SPEAKER: Good afternoon, everyone, and welcome. And thank you very, very much for joining us for this year's Hatfield Address. It's a great honor and a personal pleasure to welcome Cornell's 30th Hatfield fellow, Irene Rosenfeld, a Cornell alumna and the chair and CEO of Kraft Foods, the world's second largest food company.
For three decades, the Robert S. Hatfield Fund for Economic Education has brought the most influential corporate leaders to Cornell to serve as Hatfield fellows. The fund, which was established in 1980 by the Continental Group Foundation, honors the late Robert S. Hatfield, who was a Cornell trustee, member of the Cornell class of '37, and former president, chair, and CEO of the Continental Group.
Selection as a Hatfield fellow is the highest distinction Cornell bestows on corporate leaders, and the Hatfield Address, our premier corporate event, is intended to serve as a major platform for the exchange of ideas between academic and corporate communities. In addition to the fellowship and address, the Hatfield Fund has another purpose-- to enhance the teaching of economics. Several recent developments at Cornell that many of you are aware of are contributing to that goal, as well as to advancing related fields, such as management.
In 2010, a gift from the family of John Dyson, class of '65, established the Charles H. Dyson School of Applied Economics and Management in the College of Agriculture and Life Sciences. This was a tremendous boost for what was already one of the nation's top undergraduate business programs. The Samuel Curtis Johnson Graduate School of Management, of course, continues to attract the top students in the world to its MBA program, thanks in great part to the excellent leadership of Dean Joe Thomas.
We will soon welcome a new dean to our community, Soumitra Dutta, who currently directs a new media and technology innovation lab at INSEAD in France. With his expertise in this area and the wonderful legacy of Joe Thomas's leadership, he's an excellent choice, and we have a bright, bright future for the Johnson School.
Another recent change that many of you are aware of is our consolidation of the study of economics, which had been located in several departments around the campus. We created and expanded an improved economics department, jointly administered by the College of Arts and Sciences and the ILR School. This is not only a more efficient operation, but one that better serves our students and facilitates greater research collaboration among our faculty. Deans Peter Lepage and Harry Katz have made this an academic priority in the capital campaign, and have begun the process of raising over $30 million to support this new effort.
Now, it's a great joy to tell you that one of Mr. Hatfield's daughters is with us today. And I'm delighted that she could be here to honor Irene Rosenfeld, and to serve as well in memory of her father. Take a moment, please, to join me in welcoming Suzanne Hatfield.
Thank you so much, Suzanne, for sharing this with us.
We are very proud of Irene Rosenfeld's long association with Cornell University. She graduated with a bachelor's degree in psychology in 1975, and then entered the Johnson Graduate School of Management. There, she earned a master's in business and a PhD in marketing and statistics.
She has served on the Cornell Board of Trustees since 1999, currently chairing the Committee on Student Life, and served for many years on the President's Council of Cornell Women. Dr. Rosenfeld was honored as a Lewis H. Durland Memorial Lecturer at the Johnson School in 2007. And two years ago, Cornell awarded the Tanner Prize to Dr. Rosenfeld and her daughter, Allison, also an alum, for their contributions to Cornell and to Jewish life at Cornell.
Dr. Rosenfeld is regularly featured on lists like Fortune Magazine's Most Powerful Women in Business and Forbes's World's 100 Most Powerful Women. I'm here to tell you that she's one of the world's most powerful people. Yet, when asked to define her power, she answered, servant leadership. I'm here to help the organization accomplish its objectives, rather than employees being here to meet my needs. Advice that we could all take.
That's Irene Rosenfeld-- clear, direct, confident, but personally unassuming. Her brand of servant leadership, along with keen intelligence and astute sense of marketing, determination, and a lot of hard work has brought her and her company to the very top of the corporate world. Dr. Rosenfeld has 30 years' experience in the food and beverage industry, most of that time with Kraft.
Beginning in consumer research, she rose through the company, leading the restructuring and turnaround of key businesses in the US, in Canada, and in Mexico. She also played a key role personally in Kraft's IPO in 2001. Although she spent two years away from the company, during which she served as chair and CEO of Frito-Lay, she returned to Kraft in 2006 as its CEO, and was also named chair the following year.
Through her leadership, Kraft has integrated such notable brands as Nabisco and Cadbury. And today, Irene oversees 127,000 employees and sales in 170 countries. Most recently, Dr. Rosenfeld made headlines with another characteristically bold move. Later this very year, Kraft will divide into two public companies, a global snacks business and the North American grocery business. Dr. Rosenfeld will lead the global snacks business as its chair and CEO.
I have long believed, Irene, that you'd be an ideal Hatfield fellow, and I'm so delighted that you've given us the time and be here in this role today. Irene is an extraordinarily skilled executive, and she maintains a very strong connection to the entire academic community through philanthropy and through leadership. I greatly appreciate her sharing her time and knowledge with our faculty, staff, and students. Please join me in welcoming the 2012 Hatfield fellow, Dr. Irene Rosenfeld.
IRENE ROSENFELD: Thank you very much for those kind words, David. I am so honored to be the Hatfield fellow this year, and I am especially honored to be in the company of the illustrious prior winners. And it's a great honor to be here today. I am especially grateful to David and the committee for having accommodated my schedule.
When David called me last spring and he asked me if I would accept this opportunity, but I would need to come to speak in the fall, I was in the middle of working through the details about splitting the company, and I knew the fall-- I wasn't sure exactly when we were going to do it, but I knew the fall was going to be a busy time, and so I said, thank you very much, but I can't do it at that time. And so you were kind enough to offer me the opportunity to come back now.
I understand that the Hatfield fellowship is designed to encourage the exchange of ideas between the corporate world and academia. And we certainly have had an opportunity to do that today. You have certainly done your part. I had a fascinating opportunity to meet with a number of faculty, who were kind enough to share with me a lot of the work that they're doing. I think there's a lot of areas of mutual interest.
But I was especially delighted to have the opportunity to meet with a lot of the student leaders, female student leaders, today, who made it clear to me that I could not get into Cornell today. But they are so impressive, and I was delighted to have the opportunity to share with them some of the experiences that I have had, both at Cornell and then later on, and do my part to help them as they're contemplating their careers and their future lives.
So it's now time, though, for me to hold up my part of the bargain in this fellowship, and share with you a little bit about what we've been up to and some of the lessons that we've learned. And I guess, before I do that, I do need to fulfill my SEC obligation and remind you that I will be making some forward-looking statements about my company, and ask you that-- I will refrain from reading you the safe harbor statement, but ask you to please take a look at it. That's enough. OK.
So as David mentioned, I came back to Kraft in June of 2006 as CEO. I understood at that time that it was really going to be the big cheese of all turnarounds. And it hasn't disappointed me at all. But I would say that, from the moment I arrived, the winds of change have just blown relentlessly. And so it's been an interesting challenge on so many fronts.
We've seen political and social upheaval. We've seen natural disasters-- the tsunami in Japan, the floods in Thailand, and countless others. We've seen so much economic turmoil-- the collapse of a number of key financial institutions, the shrinking of the debt markets, the worst recession that any of us has seen, the worst recession in 70 years. We're living through the eurozone crisis as we speak. We're all anxious to see what happens tomorrow as they try to migrate the Greek debt.
But it's been an incredible last couple of years. And these factors, together with a number of other factors, including climate change, as well as rising demand for our products in developing markets, has led to unprecedented input costs, which not only have been unbelievably high, but unbelievably volatile. In the space of a month, our coffee prices went from a 10-year high to a 10-year low. And if you think about how to manage your supply chain, how to manage your pricing, how to manage your merchandising through all of that, it's quite a challenge, and really requires a very different set of skills than those that we might have used historically.
For Kraft, it's cost us about $2.6 billion year over year, the rising input costs. And that's on top of a $1 billion increase that we saw in 2010. And even for a company of our size, that's a big number. And so it's been a really interesting challenge. And so I think, in the face of all of this instability, it is tempting for people to ask, when will things go back to normal? And we had a nice conversation talking about that a few minutes ago, I was talking with Mike Hoffman [INAUDIBLE] about what kinds of provisions we are making for the reality of climate change, and what it's doing to our supply and those sorts of things.
And everybody wants to know, when is this all going to stop, and when are we going to go back to normal? And the facts are, I'm afraid that this is the new normal. And so our challenge is to figure out what we want to do differently in the face of this kind of turmoil and volatility to be successful. But I'd also say that, in addition to these external challenges, which most companies were faced with, we at Kraft had a number of unique internal challenges that affected our business.
When I came back to the company in 2006, our stock had been stagnant for about five years. Our financial results were at the bottom of our peer group. Our growth had slowed. It was not even close to the projections that we had laid out at the time of our initial IPO. We had taken significant quality out of our products to save money.
Our innovation pipeline had slowed to a very small trickle. Most of the ideas were line extensions. They were ideas that were new to Kraft, but they were not new to the world. And we were about to be spun off-- 100% of the company was about to be spun off-- from our tobacco parent of 20 years, Altria.
So for us, we were not just talking about the winds of change, we were talking about a veritable tornado. And so I'm especially proud that, despite all of these internal and external challenges, we've been able to grow against the wind. And in fact, we've actually delivered some of the best results not only in our own history, but also in our industry. And so I would like to spend the next 30 minutes or so sharing with you our journey. And I hope some of what I talk about will resonate with you in your particular areas of interest.
I especially want to talk about four areas that we focused on that I think really enabled our success-- people, portfolio, productivity, and purpose. And let me start with people, because they are the linchpin in any transformation. And they certainly were in tough times. The first step was to strengthen our leadership.
In the first 12 months, I replaced over half of the top two levels of management. It was a combination of folks outside Kraft and inside Kraft. They were willing to challenge our sacred cows. They had great passion to look at the business with fresh eyes. And they were up for the journey of reinventing this venerable company.
The second step was to decentralize the organization. There's a lot of debates in organizational behavior literature about whether it's better to be centralized, whether it's better to be decentralized, how does the matrix work. And the facts are there's really no right or wrong answer. But in our case, we had gotten way too centralized.
We had become far too slow and bureaucratic. Our functional objectives were not well aligned with the business. So we had operations guys off doing things that were not serving our business well, we had business guys that were standing in the way of productivity initiatives because they didn't see the value.
Our business leaders did not control their full P&L. So we had situations where we had piles of money that were the province of some of the folks in the operations community, and their work would get essentially allocated to the P&L. Of the business leaders. And too many decisions were being made at headquarters, rather than closer to the marketplace.
One of the examples that really struck me when I first came back, I did a world tour to talk with our various folks around the world, and to understand what they thought needed to change. Because obviously, the folks that are closest to the business understand best what's the matter. And I went to Indonesia, and we had there at that time a product called Belvita biscuits. You'll now find it on the shelves in the US. It's a dramatically revamped version of that product.
But the product was on the shelf. We saw these massive displays. And the interesting problem was that the package was kind of a beige color. And you'd go into the store, and there'd be a massive display, and you couldn't see anything. And I said to the sales guy, you can't see anything. He said, I know. I said, well, why are you using this package? And he said, Chicago mandated it.
And I came back from that experience and I said, that's the last time Chicago is going to mandate anything without having input from the local markets. And so we decentralized our business. We created accountable business units with a full P&L. We empowered our local managers to make decisions that were closer to the marketplace.
And then, in addition to strengthening our leadership and decentralizing, we also raised the bar on performance. In 2004, we had-- actually, through the 2006 period, we had about 40% of our managers that were rated as high potential, and yet our performance was in the bottom of the heap. And so you say to yourself, how does that compute?
And so that profile made no sense in an underperforming organization. And so we raised the bar, we said, there will be no more than 20% of the population that can be declared high potential. We made sure that we were appropriately identifying the bottom 10% or 15% of the population, and we asked people to step up and to evaluate their talent accordingly.
We let the underperformers go, which was a very hard thing to do. There was a lot of discussion about what that would do to morale. But what we found is that it is an incredible morale booster when underperformers, when people see underperformers being-- their issues being addressed, and then seeing them leave the organization. And so while it was difficult to let go some of the veterans that had been with the company for many years, the message that we were sending about the fact that the bar had been raised and that this was going to be a high-performance organization was abundantly clear.
And it ultimately, I think, created a sense of optimism and hope among the broader organization. It had really a profound impact on our results. It made us more nimble, it made us more efficient, and it enabled us to begin to perform at a much higher level. And so with the right people on the bus, we then had the opportunity to turn to our second opportunity, which was our portfolio.
These products are well-known. They're in 99% of US households. There's not a name there-- almost not a name there-- that you wouldn't recognize. But four years ago, less than half of our products were preferred to competition. I talked earlier about the fact that we had taken quality out of our products. The result of that is that only 44% of our products, when I came back in 2006, were preferred to competition.
And so we had iconic brands like Kraft Cheese, like Miracle Whip, like Macaroni and Cheese that all kind of felt like your father's Oldsmobile. And we set out to change that. So we invested very heavily first in product quality, and secondly in marketing. We focused our investments on what we called our power brands, those brands that we thought would be the most responsive. And our goal in making these investments was to take them from good enough to truly delicious, to make them more relevant and more contemporary and, importantly, to be able to deliver appropriate value in this challenging economic environment.
These investments together really rejuvenated our iconic brands. Take a look at a couple of them.
[MUSIC - LADY GAGA, "TELEPHONE"]
I'll be busy. Tonight I'm not taking no calls 'cause I'll be busy.
Stop calling, stop calling, I don't want to think anymore. I left my head and my heart on the dance floor. Stop calling, stop calling, I don't want to talk anymore. I left my head and my heart on the dance floor.
IRENE ROSENFELD: She's dressed, for those of you who are concerned.
- Huh? [NON-ENGLISH SPEECH]
- [NON-ENGLISH SPEECH]
- [NON-ENGLISH SPEECH]
- [NON-ENGLISH SPEECH]
- [NON-ENGLISH SPEECH]
- Wait. Wait. You have something, right?
- Oh, yeah.
- Hey, bud. Can you help me out? Thank you.
- Icy cool intensity so you're prepared no matter how close you get. Dentyne Ice. Practice safe breath.
IRENE ROSENFELD: I couldn't resist showing that to the college audience here. But the facts are that's not your mother's Kraft. And it's been acknowledged by our consumers, and it's certainly reflecting itself in our sales. But the other part of the equation was new products. New products are the lifeblood of a consumer business. And our innovation pipeline, as I mentioned a few minutes ago, just wasn't where it needed to be.
And so, in addition to contemporizing our marketing, we jumpstarted our innovation with some exciting new products, like these.
- Let's go, kids.
- Were you looking for this? Seems the drive-through is closed tonight. Instead, Velveeta Cheesy Skillets. Just brown the meat, stir in the noodles, seasoning, then smite them. Smite them with a liquid gold until there can be no more smiting. Mmm, yes. Liquid gold.
- You didn't think, did you? You, uh, you didn't think what life was gonna be like for me. Mom, Dad. For your son.
- It's a snack like nothing else. Kraft Milk Bite Bars are made with real milk, combined with tasty granola.
- Find me in the dairy aisle, please.
- Let's go, kids.
- New Cadbury Dairy Milk Bubbly.
IRENE ROSENFELD: That's our first global Cadbury introduction since we bought the company. And we're about four weeks into the launch of this new product, and we're really feeling quite good. Our initial sales are well above our plan, and we've already shipped 3/4 of the 2012 volume in the first month. Now, either our guys are sandbagging, or this is going to be an incredibly terrific new product.
But the combination of increased marketing support, stronger innovation together had a profound impact on our results, and it helped take our performance from the bottom of the heap to the middle of the pack. But clearly, our aspirations were not to be in the middle of the pack. We wanted to be at the top.
And so we took a number of other actions. In North America, we strengthened our portfolio by divesting a number of slower-growth, lower-margin businesses, like Post Cereals and DiGiorno Pizza. We significantly expanded our exposure to higher-growth categories, geographies, and sales channels. And we did it through a couple of strategic acquisitions, including the acquisition of Lu Biscuit, as well as Cadbury.
The Cadbury transaction was by far the most challenging, and it clearly attracted a lot of attention. And so I thought I'd spend a couple of minutes giving you a little bit of the backstory. First of all, despite what they said in the press, this was not a decision that we took lightly. I didn't wake up one morning and said, hey, let's go buy Cadbury. We had been studying this for almost three years.
As you may have read, not everybody thought it was such a good move. And it was controversial. It was a hostile takeover, hostile American takeover of a beloved British icon. And there was really nothing about it that was easy. We had these two public companies, four sets of regulatory authorities to deal with, none of whom had the same standards. It was a multi-billion dollar cash and stock deal, and so the value was susceptible to daily fluctuations in the stock price, as well as in the currency.
And in addition, there was a six-hour time difference. And so I would wake up every morning in a bad mood because something bad had happened over in the UK and we had to do something about it. It was also an incredible experience, I must say, for me personally. I fully understood that I would be the face, and I was the face, of Kraft as the CEO, but I could not have foreseen the intense interest in my personal life.
I know it's great fun. I always have found it great fun to read the British tabloids. I love to find out what Prince William is up to. But it's a very different deal when you're reading about yourself. And the press just went to incredible lengths to try to see what kind of dirt they could dig up. They contacted former colleagues, they camped out on my driveway with those telephoto lenses, they found somebody who had been in my Brownie troop when I was eight years old. And I don't know if they thought I had stolen funds from the Brownie troop treasury or what.
They contacted some high school classmate that I had never heard of. They contacted my rabbi, my mother. And they actually even contacted Professor Rao, who was kind enough to share with them the story about how I had paid each of the subjects in my doctoral study $1. I'm not sure what you were trying to prove with that, Vithala, to show I was disciplined or cheap, I don't know.
But the point of the matter is I understood that the British love their chocolate. I could not have really imagined how much. Fortunately, the story had a very happy ending. And as you know, our bid was ultimately successful, and Cadbury has turned out to be everything that we had hoped for. We're very pleased. The integration has gone well. And we've truly been able to create a best of both as we put these companies together.
We've had integrations in 70 countries as we bring the two together. The good news is, for the most part, the two businesses are highly complementary, and it's gone quite well. We added some great talent in the process. About a third of our top talent comes from the legacy Cadbury company. And we have benefited greatly from their experience in running global categories.
They had a tremendous footprint in developing markets, markets like India, South Africa, and Mexico, where legacy Kraft did not have a very strong presence. And so that's been a terrific addition to our portfolio, as well as they have great expertise in impulse purchases, having been a confectionery company. And so we have learned a lot about that channel from them.
The synergies on both the cost side and the revenue side are well ahead of the investment case that we had laid out. We had committed to deliver at least $750 million in cost synergies and about $1 billion in revenue synergies. And we're well on track to do that. So together, these portfolio actions have significantly changed the face, the footprint, and the prospects of our company.
And it's interesting, as we look back, when we began our transformation in 2007, we were largely a North American business. Only 13% of our revenue at that time came from fast-growing developing markets. Snacks at that time were only about 29% of our revenue, and just 10% of our revenue came from fast-growing instant consumption channels.
Today, more than half of our revenues are generated outside North America, and almost 30% of our total revenue comes from developing markets, with a very good balance within that profile of Central and Eastern Europe, Latin America, and Asia-Pacific. Our category mix, as you can see, is also quite different. Snacks are now about half of our total portfolio and about 70% of revenue outside North America. And finally, the revenue that we get from these instant consumption channels, which, as I mentioned are growing rapidly, they typically have very attractive margins, has also doubled to about 20%.
So investing in our portfolio has certainly yielded some terrific dividends for us. But someone has to pay for that, and that brings me to my third P, which is productivity. The steps I've been talking about have really helped to accelerate our revenue growth on the top line, but we've also taken a number of steps to reduce costs and overhead. And I'll give you just a couple of examples.
On the systems side, we've moved to a global enterprise system. We've installed SAP around the world. And that has given us the opportunity to reduce the number of systems in our enterprise by about 50%. It's also eliminated a number of very complex and costly legacy systems. And that's been a real enabler to us.
We fundamentally reset our manufacturing network. Between 2004 and 2008, we streamlined our plant network around the world. We closed about 35 factories in the process. 2009, we then again upped the game in our factories by implementing Lean Six Sigma capabilities, which help us to eliminate variability in our process and ensure that every aspect of our production performs its role consistently. And that's been able to drive a step change in our cost savings.
As an example, I want to just share with you the experience we've had on Oreo Cookies, which, as many of you may have heard, celebrated its hundredth birthday yesterday. And by applying Lean Six Sigma tools in our plants around the world, we've actually freed up enough capacity to produce an additional eight billion Oreos a year. And that's more than one cookie for everyone on the planet. And we did that with adding little or no incremental capital. So these tools are quite powerful, and the opportunity to bring them to our factories around the world has played a critical role and will continue to be important to us as we move forward.
And finally, we've also made significant progress in generating savings in other parts of our operation-- in procurement, in logistics, as well as in overhead. We've reduced the number of suppliers by about 15% to 20%. Last year, we delivered productivity of more than 4% of our cost of goods sold, which is a good benchmark level. And we've continued to reduce our overheads. Last year, we reduced them by about 60 basis points. So in aggregate, all of these savings and these actions together that first helped us to offset the higher costs that I described earlier also helped to expand our profits and give us the necessary money that we could then reinvest in quality, in marketing and innovation.
So to recap, over the past four years we've made some significant changes in our people, in our portfolio, and in productivity. And as a result, we've been able to grow against the wind and deliver best-in-class results. We've rejuvenated our brands. Today, they're more vibrant than they've ever been. We have strong operating momentum. We're growing our top and bottom lines. But most importantly, by focusing on power brands, driving top-tier growth, reducing costs, leveraging overhead, and then reinvesting in that growth, we've created a virtuous cycle that is not only serving us well today, but will continue to enable us to deliver best-in-class results as we look to the future.
We could have stopped there. And there are many days I ask myself, why didn't you? But as we thought about what we needed to do, as we looked ahead and we recognized that the environment will continue to be challenging, we want to continue to stay ahead of the pack and think about what we needed to do to further accelerate our performance, it became increasingly clear that, within this portfolio that we have now created, we have two very different businesses. We have a North American grocery business and we have a global snacks business. And there are significant differences between the two of them.
So for example, in our grocery business, we have a unique set of iconic trademarks with a very limited global presence. They are typically everyday staples. They're sold in the center of the store. They're distributed from customer's warehouses. In contrast, the bulk of our global snacks business is made up of iconic global brands like Oreo, Cadbury, and Trident. They're highly impulse-driven. They're found in multiple locations in the store-- in the snacking aisle, at the end of the aisle, in the hot zone, which is that area that you find near the cash register. And they're typically distributed through a very high-touch, very expensive delivery system called a direct store delivery system. So we go directly from our depots to the customer's store. We do not go through a customer's warehouses.
And having looked at the profile of these two businesses, we made the decision that these two portfolios could perform much better if they were run as separate entities. And that's what led to our decision to split the company into two parts, into two public companies. And we expect to accomplish that later this year.
The North American grocery business, which will retain the Kraft Foods name, is going to be about an $18 billion business. It will be a major force in the US and Canada, which are the most profitable food markets in the world. The competitive advantage of that company will be just the sheer scale and size of its leading center-of-the-store brands. 80% of those brands hold the number one share position in their respective categories.
This company will be able to gear its investments, its infrastructure, and its supply chain to deliver revenue growth in line with its categories, which is admittedly at a somewhat slower growth rate than you would find in the developing markets. And by simplifying and focusing the portfolio, the grocery company can expand its strong margins and capture some significant cost savings.
As a result of all of that, this company will generate substantial cash that can be returned to shareholders in the form of a highly competitive dividend, as well as a growing dividend over time. And it will generate very attractive shareholder return through a combination of the modest growth together with the very significant dividend.
On the other hand, the global snacks business, which will have a new name that we'll be announcing in the next couple of weeks as we send out our proxy, is going to be a $35 billion business. It is comprised of what is today in our Kraft Foods Europe portfolio, currently in our Kraft Foods developing markets portfolios, together with our North American snacks and confectionery businesses.
As an independent company, this company will derive about 3/4 of its revenue from snacks, and it will have a strong growth profile in the top tier of its global peers. It will be truly the preeminent player in snacking. We have very strong positions in four critical snacking categories, and we'll have strength in every major region in the world.
At the time of the spinoff, this company will derive about 44% of its revenue from the developing markets, and it will have one of the most significant exposures to emerging markets of any of the consumer product group peers. About 37% of the revenue, almost 40% of the revenue, of the global snacks company will come from western Europe, where we've been able to post some significant performance versus our peers. And about 19% of the business will come from North America.
Finally, the global snacks business will deliver industry-leading revenue growth, and expand margins through volume growth, improved product mix, and continued focus on cost containment. It will generate significant cash flow that we expect to be able to then reinvest in the future growth of the business. And as a result, we believe this company will also be able to deliver top-tier shareholder returns, largely through consistent growth in earnings per share, together with a modest dividend.
So that's the profile of the two companies. I am very excited to be writing this new chapter in the history of Kraft Foods. I'm very proud of our performance. And it's been recognized, if you've followed the stock market at all, our stock performance has been quite strong. In fact, we've been hitting multi-year highs. I'm sorry I didn't come here yesterday when we led the Dow, but timing is everything. Today, we sure didn't lead the Dow. But for a company at this time, we feel quite proud of the results that we've been able to deliver.
The challenge is that, for a company of our stature, the pure financials are not enough. And that brings me to my final P, the final P of our journey, purpose. And that is our responsibility to make a difference in the world, a delicious difference. When people come to work, as you all know, they want to do more than just deliver great results. They really want to feel that they're part of something bigger. And for Kraft, that something bigger is our higher purpose-- make today delicious.
Delicious has a literal meaning for a food company, as you might imagine. We obviously have to make foods that taste terrific. But it should also be about more than just food. It's about making a delicious difference everywhere-- in our workplace, in our partnership, in our communities, and in the world. And I'm proud to say that, since we've launched this higher purpose in 2008, it has really inspired a great deal of action.
It has really crystallized our focus in corporate social responsibility, enabling us to really focus all of our efforts in working to fight hunger and obesity. It has caused us to make significant investments in sustainable agriculture, and it has encouraged our employees to become even more engaged in their communities. We allow our employees to take time off to be able to participate in helping organizations within these areas within their communities. And in fact, we actually have a global week in the fall that we call Delicious Difference Week, where tens of thousands of employees around the world are able to take time off and contribute in some way to their communities.
This past fall, I actually joined other Chicago area employees sorting and packing some delicious Kraft Foods products at the Greater Chicago Food Depository. Anybody who knows me knows I'm quite competitive, even at the Food Depository. So we had two lines going, and in a few hours, we actually set a volunteer record for the highest number of bags ever packed. We did 4,000.
We sent these bags home, importantly, with Chicago public school students, who, although they are receiving free lunches as part of the program, they typically have no support on the weekends. And these bags that we packed for them enabled them to have access to food over the weekends. In the afternoon, I had the opportunity to play with some kids at the Namaste Charter School, which we were particularly excited about because this is a school whose mission incorporates physical activity together with the school academic activities. And it's a real focus on helping to integrate physical activity and performance in school.
You would have been interested to see this so-called most powerful women in the three-legged race there with my partner. He was only three feet tall, so it was a little bit of a challenge, but we did the best that we could. And I only fell down once.
But I'm very proud of all of the contributions that our employees have made to helping to make this world a better place, but I was particularly encouraged by the work that five of them did. And so, a number of months ago, the executive team and I gathered in our Chicago headquarters to honor the work of five of our colleagues who had done some things above and beyond the call of duty.
These five winners came from places as far away as Kenya. And I was so touched to see how much coming to Chicago and being a part of this really meant to them. They were all invited to bring a guest with them. And the guy on the end there brought his mother with him from Mexico. And as he accepted his award, there were just tears streaming down his face, and there were tears streaming down the faces of everybody in the room. And it really crystallized for me the power of having a higher purpose.
So I hope I've given you some understanding of how Kraft has been able to grow against the wind by focusing on people, on portfolio, on productivity, and our higher purpose. In the coming months, as we continue to move toward the launch of these two independent companies, I believe that our continued focus in these areas will enable us to be well-positioned to continue to deliver top-tier performance in the years to come.
In closing, I would just like to quote the 18th century English critic William Hazlitt, who said that prosperity is a great teacher, adversity a greater. And I can just tell you, he wasn't kidding. But I do feel that, no matter what headwinds will blow our way, we are well-positioned, and I am quite confident that the best is yet to come.
So with that as background, it's been a pleasure having an opportunity to share some of our journey with you. I would be happy now to take your questions. Thank you.
SPEAKER: Thank you very much, Dr. Rosenfeld. And we're open for questions. In the back there. And we do have-- do we have mics? I'm sorry, mics are down here. Do you mind?
AUDIENCE: Thank you very much for your time. That was absolutely fantastic. Our government should be run accordingly. One question. The new company, will that be headquartered overseas, then, since such a small percentage is actually North America?
IRENE ROSENFELD: [INAUDIBLE]
AUDIENCE: The new company, basically your pie chart showed 19% would be North American sales.
IRENE ROSENFELD: Yes.
AUDIENCE: And so will that become a European-based company?
IRENE ROSENFELD: A very good question. You know, the simple answer is no in the near-term. As we thought about the many decisions and actions that we need to take over the coming months and years, we decided that making people crazy about where the headquarters was was not a good idea. So we made a decision right when we announced, in fact on the day I announced the spin, we announced that both companies would stay in the Chicago land area for the near future.
That said, there's no question that we need to continue to think, as we watch the evolution, certainly the food company-- in fact, the food company announced that the North American grocery team has announced that we will actually be moving some of the operations that we had out in New York to Chicago. So they are actually going to consolidate in the Chicago area.
As we think about the global snacks business, we're going to continue to think about how the business evolves, and how we get our work done and what makes the most sense. So stay tuned, but I think, for the foreseeable next couple of years, we're going to stay in Chicago.
AUDIENCE: My second question is, regarding kind of the current administration, the First Lady focusing on healthy children, what's Kraft Foods' role in that?
IRENE ROSENFELD: We've actually been delighted that the First Lady has chosen to make this an area of focus. I think the challenge we have is the approach to what to do with that focus is somewhat controversial. There's been a lot of discussion about front-of-pack labeling, taking some of the information that today you find on the back of your packages, put it on the front.
It is not intuitively clear that that action will significantly alter people's behavior. It's a very costly endeavor. And the fact is, the information is all there today. So there's been a lot of debate among the industry about what is it we can do to help to educate people and to help to make them more aware.
But the other piece of her program has also been-- so there's been an educational component, which we're still talking about. The other part of her program has been the Let's Get Moving program, which has been a recognition that the obesity issue-- and it's a huge issue-- is about calories in and calories out. And so she's been a strong proponent of restoring physical education, physical activity in schools. And she's been a very good partner and spokesperson in that regard.
AUDIENCE: Thank you very much. I'm a financial advisor here in town, and I have clients that I've recommended your stock for a number of years now. So it's been great.
SPEAKER: Thank you. Please.
IRENE ROSENFELD: That's why I put that safe harbor up there.
AUDIENCE: Hi, Irene. Just going off the earlier question about moving the Tarrytown site, or at least the sales and marketing force, as well as the East Hanover to the Chicago area, how do you do that as well as the job cuts, and now avoid becoming too centralized, or too close to headquarters?
IRENE ROSENFELD: Very good question. The logic as-- first, as we have constructed these two companies, we really have truly taken a blank sheet of paper. It was very tempting to just split the company in two. The reality is, as we look at the new company, the corporate overhead for the two companies will cost less than today's corporate overhead. So we have really taken this as an opportunity.
We spent quite a bit of time with a core steering team talking through what were the capabilities that each of these two companies needed. So for example, the grocery company, we clearly need some very strong financial players that understand cash management. The global snacks company, we clearly need to understand folks who can work with global product platforms.
And as we thought that through, that informed the structure that we've created for the two companies. So they actually have different structures, different focus areas. And in doing that, it allows us to be able to design these companies, I think, in a way that will enable them to accomplish their missions.
It's not easy to talk about letting people go, but in a world where we are trying to streamline decision-making and get closer to the markets, it's in our interest to be able to set up a structure that will facilitate that. And we're trying to do it in the best way possible.
SPEAKER: Thank you. Please.
AUDIENCE: About 30 years ago, the Cadbury Chocolate brand was first manufactured in this country. It was then purchased by Peter Paul, and then by Hershey.
IRENE ROSENFELD: Yes.
AUDIENCE: Now that Kraft's acquired Cadbury, it's natural for me to wonder what plans the global snack business might have for manufacturing here in the United States.
IRENE ROSENFELD: It's a very good question. It's not high on our priority list. There is a contract with Hershey, as you point out. It's in perpetuity. And so the forefathers of Cadbury did not think this through as well as I wish they had. And so, for the foreseeable future, Hershey will continue to distribute Cadbury Chocolate. And it has actually made-- in Hershey factories, if you eat US Cadbury products, they taste different than our European Cadbury products. And that's the reason.
So, stay tuned. I do think you'll be able to find Curly Wurlys and Cream Eggs a lot more easily tomorrow than you can today. But we have no plans to change our manufacturing.
AUDIENCE: Thank you. As the now preeminent global snack manufacturer, were you at all tempted by Pringles when Diamond lost it two weeks ago?
IRENE ROSENFELD: No.
AUDIENCE: Follow-up question, why not?
IRENE ROSENFELD: You know, the essence of a strategy is to have thought things through before they happen. And the reality that Pringles was going to be on the block has been quite clear for the last couple of years, as Procter & Gamble took a number of steps to shed a lot of their food assets, including Folgers Coffee. So the possibility that Pringles would be on the market was not a surprise to anybody.
I obviously know a little bit about the potato chip business. And we had spent quite some time thinking about what our optimal portfolio should be, and where we thought we had strengths. So it's much more helpful to have thought that stuff through before you're in the heat of the moment, because otherwise it's tempting to start to have some knee-jerk reactions.
AUDIENCE: Thank you.
SPEAKER: Thank you very much. Please.
AUDIENCE: So as a more general question, you spent a lot of time in Ithaca. Is there only one lesson for students in the room that you learned during your time at Cornell that you'd like to share and help the others learn also?
IRENE ROSENFELD: Cornell was one of the most profound and wonderful experiences that I've had in my life, and I am exceptionally grateful for the opportunity to have been exposed to all kinds of different subjects and to learn from all kinds of smart people. And I had the opportunity when I talked to the women leaders this afternoon to talk about what else could you do.
My advice is to just take advantage of this incredible place at this incredible time to be able to educate yourselves. It's so tempting to say, gosh, I want to go get this job, and I should focus all of my efforts on that field of study. I think the opportunity to benefit from the incredible resources around here and to be able to meet the kinds of people that one interacts with here is a lifelong gift. So I am indebted to my experience here, and I wish I were sitting in your chairs.
AUDIENCE: Thanks. How does Kraft Foods utilize social media in their marketing campaign?
IRENE ROSENFELD: A lot more than we used to.
It's a big deal. I mean, the great news about social media is that the marketers don't have to work nearly as hard because the content is prepared by the consumers. And so we've been very actively engaged. A lot of our core brands have Facebook pages. Oreos got 23 million fans, Facebook fans. And a lot of these iconic brands have incredible profiles and partners.
And it's been a fabulous opportunity for us to then figure out how to continue to reinvent ourselves. A lot of the celebrations that we're doing for the hundredth birthday of Oreo came from some of our fans. And so it's an increasingly important area. We just hired a guy who's just a digital wizard. And I'm hopeful that he'll continue to suggest new and different ideas.
I'd also tell you, in the developing markets, it is the way to go. Traditional media, everybody in China has a cell phone. And so the traditional media is not nearly as useful as some of the mobile capability. So it's a big area of focus, and we're putting increasingly more of our money there.
SPEAKER: You did say 23 million.
IRENE ROSENFELD: 23 million. How many does Cornell have?
SPEAKER: Well, that's actually more than Dean Thomas has, actually. It's amazing. Did you have a question? Yeah, please.
AUDIENCE: First off, thank you for coming. Great speech. When you guys launched MiO last year, it was one of the largest launches of 2011. I was curious if you could just talk about some of the consumer insights behind the launch, and perhaps some of the hurdles that you faced launching it.
IRENE ROSENFELD: Yeah.
IRENE ROSENFELD: I actually was talking about MiO at lunch. And I was sorry I didn't bring any. For those of you who don't know what it is, it's a new product we launched. It's one of the kinds of breakout innovations that I talked about earlier. It's a liquid concentrate. It comes in a little tear-shaped bottle.
And the fascinating thing about it, there's nothing revolutionary about the technology, but what was so amazing about it is that we are the powdered beverage queens of the world. We have the Kool-Aid franchise, the Crystal Light franchise, the Country Time, Tang, all of those brands. And the facts are millennial consumers, many of them in this room, are not really excited about powdered things.
And so what we found was that the opportunity to offer our products in a liquid form was much more interesting. It's more natural. It tastes better. And we had lots of work to do to make sure it could be stable, and most importantly to figure out a package format that would allow people to make it portable. Particularly in this current-- with the consumer focus on sustainability, the opportunity to provide a concentrate where you're not using up yet another bottle each time you're drinking something is really appealing.
So we found that we had a really powerful idea. We had lots of discussion about the package. It was an expensive package. We had to invest in it. We had a lot of discussion about the brand name, because we could've called it Crystal Light or Country Time, but we chose to call it MiO. We felt it would be much better targeted to millennials if we could really create its own identity. And it's been a phenomenal success. It's $100 million after one year, and counting.
And we feel quite good about it. So it's been a really powerful new product for us. And we think it's really a perfect example of marketing 101, where you don't necessarily have to have breakthrough technology, but you have to put the whole thing together in an interesting way.
SPEAKER: The first base coach is giving us signals, but she's a Red Sox coach. We're going to ignore her. We're going to go on a little tiny bit more. If they're short questions, please. We'll just try to sneak everybody in real quick.
AUDIENCE: This is pretty general, but I'm about to start working this summer in the consumer products industry. So I'm wondering if you think that there's anything specific that you did to kind of facilitate your growth up the corporate ladder at Kraft.
IRENE ROSENFELD: You know, I think the thing that-- the best advice I can give to anybody as they think about how do you move along is to just do what you're doing well. Make a difference, and come to work every day committed to making a difference. One of the things we did is we reinvented the company, and in the course of our spinoff from Altria was to lay out a set of values that we wanted to capture the essence of this new company.
And the first one was act like an owner. And I really felt like-- there's seven values. I really thought value number one subsumed all the other six, because if you act like an owner, you really know what to do. You want to worry about costs, you want to make a difference, you want to get things done, you don't want to have a lot of red tape and bureaucracy.
So I think whatever your role is going to be in whatever company you're going to work for, it's just think about where you can add value, and go do it. It will be much more rewarding for you, and I think it will be much more helpful to you as you think about where you're going. But don't be worrying about where the puck's going. Stay focused on what you're doing here, in the here and now.
SPEAKER: We have a little mini trustee meeting. Trustee [INAUDIBLE] ask a question of Trustee Rosenfeld.
IRENE ROSENFELD: Hello.
AUDIENCE: Thank you for coming in for the speech. I wanted to ask about, with the split of the company, you're going to be focusing on the global snacks business?
IRENE ROSENFELD: Yes.
AUDIENCE: So what made you choose that over the North American supply? And on the flip side, what will you miss about the North American grocery business?
IRENE ROSENFELD: Yeah. You know, I've talked so much about it. I've been with this company now for 30 years. Over 30 years. I started when I was two. And--
--but I love these brands. I mean, they've been a part of my family, and particularly the grocery brands-- Macaroni and Cheese, Jello, Catalina salad dressing. You know, they're a big part of me and who I am, as well as the people that work on these businesses that I've known for a long time.
So the thing I'm going to miss most, I love those brands and I love the people. And so it's going to be really hard to split up in that regard. The good news is we're not dying. You know, we can still talk to each other. And I do genuinely believe that they will be more successful.
I chose to run the global snacks business because really, if you listen to what I just talked about here, the whole concept of reinventing this company and changing its footprint is really the essence of the global-- it is the global strategy. And so it made the most sense for me to now see that through. And so on that basis, I made that decision.
SPEAKER: A short one if it's OK.
AUDIENCE: Yeah. Food scientists have been working on reducing sodium and lowering fat in products, but really nobody likes to buy low-sodium soups, fat-free cheese. So after the successes of Kraft that you presented today, should food scientists just rather keep focusing on making delicious chocolate because that just sells better?
SPEAKER: Great question.
IRENE ROSENFELD: It's a very important question. The fact is it can't be either/or. And I think, you know, we were talking about this at lunch today. The fact is that we are not going to solve the obesity problem by asking everybody to eat low-fat foods. We are going to solve it by getting them to eat better foods that taste good, because that's the only way that it becomes a sustainable behavior.
So our focus is on taking down the levels of calories and sugar and fat and sodium, but at the same time making sure that we figure out how to do that in a way that tastes great, because the fact is that, absent that, you can't really get people to buy it. So the technologies that are necessary to do that to be able to then add positives like whole grain and micronutrients without affecting taste is what our R&D guys are focused on.
And they've done some really good work. If you eat a Wheat Thin, for example, now, it's got about 13 grams of fiber, which is quite satiating. So you don't need to eat more than five or six of them. And it was quite a feat to be able to create that product and still have it taste as delicious as it does. Chocolate is not going to be the salvation of your diet anytime soon. There we are much more focused on package size and portion control, making it easier for people to have a treat, because that is an important part of life, have a treat without having to overindulge.
SPEAKER: You know, our senior staff team at Cornell has actually eaten 80% of your products in the last week, just from stress.
IRENE ROSENFELD: Getting ready for me.
SPEAKER: Just from stress, yeah.
IRENE ROSENFELD: Thank you.
SPEAKER: Just one comment before we thank you. And that is, this has also been, obviously, a very tumultuous time for the university, and universities everywhere. And I want to say publicly how much we appreciate your decision just a few years ago to re-up on our board of trustees, and how wonderful it is to have a leader like you as part of the Cornell family still. So, thank you. Let's thank Dr. Rosenfeld.
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When Irene Rosenfeld, BA '75, MS '77, PhD '80, became CEO of Kraft Foods in 2006, the company was suffering from stagnant growth, poor organization and little product innovation. Today, the second-largest food company in the world is on the menu of billions of people, exceeding even Rosenfeld's expectations.
Rosenfeld earnestly told the story of how she has led Kraft's resurgence, delivering Cornell's 30th Hatfield Lecture March 7, 2012.