Salt Sugar Fat: How the Food Giants Hooked Us (40 page)

One of the most enthused supporters of Kraft’s anti-obesity initiative was the co-CEO, Betsy Holden, in what seemed like a striking turn in her career. Holden had risen quickly in the company after joining the desserts division of General Foods in 1982. She impressed everyone by her handling of brands like Cool Whip, and later, she was credited with innovations in the DiGiorno brand that turned the company’s pizza business into a $1-billion-a-year behemoth. By late 2003, however, Kraft was slumping on numerous fronts. Some new products, like Chips Ahoy! Warm ’N
Chewy, had flopped altogether. Reliable standbys, like Philadelphia Cream Cheese, were falling below expectations. That summer, a conference call with Wall Street analysts turned hostile when Kraft delivered the news that its operating income had come in below expectations and that the company would need to spend $200 million trying to regain its competitive position.

“Do you think there’s a bigger problem?” a Morgan Stanley analyst asked. “Because clearly you’re underperforming your peers.”

And what about all this talk about fighting obesity? asked an analyst from Prudential Securities. How was the company going to meet its projected sales growth of 3 percent if it was worrying about people’s waistlines? “You’ve obviously made a statement on obesity,” this analyst added. “But can you clarify the company’s efforts in achieving a volume increase? You’re going to try to grow your volume 2 to 3 percent domestically, it’s almost got to make us fat.”

Holden gamely replied that increasing the company’s profits and fighting obesity were not necessarily mutually exclusive. She evoked the industry concept of stomach share. Kraft, she said, was trying to get a larger share of what people ate, not get them eating more food per se. But Wall Street was not assuaged. Just as the anti-obesity initiative at Kraft was gathering steam, through the summer and fall of 2003, the price of Kraft’s shares started to fall, tumbling 17 percent for the year, compared with a 5 percent gain for its competitors.

Kraft’s financial slump came at the worst moment for one key player: the parent company, Philip Morris. After nearly two decades of ownership, starting with General Foods, the tobacco giant had decided to start pulling out of the food business, but it did not want to sell its millions of shares at the battered price. (The slumped stock and other considerations would lead Philip Morris to delay selling the last of its shares until 2007, when Kraft, once again, became an independent company.)

Holden’s career track at Kraft ended much faster than that. On December 18, 2003, Holden was
removed from her job as CEO and put into the less prestigious position of president for global marketing. The Kraft
officials I met held Holden in high regard and said that her removal stemmed in part from the awkwardness of having two CEOs, but eighteen months into the demotion, Holden left Kraft to spend more time with her kids.

Michael Mudd, the obesity initiative’s biggest champion and spearhead, would leave the company at the end of 2004 as well. The panel of experts he organized, including Ellen Wartella, had done its job well, helping him and his colleagues put the company on the road to doing the right thing by consumer health. This was a path-breaking achievement of which he was hugely proud. But Mudd felt increasingly frustrated by the rest of the industry’s refusal to follow suit, which isolated and put new pressures on Kraft—pressures that involved not thinking more about overweight kids but rather thinking more about returning to the basics of processed food. Namely, boosting the value of the company stock by selling more of the foods that people liked best.

O
n March 3, 2011, Kraft announced that a new era of fatty, sugary foods had come to India. The Oreo, which had never been marketed there before, was headed to the shelves of hundreds of thousands of stores throughout the subcontinent, backed by a media tour de force of TV commercials, billboard ads, and a brightly colored blue bus that roamed the country, from New Delhi to Mumbai, hailing kids to come aboard for Oreo games. The marketing had an educational theme: teaching the country’s population of 1.2 billion how to eat an Oreo properly.
“The ‘Twist, Lick and Dunk’ ritual has brought fun-filled moments of bonding to countless families across the world,” the company’s president for Southeast Asia and Indo-China said in a statement.

Fast on the Oreo’s heels was Tang, which Kraft introduced to India the following month with a campaign slogan:
“A refreshing drink that makes children happier and think more creatively.” Next up, in July 2012, was Toblerone, the triangular chocolate bar that Kraft made in Switzerland
and now sold in 122 countries. To understand how these blockbuster items arrived on the shores of India, where a surging rate of obesity is now worrying health care officials as much as malnutrition, we must go back to a time when things were looking decidedly bleak for Kraft’s cookies in American stores.

The year was 2002, and cookie sales were falling precipitously. Kraft hired researchers to find out what was wrong, and the word it got back was just short of cataclysmic: Shoppers confided that they were avoiding the entire cookie aisle, scared to death they would lose control, load up their carts, and rush home to, well, gorge.

“There was
a broad market change, for which the Oreo had become the poster child,” said Daryl Brewster, the executive who ran Kraft’s Nabisco division at the time. “The consumers who loved Oreos, who loved Chips Ahoy!, who loved all our cookies, were finding themselves afraid to go down the cookie aisle because they might buy some and eat it all. So we learned all we could about it, this buy-and-binge behavior. Sometimes what happens in snacking is people get overhungry. They open up the package and it could be Oreo’s, or it could be Lay’s potato chips. They open it up, they start eating and they don’t stop at one. They finish the bag. They have just consumed hundreds or thousands of calories, and now they’re guilty. They feel awful.”

This was no small matter for Kraft and Philip Morris. In its last food acquisition, in 2000, Philip Morris had paid $18.9 billion to acquire Nabisco, including the company’s debts, and Wall Street had applauded the move. Nabisco had $8.3 billion in annual sales from a lineup of rock solid heavy hitters, from Chips Ahoy! to Ritz Crackers to the mother of all cookies, the Oreo. Three years later, however, there was only doom and gloom.

The shopper’s fear of losing control was only part of the trouble, Brewster said. The Oreo was the subject of a lawsuit that took Kraft to task for continuing to rely on trans fats, a form of fat that was considered even more pernicious than saturated fat. (Today, trans fats have been widely reduced by the processed food industry.) Also, much of the country suddenly
seemed to be on the Atkins diet, which disdained anything sweet or otherwise loaded with carbohydrates—with cookies at the top of the things to be avoided.

But
all
would be lost if Kraft couldn’t get people to stop hurrying past the cookie aisle, so its Nabisco division got to work, and in late 2003 it came up with a move calculated to ease the minds of consumers who felt guilty just looking at Oreos. One of Brewster’s marketing specialists had the idea: Why not create a cookie package that seemed less threatening, that promised to give the eater some self-control? This concept of empowerment became known as the 100-calorie pack.

Starting with the Oreo brand, Kraft reformulated the cookie so that a handful amounted to only 100 calories. From a technical standpoint, this took some doing. The creamy filling was so rich they couldn’t make a dent in the fat. So they ditched the filling altogether, and added some creamy filling flavors to the chocolate wafers. Sales took off like a rocket. Not only that, but people returned to the cookie aisle in droves and started buying not just more Oreos but more of everything, including the full-fat versions.
“People who otherwise didn’t want to go down the aisle because they might buy Oreos also didn’t buy Wheat Thins or Triscuits, because they were afraid to go down there,” Brewster said. “All of a sudden now, they went down the aisle to get the 100-calorie pack, and were picking up some of the other products.”
^‡

But the 100-calorie packs worked a little too well for Kraft. Some of these other products from rival companies started selling so well that Kraft, to put it bluntly, started gnashing its teeth with envy and fear. The main threat came from Hershey, the chocolate company. When cookie sales
slumped in 2002 and beyond, Kraft may have concluded that the solution lay in easing the guilt that consumers felt when they overindulged.
But Hershey wasn’t worried about that. After all, it made most of its money in the candy aisle, where guilt-ridden consumers were par for the course. Consider its strategy with the Hershey’s Kiss, which has reached the status of a retail colossus, with 12 billion of the teardrop-shaped chocolates sold each year. Whenever their sales started to flag, the company simply introduced a new variety that was so tempting no one could resist. Thus, the basic Kiss begat the Chocolate Truffle Kiss, which begat the Special Dark Kiss, which begat the Filled with Caramel Kiss, the Butter Creme, the Candy Cane, the Chocolate Marshmallow, the Chocolate Meltaway, and so on.

With that same no-holds-barred approach to marketing, Hershey invaded the cookie aisle in 2003 with a hybrid cookie-candy called S’mores. Based on the popular campfire treat, it pumped up the bliss by combining the fat in the company’s chocolate, with sweet and salty graham cracker bits and marshmallow filling. With 6 grams of saturated fat in each cookie, it became a massive seller. “These guys came in attacking the cookie space with more indulgent products, which kind of
put us in one of those interesting squeezes that big companies can find themselves in,” Brewster told me.

Nabisco was left with cookies that had less fat—and less allure. Brewster said that he tried his best to compete by reformulating his cookies in ways that boosted their appeal without increasing their fat, experimenting, for instance, with higher grades of cocoa. Ultimately, however, to boost the allure, his cookie team would have to budge on fat, putting them at odds with Kraft’s anti-obesity initiative, which had placed a cap on salt, sugar, and fat loads across every category of its food, from soft drinks to luncheon meats to cheese spreads. The cookies Brewster needed to create, in order to stay competitive with Hershey, would require an exemption.

Instead, Kraft simply created a brand-new category of cookie, dubbed the “Choco Bakery,” and set its cap on fat high enough to compete with Hershey.
“Our desire was to be no worse, but ideally better than the other
guys,” said Brewster, who left Kraft in 2006 to become the CEO of Krispy Kreme donuts. The cookies that emerged from Kraft’s labs were not exactly diet busters, individually. But collectively they made the company look like someone who had just come off a failed diet to binge. The Oreo line went from the 100-calorie packs to the Triple Double Oreo, the Banana Split Creme Oreo, the Oreo Fudge Sundae Creme, the Dairy Queen Blizzard Creme Oreo, the Oreo Golden Double Stuf. In 2007, Kraft went all out with the Oreo Cakester, a soft Oreo filled with chocolate or vanilla cream and bulked up to deliver an additional gram of saturated fat, four more grams of sugar, and 92 added calories.

By the 100th birthday of the Oreo in 2012, the ever-expanding
lineup of Oreo cookies had become a $1-billion-a-year seller in the United States. And that number accounted for only half of their success. Kraft, that year, hauled in an additional $1 billion from selling the Oreos in other countries. Even more than the fat cap waivers, this global expansion by Kraft put the company’s anti-obesity campaign in a much darker context. At the first sign of losing market share, Kraft didn’t just loosen its rules a bit. It set out to vanquish its rivals by dominating the entire global market on cookies and candy.
Kraft’s big move came in early 2010, when it paid $19.6 billion to buy Cadbury and then merged the two companies’ snacks and marketing machines.

Cadbury was a familiar brand throughout much of Asia, and Kraft used the brand to introduce the Oreo. The logic in this move was explained by the company’s new chief executive in a meeting with Wall Street analysts in 2012—the tone of which couldn’t have been more different from the drubbing they gave her predecessor, Betsy Holden, back in 2003. No one asked about obesity in this call. There was no reason to. The CEO, Irene Rosenfeld, was focused on a strategy for higher profits that the analysts could only cheer: Kraft’s snacks taking the world by storm, in what she called a “virtuous cycle of growth.”

“Since combining with Cadbury, our category growth has accelerated, fueled by chocolate,” she went on. “Take India, for example. Here, we’ve expanded our reach into remote villages by doubling the distribution of
visi-coolers. These compact refrigerated displays are highly visible, and they keep our chocolate at the right temperature in the hot Indian weather. As a result, Cadbury Dairy Milk was up about 30 percent last year. Our biscuit business has also undergone an amazing transformation. Oreo, which is celebrating its 100th birthday this year, led the way with organic revenue up 50 percent. In fact, sales of Oreo in developing markets have increased 500 percent since 2006. That’s an amazing record for a so-called mature product—or for any product, for that matter.”

All told, Kraft’s net revenues grew 10.5 percent in 2011 to $54.4 billion, a remarkable achievement indeed.

In 2012, Kraft brought its expanding synergy with Cadbury home to the United States. It started selling a spread that combined the fat in cheese with the fat and the sugar in chocolate: cream cheese blended with milk chocolate. Called Philadelphia Indulgence, two tablespoons of this chocolate cheese delivered a quarter of a day’s maximum for saturated fat and, under the American Heart Association’s recommendations, as much as half a day’s maximum for sugar.

Behind the scenes at Kraft, the chocolate cheese put the company’s system of ingredient caps under a new strain. A spokeswoman told me that Indulgence couldn’t be categorized as
cheese
, which has no allowance for added sugar. So it was classified as a
spread
or
dip
, which does. Out on the market, this marrying of candy with cheese began racking up stellar reviews:
“My wife saw this on a commercial this morning, got up and dressed and bought out the local grocery store,” one man wrote on Kraft’s website. “Chocolate and Cream Cheese! You better get out and buy some before Bloomberg makes it illegal to purchase without a prescription.”