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Kraft fires most of its ad agencies amid declining sales

Velveeta cheese, a product of Kraft Foods
Getty Images
Velveeta cheese, a product of Kraft Foods

Can you think of a new way to sell cheese? If you can, there may be a company that's interested.

Kraft Foods Group fired most of its advertising agencies this week, the company confirmed to CNBC.com on Friday.

Additionally, a source tells CNBC.com that the trimming of agencies was due to their inability to ignite sales of cheese, Jell-O, mayonnaise and other products.

Kraft said it will go from a dozen-plus advertising agencies down to just four: McGarryBowen, Leo Burnett, Taxi, CP+B/Union, which is based in Canada.

"As a more focused company, we have been reviewing opportunities to right-size and right-cast our agency roster to more appropriately suit our communication needs," Russ Dyer, Kraft Food's senior director of corporate affairs, said in an email. "All of these agencies are exceptionally talented but a roster this size prevents us from nurturing the types of relationships critical to building deep and long-standing brand partnerships.

"We want to emphasize that none of these agencies are exiting due to poor performance," Dyer said.

According to a source, who declined to be identified, the company plans to focus on more traditional advertising, and shift away from a so-called creative approach. Work going forward will be based more on research and analytics, the source said.

The move follows a third quarter in which Kraft's organic net revenues increased just 0.9 percent as volume declined by 1.2 percentage points. Price increases in cheese and coffee accounted for most of that revenue gains. Meals and desserts continued to show soft results, according to the company.

Kraft Foods Group was formed by the breakup of Kraft into two companies two years ago. Kraft Foods Group is the North American unit, while Mondelēz International is the international distributor.

After a big jump following its initial offering, Kraft shares have settled down on slowing sales. The stock has gained just 8 percent over the last 12 months, about half the S&P 500's advance during that period.