Kraft offers “free” food in many SuperValu stores-Why?

I came across an interesting promotion from Kraft foods-it’s almost like free food. If you purchase $25 in qualifying items, you will get a $5 your next purchase and $20 via mail in rebate. The offer is valid from 8/7/09 through 8/23/09 in selected SuperValu stores such as Albertsons, Jewel-Osco, and Shaws.

I want to highlight the offer because it seems pretty good. Hey, who can pass up free Mac and Cheese?

But I also want to talk about why companies run such offers, as the economics involve some strategic thinking.

So on to the offer.

The offer: Kraft foods SuperValu promotion

Kraft advertises that when you purchase $25 in qualifying items, you will get a coupon for $5 off your next shopping trip and a form for a $20 mail-in rebate.

As is with such offers, there are a bunch of restrictions and details. Here are some of the highlights:

–The offer is available at participating Albertsons such as ACME, Albertsons, bigg’s, Cub, Farm Fresh, Hornbachers, Jewel-Osco, Shaws, Shop n Save, Shoppers

–Albertsons stores in Arizona, Colorado, Texas, Louisiana, New Mexico and Florida and Cub stores in Ohio are not participating in the promotion

–The promotion runs from 8/7/09 until 8/23/09

–All of the purchases must be made in a single transaction

–You should get a coupon for $5 off your next shopping trip when checking out. The coupon is valid for two weeks. You only get one coupon per transaction (if you spend $50 you don’t get two coupons)

–You should also get a rebate form for $20 off when checking out. The rebate check may take 6-8 weeks to ship. Limit one rebate per address/household.

If you’re going to do this, I suggest you check out Kraft’s website for up-to-date information.

The qualifying food items

There are a bunch of items that work. Here is a sampling of them:

Kraft natural shredded or chunk cheese (5.8 – 16 oz)
Maxwell house coffee (31.5 – 39 oz)
Starbucks coffee (12 oz)
Chips ahoy! cookies (12 – 15.25 oz)
Kraft easy mac or Velveeta cups (2.05 – 2.44 oz)
Oscar mayer meat (10 oz)
California pizza kitchen & Digiorno pizza (11.9 – 32.7 oz)
Philadelphia cream cheese soft or whipped (8 oz)
Planters mixed nuts or cashew halves (9.25 – 11.25 oz)

The Kraft site has a larger list of qualifying food items (pdf)*

*A warning: I’ve read some people have had trouble with this promotion. There’s a good post at Utah Deals Diva offering suggestions on how to stay organized with the rebate.

Why offer “free” food? Part I: Rebates do not equal cash back

Why would Kraft offer such a generous rebate program? There have to be a few reasons, mostly having to do with the annoyances of rebates.

Rebates are a hassle. There is the pain of filling out the form and cutting all the UPCs. Then there is the 6-8 week waiting period. And finally there is the chance the rebate company messes up or does not pay out.

These are just a few of the reasons rebate programs have somewhere like a 50 percent redemption rate. For items under $10, the redemption rates are sometimes in the single digits!. This is all good for companies who can benefit from extra sales (as high as 500 percent) and then not have to pay out rebates.

The profitability of rebates is one part of the story. The other has to do with game theory.

Part II: Addiction pays off

As I discussed before, grocery shopping is a game that consumers should win:

On the surface, we consumers should [win] because we have a strategic advantage of moving second. We can comparison shop. We can switch to other brands. And if store food is not suitable, we can often buy directly from farmers. Being responsive should give us power, but that isn’t always how it works. Food companies can overcome our better judgment-just ask any parent. Just the other day I saw a kid complain about the cereal at Trader Joe’s: “No mom, I don’t want these. I want the ones I see on TV.” The kid had already committed to a set of products before entering the store-now that’s good marketing, but bad game theory.

Source: The game of free food

One of the ways companies tip the scales back in their favor is by building brand loyalty. But they need consumers to try their products, and hence, the various sampling and free food promotions.

In game theory language, in repeated game, a one-time discount or defection can be compensated in future rounds of play. This strategy particularly works when the item is addictive. Not surprisingly, the Kraft promotion is filled with addicting food loaded with sugar, cheese, and caffeine. By my count, at least half of the qualifying items contain one of those addictive components. To reach the $25 spending threshold, a customer is likely to buy at least a few addictive items.

For more on this topic, read about the game theory of free food.

What are your thoughts?

To be honest, I’m not too fond of any of the qualifying items. Plus, I’d rather not try a new junk food and add more processed food to my diet…

But this deal does seem pretty good. One of my ideas was to go get a few things anyway and offer them to a local food bank. I’m guessing you could give a lot of Mac and Cheese for $25.

Have you participated in this rebate program? Any recommendations for what to buy? Any items particularly useful for food banks?