(FORTUNE Magazine) – ANYONE HOPING TO EXPLAIN KRAFT'S fifth consecutive quarterly profit decline in October could point to fear of fat, more competition from private labels--heck, even the skyrocketing cost of cheese.

But here's one thing you won't hear from management: Kraft, that icon of Oreo and Mac & Cheese innovation, hasn't launched a significant new brand since DiGiorno pizza in 1995. Indeed, Kraft's machinery for developing new brands seems to have broken down.

Kraft had been admired for its new product prowess ever since James Kraft started selling cheese to Chicago grocers out of a horse-drawn wagon in 1903. Miracle Whip, created by a then-revolutionary "emulsifying machine," made a splash at the 1933 World's Fair. Launched just after World War II, Minute Rice dramatically slashed the time needed to cook rice. Then came processed cheese slices, Cheez Whiz, and Shake 'N Bake. Even Lunchables created an entirely new category.

So how did Kraft's new-product cupboard get so bare? It enjoyed decent harvests for most of the 1990s, but the famine seems to have set in after the departure of two key executives. As parent Philip Morris (now Altria) prepared to take 16% of Kraft public, it lost chief Bob Eckert (now Mattel's CEO) and his predecessor, Jim Kilts, who now runs Gillette. Both men were champions of new-product development--and left big holes when they bolted. After the IPO in June 2001, Kraft attempted to operate with dual CEOs: marketing whiz Betsy Holden, a 17-year Kraft veteran, running North America and the more analytical Roger Deromedi handling international duties. But profit growth soon collapsed because of pricing and marketing mishaps. As the head of Kraft's pizza business, Holden launched DiGiorno, but as CEO she botched the two major new-product launches of her tenure: Both microwaveable Chips Ahoy and FreshPrep dinner kits were disasters. With the company still digesting its Nabisco acquisition and adjusting to Wall Street's demands, Kraft seemed less and less willing to take big risks, instead focusing on much safer line extensions, like Chocolate Creme Oreos, according to Productscan Online executive editor Tom Vierhile. Innovation at Kraft, says CSFB analyst David Nelson, simply hit "a lull."

A former Kraft R&D executive observes that Eckert and Kilts "used a whole lot more intuition and gut feel rather than [relying on] numbers." The people who took over, he says, just seemed to want to milk aging brands, or as he puts it, "rearrange deck chairs on the Titanic."

Last December, amid a huge shortfall in Kraft's cookie business, the board demoted Holden and handed the reins to Deromedi, 51, a company lifer. Holden now heads global marketing, with responsibility for new-product development. She oversees a relatively large R&D shop: A $380 million operation, it employs 2,100 people spread over five locations. As at any packaged-goods company, products are hatched in the lab by food scientists working with marketing and manufacturing specialists--and some ideas also come from brand managers. But analysts say Kraft's bureaucratic culture often kills good ideas in the cradle, and besides, what message does it send to the troops that the R&D chief is widely viewed as powerless?

Holden insists innovation will "define our success," but thus far Deromedi doesn't seem destined to return Kraft to its history of modern culinary marvels. Instead, he's throwing even more marketing money at Kraft's big brands--an additional $400 million so far this year--while courting buyers for others like Altoids and Life Savers. Deromedi says that new products will constitute more than 3% of Kraft's sales this year--paltry compared with rivals like Kellogg. Furthermore, Deromedi argues that "building new brands is not the true measure of success within consumer products. Driving incremental volume is." For his sake, let's hope there's still plenty more growth to squeeze out of cheese. -- Matthew Boyle