American Kraft Foods has seen its profits drop while turnover levels remained the same. "Our price policy strategy, based on raw materials, has proven to be successful up until now, but we have had flawed execution in other areas", CEO Tony Vernon admitted.
Higher prices, larger discounts
Kraft Foods' net profit dropped nearly 11 % compared to the year before, to 446 million dollars (350 million euro). Turnover remained level at 4.4 billion dollars (3.5 billion euro), slightly lower than analysts' expectations.
The company says it has managed to increase the price for more than 50 % of its product range to offset the increased cost of raw materials. The result was that, for some products, sales lagged behind. On top of that, in order to stimulate meal and dessert sales, the group was forced to hand out larger discounts and take a 6.7 % turnover hit in that branch. All in all, Kraft's gross margin reached 29.3 % in the previous quarter, down from 33.8 % the year before.