May 2, 2008
Oreos Took Strange Journey into China
Unlike their iconic American counterpart, some Oreos sold in China are long, thin, four-layered and coated in chocolate. But the cookies have this in common: Both are now best-sellers.
The Oreo has long been the top-selling cookie in the U.S. market, but Kraft Foods had to reinvent the Oreo to make it sell well in the world's most populous nation. Although Chinese Oreo sales represent a tiny fraction of Kraft's $37.2 billion annual revenue, the cookie's journey in China is an example of the kind of entrepreneurial transformation that Chief Executive Irene Rosenfeld is trying to spread throughout the food giant.
Kraft reported a 13 percent drop in first-quarter net income Wednesday because of high commodity costs and increased spending on product research and marketing. Kraft's international business, which now represents 40 percent of the company's revenue thanks to its recent acquisition of Groupe Danone's biscuits business, was a bright spot in the quarter, aided by the weaker dollar.
In an effort to boost growth at the company, Rosenfeld has been putting more power in the hands of Kraft's business units around the globe, telling employees that decisions about the company's products shouldn't all be made by people at the Northfield, Ill., headquarters.
To take advantage of the European preference for dark chocolate, Kraft is introducing dark chocolate in Germany under its Milka brand. Research in Russia showed that consumers there like premium instant coffee, so Kraft is positioning its Carte Noire freeze- dried coffee as upscale by placing it at operas, film festivals and fashion shows. Rosenfeld also has been encouraging marketers to "reframe" product categories - in other words, not to think of an Oreo exclusively as a round sandwich cookie.
Oreos were launched in 1912 in the United States, but it wasn't until 1996 that Kraft introduced Oreos to Chinese consumers. Nine years later, a makeover began. Shawn Warren, a 37-year-old Kraft veteran who had spent many years marketing the company's cookies and crackers around the world, arrived in Asia in 2005 and noticed that Oreo's China sales had been flat for the previous five years.
At that time, the world's second-largest food company by revenue was simply selling the U.S. version of Oreos in China. Albert Einstein's definition of insanity - doing the same thing repeatedly and expecting different results - "characterized what we were doing in China," said Warren, vice president of marketing for Kraft Foods International.
The Chinese weren't big cookie eaters; the market for biscuits in fiscal 2007 was just $1.3 billion, versus $3.5 billion in the United States at food retailers excluding Wal-Mart.
Warren assigned his team to a lengthy research project that yielded some interesting findings. For one thing, Kraft learned that traditional Oreos were too sweet for Chinese tastes. Also, the packages of 14 Oreos priced at 5 yuan were too expensive.
The company developed 20 prototypes of reduced-sugar Oreos and tested them with Chinese consumers before arriving at a formula that tasted right. Kraft also introduced packages containing fewer Oreos for 2 yuan.
Kraft also began a grass-roots marketing campaign to educate Chinese consumers about the American tradition of pairing cookies with milk. The company created an Oreo apprentice program at 30 Chinese universities that drew 6,000 student applications. Kraft trained 300 to become Oreo brand ambassadors.
Students rode around Beijing on bicycles outfitted with wheel covers resembling Oreos and handed out cookies to more than 300,000 consumers. Others held Oreo-themed basketball games to reinforce the idea of dunking cookies in milk. Television commercials showed youths twisting apart Oreo cookies, licking the cream center and dipping the chocolate cookie halves into a glass of milk.
Rosenfeld called the bicycle campaign "a stroke of genius that only could have come from local managers," saying "the more opportunity our local managers have to deal with local conditions will be a source of competitive advantage for us."
Still, Kraft realized it needed to do more than just tweak the recipe of its traditional round cookies if it wanted to capture a bigger share of the Chinese biscuit market. China's cookie-wafer segment was growing faster than traditional biscuitlike cookies, and Kraft was trailing rival Nestle SA, the world's largest food company by revenue, which had introduced chocolate-covered wafers there in 1998.
So Kraft remade the Oreo itself. In China in 2006, the company introduced an Oreo that looked almost nothing like the original. The new Chinese Oreo was four layers of crispy wafer filled with vanilla and chocolate cream, coated in chocolate. Kraft developed a proprietary handling process to ensure the chocolate product could be shipped across the giant country and withstand the cold climate of the north and the hot, humid weather of the south yet still be ready to melt in the mouth.
Kraft's Oreo efforts have paid off. In 2006, Oreo wafer sticks became the best-selling biscuit in China, outpacing Hao-ChiDian, a biscuit brand made by Chinese company Dali. The new Oreos also are outselling traditional round Oreos in China, and Kraft has begun selling the wafers elsewhere in Asia, as well as in Australia and Canada. Kraft has since introduced in China wafer rolls, a tube- shaped wafer lined with cream.
Kraft has doubled its Oreo revenue in China over the past two years. With the help of those sales, Oreo last year brought in more than $1 billion for the first time.
In 2006, Kraft introduced in China an Oreo that was four layers of crispy wafer filled with vanilla and chocolate cream, coated in chocolate.