The OREO Crisis

I have frequenlty brought up one of my favorite, it not my most favorite, product that KRAFT owns- none other than that wonderful, delicious OREO cookie. The white cream filling sandwiched between two chocolate cookies is guaranteed to brighten me up on the worst of days. Andddd isn’t there just something about that OREO’s crispy yet soft texture that makes them so irresistible? But wait- their delectable texture is what makes an OREO, in fact, a health hazard! An OREO’s creamy filling is packed with trans fats, also known as partially hydronated vegetable oil, and has proven to be one of the worst nutrients our bodies can consume. This oil is what is used in a lot of snack foods to make their shelf lives last longer, such as margarines and baked products. Unfortunatley, these trans fats have been linked to an array of health problems including obesity and several heart disease.

In 2003 an aggravated lawyer from California, Stephen Joseph, filed suit against KRAFT in hopes of banning OREO sales to children. According to an article in the San Francisco Chronicle, Joseph said his lawsuit is focused on the hidden nature of trans fat and the marketing of it to children. Joseph even has his own website, bantansfats.com, (which I found this humorous cartoon on the left) in which he justifies his lawsuit motives. He explains that marketing unhealthy products to children is wrong simply because most children do not have the knowledge to make intelligent choices about what to eat. Fortunately, the lawsuit was dropped right after Joseph learned that KRAFT was working on ways to reduce trans fat levels in their OREO products. Joseph’s goal on gaining public awareness on the dangers of trans fast was very successful, however created a corporate crisis for KRAFT.

So how did KRAFT handle this trans-fat OREO crisis? Well, obviously they must have done something right if the lawsuit was quickly dropped. KRAFT’s spokesmen on the crisis was, Michael Mudd, (pictured on the right) the Executive Vice President of Global Corporate Affairs. According to a 2003 CNN article Mudd said KRAFT has been working on ways to reduce trans fat in the cookies, such as the reduced fat OREO cookie packages now available for sale. He comments: “We’re very pleased with Mr. Joseph’s decision. We share his concern for public health and we’re doing our part” (CNN.com). A very effective quote by KRAFT- instead of apologizing to the public, KRAFT turned the situation into an opportunity for them. KRAFT announced that they were partaking in a multi-year voluntary trans fat reduction effort in the USA, while of course still retaining that great KRAFT taste. Here’s a 2005 article from AllBusiness.com, in which KRAFT discusses their plan to moderate their advertisements of OREO cookies to children under 12 as part of an effort to encourage better eating habits. KRAFT also added a Trans Fat section under their Nutrition page found on both their corporate and food&family site. The section, titled, “Trans Fat Update” includes the latest news on the dangers of trans fats, definitions, examples of where it can be found and even additional links for the readers to find out more information on it.From a PR perspective, KRAFT handled the OREO crisis very well for various reasons, however I attribute all their success to their effective use of time. According to Joseph's website,bantransfats.com, once the media coverage about the lawsuit began, the very next day KRAFT announced that they were going to reduce/eliminate trans fat in their OREO products, and as a result, the lawsuit was dropped- preventing a long and possibly messy trial from occuring. KRAFT chose a credible spokesperson, the VP of Global Corporate Affairs, to address the public, plus by joining in the effort to eliminate trans fat in the USA, KRAFT was showing that they had real compassion and concern for the public’s health. Not only did they cut commericals that adverstised unhealthy foods aimed at children and provided information on trans fat on their website, but they also provided this release in 2005 about the progress they were making on the trans fat epidemic. Lastly, being a food company, it was important for KRAFT to be honest about the issue. KRAFT admitted to OREO's containing trans fat, agreed with the lawsuit, and effectively solved the situation. Thank goodness OREO's are….still America’s Favorite Cookies.

INVESTOR RELATIONS

KRAFT’S annual report is easily accessed for viewers via their corporate website under “Investor Center”. The left of the screen has a tab with a variety of different investor-related materials to look at including “Corporate and Financial News”, “Stock Information” and “SEC Fillings and Annual Reports”. When clicking on the Annual Reports options the webpage opens up with a list of old archives or KRAFT’s Annual Reports and a link to visit their “most recent edition” of the Annual Report. In order to view their report, I had to download via a PDF file to my computer. Expecting it be quite fancy looking report, due to the amount of time it took me download, I was very surprised to a plain black and white and, now no offense KRAFT, but BORING LOOKING booklet. Obviously, the report was not intended to impress any marketing/advertising savvy people here- it is simply an economical piece. KRAFT does seem to use the report as a chance to tell their story as a company, it deals solely with financial/investor information in their 233 page report. For example, some of the report consisted of different sections such as “Risk Factors, Item Proprieties, Selected Financial Data, Management Discussion, Quantitative and Qualitative Disclosures” and so on. Being a not very mathematical or investor-related Wall Street person- none of this information I found to be too thrilling, hence I merely took a glance at the packet.

KRAFT’S letter to the shareholder was located in their 2007 annual report. It opened with the feel good line, “Dear Fellow Shareholder, Welcome to the new KRAFT”. There is also a large smiling picture of the CEO and chairman Irene Rosenfeld (photos below) in color filing up the left hand side. The four page letter had a very positive tone, outlining all the various accomplishments that KRAFT made in 2007. In fact, the whole overall tone of the letter was extremely positive, instead of using an apologetic tone for more somber news, the letter organized these sections as “Addressing Challenges”- a very wise choice of words when explaining, oh not the best of news, to their “fellow” shareholders. The CEO is telling the shareholders that their biggest problem was high input costs, however the letter also went on to explain how much that have grown with that issue in 2008 so far; again, keeping that shareholder happy and confident. The letter was very easy to read and perfectly organized- the connotation and the use of graphs/charts were effective. In addition, the big smiling picture of the lovely woman CEO gave legitimacy to letter. The conclusion of the letter left that warm, fuzzy feeling in those shareholders, as the CEO is thanking them for their business and promising them of even more excellent things to come…all is well with KRAFT.

Now, the most recent news release dealing with KRAFT’s corporate earnings has been, by far, the worst thing to read through! (Yes, even worse than that awful annual report) . The release was found under their “Corporate/Financial News Releases” tab in the terrible Investor Relations webpage. I have such poor admiration for this release for various reasons, sit tight and listen: first off, it is at least 18 pages long, the first line of the release is : “Kraft Foods Inc. (NYSE: KFT) today reported 2008 results that reflected solid top-line and bottom-line results in the second year of its three-year turnaround plan” (wait…what?), and the release continued on explaining complicated things such as Net Revenues, Operating Income, Tax Rates and Earnings per Share…Now the quote from the CEO was actually put together very well, and yes, comprehensible for us financial illiterate people out there. She was positive and upbeat, however also addressed real issues by proclaiming that 2008 was a tough year due to the economic crisis, however KRAFT is working extra hard to bounce back and has high expectations for 2009.