Philly Cream Cheese’s Spreading Appeal – Businessweek

Shoppers hoping to stick to their post-holiday diets should avoid the dairy aisle come January, when Kraft Foods (KFT) unveils its newest creation, Philly Indulgence, a sweet-and-tangy blend of cream cheese and chocolate that can be spread on a pretzel or just devoured straight from the tub. A similar concoction introduced in Europe blew past sales projections this year, prompting Chief Executive Officer Irene Rosenfeld to bring it to the U.S. It’s the latest evidence of a surprising revival for Philadelphia cream cheese, Kraft’s $1.7 billion spread that dates back to 1880. (The brand has no link to the City of Brotherly Love—the company’s founder, A.L. Reynolds, thought Philadelphia was synonymous with quality food. That was likely before the invention of the cheese steak.)

When Rosenfeld took over in 2006, the world’s second-largest food company after Nestlé was content just to maintain market share against rival cream cheese brands and private-label copycats. Lately, though, an international team of brand managers and research and development teams has expanded Philly’s target market, unveiling new variations that have spread cream cheese far beyond the bagel to everyday cooking and snacking. They’ve doubled Philly’s annual growth rate, to about 15 percent in just one year. “We used to play not to lose,” says George Zoghbi, president of Kraft’s Cheese & Dairy business. “Now we’re playing to win.”

Philly’s resurgence began in 2008, when Kraft researchers learned that frequent buyers of cream cheese were using it as a cooking ingredient, not just as a schmear. “That was quite an eye-opener for us,” says Tuscany native Piero Capizzi, president of Cheese & Grocery in Europe, where Philly generates more than a third of its sales. “It gave us an idea to change our strategy.”

Capizzi launched a marketing campaign in Britain and Western Europe trumpeting how Philly could be added to everything from Spanish tapas to spaghetti carbonara. Websites soon hosted thousands of recipes submitted by consumers, including “Thai Spiced Philadelphia Prawns” and “Middle Eastern Lamb Pies.” Ten Philly fanatics were chosen to shoot an online video where they made their own cream cheese-infused dishes. Kraft even persuaded British retailers including Tesco to sell Philly next to main-dish staples such as salmon to inspire recipe ideas. In the U.K., the share of Philly consumers who use it as an ingredient has nearly doubled, to 37 percent, since the effort started, Capizzi says.

Meanwhile, Kraft’s own food formulators got into the act. At quarterly brainstorming meetings, staffers mixed Philly with everything from curry sauce to Oreos to Kraft’s own Vegemite, a salty spread made from brewers’ yeast extract that Kraft sells in Australia, where it’s a national institution.

Not everything worked. Philly-laced grapefruit smoothies, for one, bombed in U.S. taste tests. Others clicked. Borrowing technology used to make ice cream, Englishman Nigel Kirtley’s R&D team developed Duo, an after-dinner hard table cheese sold in Italy and Spain with a soft Philly-based middle.

The biggest bang came in 2010 when Kirtley found just the right blend of Kraft’s Milka chocolate and Philly. The result: a creamy spread sold first in Germany and now Italy that aims to topple market leader Nutella, made by Italy’s Ferrero. It’s off to a good start, hitting its annual sales goal after just one quarter this year. Kraft also claims it’s better for you than similar products, although one of those items is chocolate frosting.

Healthy or not, the Philly innovation has won over shoppers, and sales soared 20 percent in Europe last quarter. “Philadelphia has had some tremendous commercial successes this year,” says Caroline Roux, a global food analyst at researcher Mintel Group in London. Rosenfeld this year even brought regular Philly to France, the epicenter of cheese snobbery. Roux says the move is risky, but the brand’s American provenance could help it stand out.

Back home, where Philly dominates the traditional cream cheese market with more than a 60 percent share, Kraft has tweaked the cooking ingredient campaign for Americans, dubbing it “Real Women of Philadelphia” and featuring celebrity chef Paula Deen.

Nine varieties of Philly Cooking Creme, including Savory Garlic, are available, offering what Kraft calls “a dollop-able, creamy consistency” that’s “easily added in all your favorite dishes.” While it’s debatable that all those dishes really need more cheese—at eight grams of fat per serving—there’s no denying the campaign’s success. After posting no growth in 2009, U.S. Philly sales are up 9 percent this year, according to market data tracker SymphonyIRI Group.

The bottom line: Kraft Foods has revived growth of Philadelphia cream cheese, a brand with $1.7 billion in global sales, by pitching it as a recipe ingredient.

Philly Cream Cheese’s Spreading Appeal – Businessweek.

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