Pie in the Sky

When Kraft and California Pizza Kitchen meet to design a new frozen pizza, the negotiations can get subtle and intense: Cut down the oregano, bring up the Parmesan, add zingy kalamata olives, think up a snappy slogan—give the public what it wants next

By Jonathan Black

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Unfortunately for Kraft, few of the headlines in the first half of 2007 had much to do with pizza. In 2006, concerned with sluggish earnings, Kraft had dumped its veteran chief executive officer, Roger Deromedi, in favor of Frito-Lay's Irene Rosenfeld, who soon shook up the ad world by withdrawing six top Kraft brands from J. Walter Thompson, depriving the Chicago office of $130 million in business. Then, before you could say "mac and cheese," she was dealing with a new problem: investor Nelson Peltz. The hedge-fund billionaire had previously bought up large chunks of other food giants, then used that leverage to compel the company to sell off subsidiaries or buy new ones, whether management wanted to or not. Soon after he snapped up a 3 percent share in Kraft, the company bought the cookie unit of Groupe Danone for an eye-popping $7.2 billion, which Rosenfeld dutifully called "a great fit for Kraft." This past November, Rosenfeld brokered a new deal with Peltz, adding two board members in exchange for his pledge not to campaign against the company during her turnaround plan.

For Kraft, snack food brands like Oreo and Nabisco far outsell pizza, but the "convenient meal" category (which, besides pizza, includes Oscar Mayer and Macaroni & Cheese) brought in $4.9 billion in 2006. A good slice of that comes from Chicago, the number-one frozen-pizza market in the world, which generates an annual $128 million in pizza sales.

Somewhere near that great pie in the sky, James Kraft, who started selling cheese to Chicago grocers out of a horse-drawn wagon in 1903, will surely have his eyes peeled this winter. If the Mediterranean flops, it's fair to say there will likely be a serious case of freezer burn in Glenview.

It was only June, but I was already worried about the Mediterranean. It was good—I'd sampled a slice myself—but how good? Would my kids want it? They're twin ten-year-old boys and so far have not cracked the premium-food frontier when it comes to pizza. Worse, their taste buds are acutely tuned to the slightest innovation. A new cheese in their grilled cheese sandwiches (mild Cheddar—we're not talking aged goat) had them writhing in disgust. True, the Mediterranean is not intended as a "crossover," a dual sell to an upscale mom and her habituated kids (that would be Kraft's third upcoming "brand extension"—the Four Cheese ten-incher). But would CPK's medley of strange vegetables in the grocery cart get past the boys' discerning eyes? Could we avoid a scene at Jewel?

For the answer I went to an expert, Harry Balzer, a veteran food analyst and vice president with The NPD Group in Rosemont. Balzer quickly brought me up to speed with a crash course on pizza history. Twenty years ago, pizza was the family food in America. It fed kids; it was a snap to prepare; delivery was king. Then companies like Kraft figured out how to make a crust that didn't taste like the box it came in. Next they figured out how to get the crust to rise with raw dough instead of precooked dough. (An aside here: Such was the import of the innovation—pumping yeast into the raw crust—that when Schwan introduced its own version, Kraft sued, charging that a double-agent mole had stolen its new pizza-base secret. The suit was settled, but the details remain confidential.) In the nineties, "restaurant-style" pizza got all the attention: esoteric new toppings, gourmet pies from Wolfgang Puck—all fueled by baby boomers who fancied ingredients that looked as if they came from a garden. Balzer was very big on this last demographic.

"The driving force is boomers," he told me. "They're always talking about what's new, so that's what we can expect. New flavors, new tastes, new shapes."

"Do you think Kraft's Mediterranean will sell?"

"I can't comment on that. Kraft is a client."

"Suppose Schwan produced a Mediterranean?" I say.

"I can't talk about Schwan. They're a client. But know this," said Balzer. "Pizza is a family food. Family is still the primary business."

"Will families go for something new like the Mediterranean?"

"There's one thing you can count on," he said, cheerfully ignoring my question. "With pizza there will always be something new."

I assumed that for their money, Kraft and Schwan got more specific insight than I did from Balzer. At the Glenview tasting, a member of the Kraft team had dismissed several new ingredients as "polarizing." Cilantro was one. Artichoke, another. I worried that Balzer would find it tricky going, navigating his clients between the opposite pull of family—loyal to the big three of cheese, pepperoni, and sausage—and baby boomers, apostles of the new.

* * *

I had underestimated the R & D people at Kraft. It seemed they were mulling that very challenge! Even as the big yellow CPK box with its tantalizing flavors headed through design, sales, and marketing for its fall launch, Mulder's pizza group came up with another idea at a "brainstorming" session early this summer. The idea was so simple that it seemed almost profound—pepperoni, but pepperoni with a CPK twist.

Get the pepperoni crowd with, well, pepperoni. But also grab the novelty seekers by adding surprise ingredients to the meat, including—a stroke of genius—"premium" pepperoni. (Who knew the existing pepperoni was second-rate?) Call it a "limited edition"—a packaging logo. Then test the pie as an "in-and-out"—industry parlance for a product that appears for a limited time, say weeks, on retail shelves.

The strategy, of course, has its downside. The "in-and-out," as its sexual connotation suggests, tends to leave the consumer frustrated. There you are, the unwitting buyer, in, say, the cookie aisle. You come to a sudden stop. What's this? Oreo cookies encased in chocolate? What a concept! You grab a package and take it home for a tasting. It's a huge hit. You can live with the calories. Two weeks later you go back for more—but the product is gone. Your child is inconsolable. You try to explain the ways of marketing. Your child is not interested in doctorate work at the Kellogg School of Management—he wants his cookie.

Kraft, for its part, uses the strategy to track a supermarket product, running the numbers on scanners. It places the product in chains like Wal-Mart. It's a good sale to the club market, such as Sam's Club and Costco, which lure shoppers with a "treasure-hunt mentality." Consumers troll the aisles, eyes peeled for dirt-cheap surprises, even as they load up on toilet paper. Not surprisingly, when the thrilled clubber goes back two weeks later for the $20 tub of crackers, the product is gone.