grocery business, in 2011, Kraft decided to capture a share of the $1.8 billion U.S. peanut butter market by launching its own peanut butter brand under the Planters' brand name. The Planters' brand had not seen much success in recent years, falling 12% in sales from 2005-2010, due to the fact that Kraft had not invested much in Planters'. However, Kraft still made the decision to launch its peanut butter brand under the Planters' brand name since it would be a natural transition from the nut market to the peanut butter market.
Within the peanut butter market, Kraft faces some fierce competitors, competing with well-established brands such as Jif, Skippy and many others, that are not happy about Kraft's recent expansion into the peanut butter market. To illustrate, CongAgra Foods has its own established brand of peanut butter and its CEO Gary Rodkin recently commented that "They (Kraft) might have a long road ahead to establish themselves. We’ll continue to make it a sticky business for them.”
Despite its stiff competition, Kraft may have a chance at breaking into this market because of its unique marketing strategy which targets adults. This is because, as Triona Schmelter, Planters' senior director of marketing points out, adults consume two-thirds of the $1.8 billion of peanut butter sold in the U.S. each year. This marketing strategy includes an adult mascot, "Peanut Butter Doug," which is voiced by Kevin Dillon who played "Johnny Drama" on Entourage. Kraft is also targeting adults by advertising its peanut butter with unique peanut butter recipes such as peanut butter yogurt and peanut butter soup, which, personally, I find revolting but perhaps other consumers would want to try.
Another reason as to why the Planters' peanut butter could be somewhat successful is because of the expanding U.S. peanut butter market. As a result of the recession, consumers are now looking for cheap protein which has caused peanut butter sales to rise significantly in the past couple of years.
After six months of Kraft's peanut butter brand being on the market last year, Planters' ranked sixth when compared with other peanut butter brands. In addition, according to Schmelter, its market share this year has risen from 2011’s 1.8 percent to the “mid single digits.”
Although the Kraft peanut butter brand seems to be capturing a small percentage of the peanut butter market, it is unclear as to whether Kraft made the right decision to expand into this market, in which it has no established brand or expertise. This situation reminds me of the Toyota case, in which Toyota missed out on opportunities to expand into emerging markets. To explain, in the early 2000s, Toyota did not commit to several emerging markets such as China and Brazil when its rivals did, making Toyota lagg behind its more aggressive rivals. However, at the time, its cars did not have a reputation as being "high quality" and many consumers viewed them as "boring." Therefore, not only was Toyota not performing well in its own industry but it had missed out on expanding markets. When one compares Toyota's situation with Kraft, Kraft, unlike Toyota, did not miss out on the growing market, which is the peanut butter market. However, since other companies are more established in this market, Kraft committed to a market in which, like Toyota, it would probably perform poorly when compared with its more experienced competitors. After comparing Toyota's situation with Kraft's, one has to wonder if it is wise for a company to enter a growing market even if it has no expertise in that market?
After looking at Kraft's revenue in recent years, I noticed that its revenue was down in 2009 but has been increasing ever since, illustrating that this expansion into the peanut butter market could be an attempt at a turnaround. However, I think that if Kraft truly wants to turn things around, it should focus on what it does best and try to create value for its customers, just as McDonald's did during its successful turnaround. Clearly, peanut butter is not what Kraft does best and so I'm skeptical as to whether this business strategy will lead to a successful turnaround in the long run.
After learning about Planters' peanut butter, would you buy it? Do you think that it is wise for a company to enter a market just because the market is growing even though it has no expertise in that market? What do you think, in terms of business strategy, makes for a successful turnaround?
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