Spinoff Could Put the Crunch Back Into Kraft

Editor's Note: Jon D. Markman writes a weekly column for CNBC on MSN Money that is republished here on TheStreet.com.

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The fate of Kraft FoodsKFT, the world's premier maker of cookies, crackers and cheese, hangs in the balance now that its majority owner has decided to sell its 89% of Kraft to the public in the form of a corporate spinoff.

At stake is not just who gets to market Oreos, Velveeta, Lunchables and Jell-O to a snack-craving public, but the very nature of what it means to be a junk-food king in the age of an increasing focus on nutrition and health. The spinoff, Kraft-parent AltriaMO said Wednesday, will happen on March 30 and give Altria shareholders seven-tenths of a Kraft share for each Altria share they own.

Wall Street has so far appeared lukewarm to the prospect of the transaction because Kraft has done a lousy job in recent years of streamlining its product lines for maximum profitability. During the 20 years it has been a reluctant part of Altria, which is best known for its Marlboro cigarettes, Kraft has fallen badly behind competitors such as KelloggK in the quest to turn flour, milk and sugar into gold.

Just to give you an idea, Kraft's gross profit margins are just 36%, compared with 44% at Kellogg and 42% at Campbell SoupCPB. That means its competitors spend much less on expenses such as wheat, labor and marketing, or find ways to charge much more at the register, or both.