Since J. L. Kraft started a cheese business in 1903, Kraft Foods Inc. has shaped an image as family-oriented as the Oscar Mayer hot dogs and Jell-O it sells. But last year, executives at the Northfield, Ill.-based food giant surveyed a troubling landscape. A major government-commissioned study found advertising contributes to childhood obesity. Two bills in Congress proposed regulation of children's advertising.
Kraft, the nation's biggest food company, which spends about $90 million advertising directly to children every year, suddenly risked being depicted as a corporate villain.
What happened next says a lot about how quickly companies can be forced into dramatic action when confronted with a challenge to their reputation. In January, Kraft announced it would quit advertising certain products to kids under 12.
The move surprised the food industry and put Kraft at odds with competitors. It presented the risk of losing market share and millions of dollars in sales. Yet the strategy seems to be scoring points with policy makers. Democratic Sen. Tom Harkin, of Iowa, has praised Kraft's decision. Kraft was the only food manufacturer on California Gov. Arnold Schwarzenegger's recent "Honor Roll" for its policies to combat obesity.
Critics say the policy gives Kraft too much discretion in deciding what's healthy and what isn't. They note the company still reaches young children through cartoon characters on its packaging. And in any case, the company continues marketing all of its products to the 12-and-up crowd.
But Kraft is betting the strategy will work. It learned it from its sister company, Philip Morris USA.
For years, Philip Morris, which, like Kraft, is owned by Altria Group Inc., disputed a growing body of evidence that showed a link between tobacco and cancer. After the tobacco industry agreed to pay more than $200 billion in 1998 to settle lawsuits with 46 states, Philip Morris broke ranks with other tobacco firms to push for government regulation of the industry.
Kraft executives, some of whom used to work for Altria, are trying to avoid Philip Morris's initial mistakes. Kraft is taking control of the discussion about marketing to children in a way that Philip Morris didn't do with cigarettes for years.
"It's important to align with society and engage our critics," Roger Deromedi, Kraft's chief executive officer, said in an interview. "And we have learned that from Altria."
Kraft felt inaction might invite a greater threat. The government could impose restrictions on children's advertising, not to mention the risk of bad publicity or potential lawsuits. "If the tobacco industry could go back 20 or 30 years, reform their marketing, disarm their critics, and sacrifice a couple of hundred million in profits, knowing what they know today, don't you think they'd take that deal in a heartbeat?" asked Michael Mudd, an architect of Kraft's obesity strategy and a former executive vice president, in a September speech at a conference at Northeastern University School of Law in Boston. "We have that deal in front of us today."
Still, coming to its current position was a difficult process for Kraft. At a meeting in May 2003, Betsy Holden, then co-chief executive officer of Kraft presented 10 proposals the company could adopt to combat obesity. Kraft agreed to all but one: to stop marketing to children under 12.
"It was just too scary," says one executive who was at the meeting. "We didn't want to give up the power of marketing to kids."
But as concern over the role of food marketing in childhood obesity gained steam, the company reconsidered.
Between the 1960s and the 1980s, the percentage of overweight children in the U.S. hovered around 6%, according to government data. Since 1980, however, the rate of obesity in children aged six to 11 has more than doubled, and the rate in adolescents has tripled to 16%.
In March 2004, Kraft executives met with the company's newly-formed advisory council, a group of paid outside nutritional and media experts. One member of Kraft's council, Ellen Wartella, dean of the College of Communications at the University of Texas at Austin, had complained several times to executives that Kraft hadn't adequately addressed the issue of marketing to kids.
At the meeting at Kraft's headquarters, a company marketing executive showed the council reels of ads for Chips Ahoy! cookies, Lunchables and Kool-Aid drinks. The council watched demonstrations of online games on Kraft Web sites, where children could search for Barney Rubble and his Fruity Pebbles, and a counting game with Oreos. The executive showed Kraft packaging featuring characters such as Shrek and Dora the Explorer, a cartoon character who stars in a show aimed at preschoolers.
After the presentation, Dr. Wartella told Kraft executives the company's online marketing was "indefensible." She said such tactics got around a company policy, already in place since the mid-1980s, banning advertising on television, radio or in print to children under six. Pointing to Kraft packages and licensing deals, she said the idea Kraft wasn't advertising to children under six was "at best disingenuous and at worst a downright lie," according to Dr. Wartella and several people who were there.
Some executives were shaken by the comments, and felt Dr. Wartella crossed a line. "I thought they were going to throw me off the council at one point," says Dr. Wartella, who remains on the council.
In the spring of 2004, executives came up with a compromise: Kraft would stop advertising some products to children under 12, but still market "healthier" food to kids between six and 12.
While the idea may seem unremarkable, it was explosive within the industry. It violated one of the long-held tenets of the food industry: there are no "bad" foods.
Kraft doesn't use negative terms to describe any of its products. But just admitting that certain foods were "healthier" than others was seen as revolutionary. To some, it was akin to a move by tobacco firms years earlier, when they finally agreed that "there is no such thing as a safe cigarette."
Kraft has tried to shy away from discussions about the causes of obesity and the legal risks to food companies. "This is not about complying with our legal obligations or disputing the science," says Mark Berlind, Kraft's executive vice president of corporate and government affairs, and a former Altria executive. "We're formulating our response based on what our consumers are telling us, and parents are most concerned about ads directed at younger children."
The decision was important in another respect: Kraft, not government regulators, would be in control of defining which of its products were "healthier." Still, "the commercial units were very concerned," says Lance Friedmann, Kraft's senior vice president of health and wellness. "It was taking a big step."
Managers for cereal brands such as Fruity Pebbles and Honeycomb were particularly worried. Of all the businesses at Kraft, cereal was the biggest advertiser to kids. And unlike Kraft macaroni and cheese and other products -- which are also advertised to adults -- these cereals always advertised directly to children, not parents.
By summer 2004, Mr. Deromedi, the CEO, sat down with Kraft's advisory council and discussed the proposed guidelines. Kraft wrote its own standards, which the company says are based on government recommendations.
But executives drew and redrew the lines on how much sugar, fat and calories foods could contain and still advertise on children's media. This led to what several executives and critics referred to as "nutritional gerrymandering."
Even as the company was putting the final touches on its advertising policy, it sent a $25,000 check to join a lobbying group devoted to defending the food industry's right to advertise to children. "We need to keep a seat at the table," says Mr. Berlind.
At the time it announced the new policy in January, Kraft had been advertising dozens of products on children's television shows, including various kinds of Chips Ahoy! and Oreo cookies, as well as Lunchables, pre-packaged meals which come in 40 varieties. By Kraft's own definition of what is healthy enough to advertise directly to children, only five of its products qualified.
Three of the products on that list were drinks: Sugar-Free Kool-Aid, and two kinds of Capri-Sun drinks. Only two food items met the company's own criteria as being healthy enough to advertise to kids: Lunchables Fun Pack Chicken Dunks and 1/2 the Sugar Fruity Pebbles cereal.
Since then, Kraft has introduced other products that meet its definition of what is healthy enough to advertise to children, including a reformulated version of macaroni and cheese, with pasta that comes in shapes of characters from SpongeBob Squarepants and Scooby Doo.
Under Kraft's new policy, any product advertised on a TV show where more than 50% of the audience is under 12 (as measured by Nielsen Media Research) has to meet the nutritional standards set by the company.
However, the company will still advertise on TV shows that young children may see, as long as more than 50% of the audience is over 12. It will also continue to advertise in certain magazines that kids read, and on Web sites. The company still holds contests for children as young as seven, such as the chance to be one of "The Cheesiest Kids in America," and get their picture on a box of macaroni and cheese.
Kraft's limits on advertising pitted the company against competitors, who worry the move is a tacit admission of a link between food advertising and obesity. "I know the wave of panic that went through the industry when we first made our announcement," said Mr. Mudd in his speech last month.
A major competitor, General Mills Inc., maker of Trix, Lucky Charms and other cereals, this summer began its largest-ever ad campaign to children, touting the benefits of breakfast cereal. "We've launched a vigorous defense of cereal, and we're sticking to it," says Tom Forsythe, a General Mills vice president.
Kraft's nutritional guidelines weighed the impact on profits at its individual business units. Most estimates of an initial impact hovered at around $75 million in lost profits, according to current and former Kraft employees, though estimates changed several times.
The company has made exceptions to its own guidelines. For instance, Kraft's Capri-Sun Sport drink has more sugar and calories than the standard that the company set for "refreshment drinks." But Kraft still advertises the product to children. That's because Kraft says the drink has a "clinically proven superior hydration benefit compared to water."
Kraft bases that benefit on a study it funded of 29 children between the ages of nine and 12. The children exercised and on breaks were allowed to take a drink. On average, the kids drank more Capri-Sun Sport than water, according to the study, done by the Medical College of Georgia in Augusta. Kraft determined its drink had a nutritional benefit because kids drank more Capri-Sun than water.
Some say the claim is misleading. "It will come in very handy when dehydration becomes a public health menace," cracks David Ludwig, director of the obesity program at Children's Hospital in Boston. Kraft says the claim is substantiated.
Kraft won't comment on whether the change in its advertising has had any impact on sales. But Kraft says its Chicken Dunks Lunchables, which fit its new criteria, are its fastest-growing product in that line.
And Kraft has maintained its ability to market some products to children. The company continues to use SpongeBob Squarepants and Dora the Explorer on packages of Honeycomb cereal and Teddy Grahams cookies, products it no longer advertises on children's TV shows.
"We know that discussion around licensed characters will continue and we think that's a good thing," says Mr. Berlind. Kraft recently declined to renew its license to use Clifford the Big Red Dog on packaging.
Sarah Ellison, The Wall Street Journal. October 31, 2005
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