Trying to cash in on companies that can exploit rapid growth in the developing world is hot among investors right now. Kraft's (NYSE: KFT) attempt to take over South America with Tang is just one of the more recent stories. But as the food giant fine-tunes its presence in Latin America, it is also refocusing its efforts at appealing to Latinos living in North America. As markets boom in the developing world, they're changing in the developed world, too.
Kraft was not king
Last year, a report by the Association of Hispanic Advertising Agencies found that Kraft spent just 3.8% of its U.S. advertising budget on Hispanic media. That trailed efforts by General Mills (NYSE: GIS) at 9% and Nestle (OTC BB: NSRGY.PK) at 7.4%, although Kraft is in better shape than laggards Hormel Foods (NYSE: HRL) and McCormick (NYSE: MKC), which dedicated less than 1% in 2010. For a company that has just built Tang into a billion-dollar brand on the strength of its growth in Latin America and the Philippines, this type of result was a bit embarrassing.
Why does this matter?
Estimates value the U.S. Hispanic market at around $1 trillion and growing. The supporting numbers that analysts pulled from 2010 Census data are profound:
- Hispanics are the fastest-growing U.S. demographic.
- Hispanics number 51.2 million -- that's one out of every six U.S. residents.
- This is a 42% population increase from the 2000 Census.
Public-affairs firm Porter Novelli claims that 50% of U.S. brands don't include Latinos in their marketing efforts. Investors should be wary of companies that neglect this burgeoning population. Throwing money overseas only to sit back and relax at home is a poor strategy for future success.
Can Kraft come back?
To its credit, Kraft has stepped up its game. This year, Kraft plans to triple its spending on Hispanic marketing compared with last year's numbers. The proof is in the Kool-Aid, literally. The company's efforts are particularly noticeable with this brand, as it chose to direct the majority of its 2011 U.S. Kool-Aid budget at Hispanic markets. In contrast, Kraft spent none of its Kool-Aid budget on Hispanics as recently as 2008. Univision and Telemundo began airing new Kool-Aid commercials at the end of May. This is the sort of progress that investors like to see.
Foolish takeaway
Companies are rushing to cash in on the changes taking place in the developing world, but changes are occurring in developed economies as well, proving that investors can't afford to turn a blind eye to marketing strategies here at home. Companies like Kraft that recognize the need to evaluate and re-evaluate marketing initiatives will be the ones that are ultimately successful.
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