While reading the Chicago Tribune’s take on Kraft Foods’ recent financial woes, our teeth started to hurt. Maybe it was a cavity forming, but more likely we were just grinding them in mad frustration.
The article posits that the one big source of Kraft’s problems since it first went public in 2001— four years of falling profit margins and market share — is its CEO Roger Deromedi’s decision (derisively referred to here as doing “the right thing”) to stop advertising sugary snacks to kids.
What some might see as a principled choice, the Tribune views simply as a poor business move that is not paying off. Apparently, it was entirely beyond the scope of the reporter’s imagination that Deromedi might have acted with something other than profit margin in mind. Perhaps more importantly to investors, the article is a poor exercise in financial analysis.
Though the article rests on the premise that the downturn in profits and market share have to do with Deromedi’s decision on advertising, it offers absolutely nothing but consequential evidence to back up its claim, saying simply that, “since ending marketing to kids, the company says sales of its Post cereals aimed at children are down more than 10 percent.” This is no more informative than saying that since kids began drinking more Kool-Aid, they’re test scores have plummeted.
There are many reasons why cereal sales might not be doing so well, such as a general slowdown in food sales, a decision to focus on other products, or any number of the hundreds of decisions that a company makes about products and how to sell them. Indeed, the fact is that Kraft has shifted its focus from sugary kids cereals to healthier food.
Is this good PR that might actually have helped the company by slowing the decline in sales? The reporter doesn’t wrestle with the question, other than to note that archrival Frito-Lay has copied Kraft’s new 100-calorie snack package, a signal that people in the industry see value in moving away from junk food.
Rather than address these issues, the Tribune falls back on the silly premise that since the short-term stock price is down, the company must necessarily be in trouble, and then leaps to the logic that since the stock price is down, Kraft must go back to brainwashing children into eating high fructose corn syrup for breakfast.
This story sounds a lot like what one might hear from bearish investors attempting to capitalize on Wall Street suspicions of the “soft” components of business. Short the stock. Spread the word that Kraft has entered into an icky exercise in good will. Cash in as the stock falls.
We see a lot of this sort of tunnel vision in business sections’ assessments of companies’ strengths or weaknesses. The instinct is to distill everything down to a consideration of the stock price, with absolutely no eye for other important factors, like long term growth strategies or, dare we even mention it, morality and efforts to conform to changing demands from the community.
Gal Beckerman is a former staff writer at CJR.
Reporters do not work on Wall Street. Their newspapers service communities beyond Lower Manhattan. Why, then, must they continue to write stories like this one?