OPPORTUNITY KNOCKS

April 1, 2005
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OPPORTUNITY KNOCKS
By Kathie Canning
Kraft Pizza Responds by Delivering Products That Provide a Slice of Every Imaginable Pizza Experience.
During a good part of the last century, the late, great Walt Disney laid the groundwork for what is now a multi-billion-dollar empire in family entertainment — encompassing operations ranging from animation and film to theme parks and merchandizing. What truly set Disney apart from his peers, however, were his innovative spirit and a mindset that prevented him from resting on his laurels.
He lived his life seeking out that next big idea, that next untapped opportunity. Kraft Pizza Co., too, refuses to become complacent about its many successes.
The division of Northfield, Ill.-based Kraft Foods Inc.’s U.S. Convenient Meals segment is committed to innovation, growth and the creation of new opportunities. In fact, the frozen pizza category leader has set its sights on taking away a significant slice of the $20 billion carryout/delivery pie by continuing to introduce frozen pizzas that replicate the numerous incarnations of this experience.
“We want to be a slice of every pizza experience,” stresses Michael Pellegrino, who succeeded Rhonda Jordan as general manager of the Glenview, Ill.-based Kraft Pizza division approximately a year ago (see sidebar, p. 32, for more information about Pellegrino).
That’s a lofty ambition, but one that Kraft Pizza is well on its way to achieving. In 2004 alone, the manufacturer of the DiGiorno, Tombstone, Jack’s and California Pizza Kitchen frozen pizza brands introduced three new product lines designed to broaden its appeal. The new products also offer another growth opportunity for the division’s retail customers.
The most innovative of these products is likely the DiGiorno Microwave Rising Crust pizza, the first and only pizza to rise and bake up golden brown in the microwave. Launched nationwide in September 2004, the line delivers oven-baked taste in only five minutes, says Kraft. The single-serve 9.95- to 10.81-oz. pizzas are offered in Four Cheese, Pepperoni, Supreme and Three-Meat varieties and have a suggested retail price of $3.49. The division is hoping its high quality will win over more than a few of the 83 percent of consumers who currently shun the microwave when it comes to pizza.
Also new to the DiGiorno line is a Thin Crispy Crust Pizza, which promises a thin crust that bakes up crispy on the outside and soft and tender on the inside. It comes in familiar varieties that include Pepperoni, Four Cheese, Four Meat and Supreme, as well as the more adventurous Grilled Chicken, Tomato & Spinach flavor.
Rounding out the recent launches is the Tombstone Brick Oven Style Pizza line, with a taste that mimics the famous pizzeria baking method.
“These were three great ideas from terrific teams that we launched within six months of one another,” says Pellegrino. “They’re delivering between five and six share points a week for the division. Our consumption has been up about 9% in the back half of the year, and consumer feedback has been some of the strongest we’ve received on new items.”
Kraft Pizza saw retail dollar sales (excluding Wal-Mart) reach slightly more than $1 billion during the 52-week period ending Dec. 26, 2004, according to data from Chicago-based Information Resources, Inc. Its brands accounted for nearly 39% of the overall $2.6 billion category total for that timeframe.
In a statement reporting its 2004 results, Kraft Foods said “DiGiorno Thin Crispy Crust Pizza, DiGiorno Microwave Rising Crust Pizza and Tombstone Brick Oven Style Pizza all performed well, resulting in double-digit revenue growth and a 2.5 [percentage point] dollar share gain in the [fourth] quarter.”
Of course, Kraft Pizza did not become the category leader it is today by adopting a “build-it-and-they-will-come” philosophy. Instead, the division pays close attention to consumer trends and cravings in new product development. The result is a wide range of product offerings that fit a variety of consumer preferences.
That commitment to forward thinking will continue as Kraft Pizza ponders ideas for future product introductions.
 “We’re always thinking ahead,” says Pellegrino. “It all comes down to ideas — how do you drive innovation for your consumers, for your customers, and never become complacent?”
Kraft Pizza looks closely at consumer preferences in terms of qualities such as taste and quality, stresses Charlie Etmekjian, the division’s director — strategy and consumer insight.
“Convenience is a real biggie and has been for awhile,” he maintains. “Health and wellness obviously is emerging. On top of that, we try to deliver [products] to consumers at a price where they think the proposition is a good value.”
One consumer preference that became apparent to Kraft Pizza is real cheese — a fact that led the division to rethink the packaging for its Tombstone brand, which has traditionally been celebrated for its high-quality toppings. The new packaging, to be introduced during the first quarter of this year, touts 100% real Kraft cheese on the label.
“What better credentials than Kraft cheese? We’re just incredibly excited about what that could do to the Tombstone business,” says Pellegrino. DiGiorno also will be sporting new packaging that boasts the Real® cheese symbol and text emphasizing 100% real cheese.
To help meet the trend toward health and wellness, Kraft Pizza plans this spring to offer four pizza products tied to the popular South Beach Diet, including varieties such as Deluxe and Grilled Chicken with Vegetables, all on a whole-grain crust. The company also offers the BOCA Pizza line, says Pellegrino, which adds a meatless option to the category.
“We are looking at better for you, health and wellness,” stresses Dana Peters, director of R&D. “People don’t always think of pizza first in terms of health and wellness, although it can be part of an overall balanced diet.”
The low-carb push is not a “silver bullet,” stresses Pellegrino. “So we’re looking at the overall healthy-eating trend. But we are not going to deliver a pizza that doesn’t taste great.”
A regular dialogue with consumers also is key to the evaluation of new and existing products, notes Etmekjian. Ongoing telephone surveys help Kraft Pizza size up its products in terms of taste, quality, convenience, value and other attributes.
That consumer dialogue becomes even more critical as Kraft Pizza attempts to seize a larger slice of the carryout-delivery sector — and get it right. For example, the DiGiorno brand has an upscale reputation among consumers that the division wanted to be sure was enhanced — not tarnished — by the new product additions.
“DiGiorno is all about delivering a carryout-delivery experience in the home in terms of taste and variety,” notes Marla Buerk, director of new product development for Kraft Pizza. “We have the Cheese Stuffed Crust; we have the Deep Dish — now we have the Thin and Crispy Crust. These are all segments of carryout-delivery.”
The DiGiorno microwave experience takes the brand to the next level, adds Pellegrino, giving consumers “a terrific carryout-delivery experience in five minutes.”
Indeed, more than 85% of consumers Kraft Pizza surveyed said the microwave product tasted like its oven-baked cousin.
“We needed to see numbers like that before we decided to go with a microwave product,” adds Peters.
Next on the agenda is the addition of the Neapolitan line to the popular California Pizza Kitchen (CPK) Crispy Thin Crust frozen pizza offerings. Currently the second-biggest seller within the restaurant chain, the line includes White, Sicilian Recipe and Margherita pizza varieties. Kraft already manufactures a number of the chain’s pizza varieties for the retail freezer case under a licensing agreement.
“[The new line] has a unique flavor, an adventurous-type taste,” says Pellegrino. “We think it’s going to be a great addition to the CPK line.”
Of course, none of these innovations would be possible without the collaborative spirit among the division’s management, product development, R&D, marketing and operations teams — and Kraft Foods’ unwavering commitment to providing the resources the team needs to bring the products into life.
Although ideas for new products are “officially” Buerk’s responsibility, “we challenge the whole division to come up with ideas and stay in touch with consumers,” stresses Pellegrino. “It’s all about making sure that the pipeline is filled with robust and compelling ideas to help us keep the category and our own individual product growth very strong.”
Once those ideas have been shown to have true market potential, they move over into R&D territory. Here, the collaborative spirit continues. The R&D team also works closely with key outside suppliers in the creation of new products.
The DiGiorno Microwave Rising Crust product, for example, required “tremendous collaboration” both inside and outside R&D, says Pat Kocher, section manager – R&D. The effort was driven by technology advances, he adds, both in formulation and packaging.
“I can’t put one over the other in terms of importance,” says Kocher. “They’re both absolutely critical. You can take the product and put it with other packages out there, and it’s not going to work — and vice versa.”
The new product actually bakes in the microwave oven, adds Peters, instead of just reheating. The packaging — a cooking tray and a crisping ring — ensures the specially formulated crust rises and bakes up just right.
In creating CPK products for the retail case, R&D works very closely with the restaurant’s specialists, notes Kocher.
“We talk to them to look at what we can bring into the pizzas to mimic that experience from the restaurants,” he says. “We’ll develop products, and then we’ll share prototypes with them until we’re both comfortable we have the right product. So it’s actually a very real working relationship that results in products that are very, very close in quality and taste to what is served in the restaurant.”
Group leaders within the division also play a part in new product testing, says Pellegrino.
“We go through a lot of diligence as a team, testing prototypes that the R&D group will come up with,” he says.
Consumers then get a chance to weigh in. Their feedback helps Kraft Pizza fine-tune the products prior to manufacturing scale-up.
“We show the ideas to consumers to identify the ones who’d be interested in buying the product,” says Etmekjian. “We give them samples … [and] do callback interviews to get a sense of the degree to which the product delivers on the concept.”
Manufacturing also works closely with the rest of the division to ensure its plants remain ready to handle an ever-growing product portfolio. Currently, Kraft produces the majority of its brands and varieties in Wisconsin in three different plants located in Sussex, Medford and Little Chute.
“We’ll continue to support the growth agenda,” stresses Rodney Mosley, director – manufacturing. “We’re excited from a manufacturing perspective. We’re also very interested in creative flexibility in the manufacturing network to deliver these offerings in a cost-effective way.”
Going forward, Pellegrino expects the division to work hard to ensure the continued success of its existing products, as well as to continue to develop ideas for new products that cut further into that carryout-delivery pot of gold. If his achievements during his first year leading the division are any indication, Kraft Pizza’s new-product pipeline should be overflowing in 2005 and beyond.
“Obviously, we always want to be the fastest-growing pizza business in the category and maintain our No. 1 share position,” he stresses. “We want to continue to be perceived by our customers as the leader in category innovation and category management.”
Although the cost of commodities ranging from cheese to fuel recently have posed huge challenges to Kraft Pizza and other Kraft divisions, Pellegrino says the company remains committed to innovation and investing in its businesses.
“At the end of the day, if we can keep our ideas fresh and stay one step ahead of consumer needs, then we’re going to win in the marketplace,” he says. “That’s what our goal is — to continue to win. To continue to drive our No. 1 share and be the leaders in innovation that we’ve historically been.”
Editor’s Note: Kathie Canning is the managing editor for Stagnito’s Refrigerated & Frozen Foods.
Road to pizza prominence
Tombstone pizza, known for its great toppings and zesty sauce, got its start in 1962 as Tombstone Pizza Corp., based in Medford, Wis. Kraft purchased the company in 1986. The Tombstone line now offers Original, Cheese-Stuffed Crust, Oven-Rising, Half-and-Half and Mexican-Style varieties, as well as a new Brick Oven Style.
Jack’s pizza, a mild-sauce favorite of Midwest kids, began with a fresh-baked home-delivery pizza business started in Little Chute, Wis., by Jack Elrick in 1962. James Geerts purchased the business in 1968, and began freezing the pizzas for sale at a later time. He eventually built a factory — and then expanded it — to meet escalating demand throughout the Midwest. Kraft purchased the business from Geerts in 1992. Jack’s pizza now comes in Original, Super Cheese, Naturally Rising and mini Pizza Bursts varieties.
In 1995, Kraft introduced the upscale DiGiorno Rising Crust pizza, leveraging the name it used for the refrigerated pasta and sauce line it launched in 1989. The line, which offers both traditional flavor combinations and more adventurous versions such as Spicy Chicken Supreme and Spinach, Garlic & Mushroom, since has been expanded to include Cheese Stuffed Crust, Deep Dish, Microwave Rising Crust and Thin and Crispy Crust varieties.
In 1998, Kraft entered into a licensing agreement with California Pizza Kitchen, Inc. to manufacture and distribute a line of the restaurant chain’s premium frozen pizzas. The California Pizza Kitchen line boasts exciting, adult-oriented flavors such as BBQ Chicken and Five Cheese & Fresh Tomato. Soon to be added here are products from the restaurant’s Neapolitan line, the second-best seller within the Delaware-based chain (formerly headquartered in Los Angeles).
In 2000, Kraft purchased Chicago-based Boca Burger Inc. The company now offers the BOCA Rising Crust pizza in a supreme version topped with vegetables and meatless sausage and pepperoni.
Forward-thinking leader
Kraft Pizza Co.’s leader, Michael Pellegrino, is delighted with the division’s recent flurry of new product introductions. He is a true believer in innovation — and in pushing his team to achieve it.
Although his youthful appearance might suggest otherwise, Pellegrino actually brings to the division a wealth of experience in various Kraft Foods businesses. He started out at Kraft Foods 16 years ago in the Nabisco Cereal Group, which Kraft acquired in 1993. In 1997, he was transferred to Kraft’s Glenview, Ill., offices to work on the cultured category, and he helped invigorate that category through the launch of the Breakstone’s Cottage Doubles cottage cheese and fruit combinations. Next came a stint in Kraft’s sandwich cheese business, where Pellegrino worked to develop a number of different cheese-related nutrition claims. He then served as vice president of marketing for cheese before coming on board the Kraft Pizza wagon a little over a year ago. In his current capacity, he reports to Rick Searer, a Kraft Foods group vice president and president of the company’s U.S. Convenient Meals business segment.
Pellegrino says he is happy to play a key role in the frozen pizza category.
“Everybody loves pizza — everybody in the division, all of our customers, all of our employees and, most of all, our consumers,” he stresses. “It’s just an incredibly exciting, dynamic experience. Great innovation, lots of opportunity for growth, and just a bunch of terrific people to work with.”
His approach is definitely hands on, not only with his division, but also with his retail team. In fact, Pellegrino spends a significant amount of time with the direct-store-delivery sales force to discuss ways to keep innovating for customers and help keep the category strong for both Kraft and its retail customers.
And where others might see obstacles, he sees opportunity.
“There’s still – a $20 billion carryout delivery category for us to tap into,” Pellegrino contends. “The frozen pizza category is only 10% of that category right now.”
Push-button pizza
Foodservice providers across the country, too, stand to benefit from a recent Kraft Foods pizza innovation. In this case, however, the product is an automated system that delivers hot Tombstone pizzas to consumers with the push of a button.
Through an expansion of an alliance, Kraft Foodservice, a Glenview, Ill.-based division of Kraft Foods, and Irvine, Calif.-based KRh Thermal Systems Inc. are expanding the market penetration of Tombstone Automated Pizzeria units, as well as Kraft Carry Out Café units for dispensing other hot Kraft food items. Both use KRh’s proprietary HOT Choice® automated system, which combines advanced cooking, heating, automation and packaging technologies to deliver hot items in a flash.
The companies said they plan to place the units into a wide range of outlets, including convenience stores, colleges and universities, military bases, hospitals, hotels, businesses and factories. In addition, KRh and Kraft will work together to introduce new menu items for the diners.
“We saw how positively both operators and consumers responded to our pizza offerings in our test marketing with KRh,” said Thomas Sampson, president, North American Foodservice for Kraft Foods. “Kraft Foodservice is excited to be leveraging the power of some of our top-selling and most recognizable brands with the technological advances present in the HOT Choice Diner.”

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