EXTERNAL ANALYSIS FOR KRAFT FOODS

CHAPTER 1

1.0 INTRODUCTION

Kraft Foods or Kraft Foods Inc. (NYSE:KFT) specializes in the manufacturing

and marketing of food products, including snacks, beverages, cheese, convenient

meals and various packaged grocery products. (US SEC, 2010). The company

operates in more than 155 countries across the globe. It has three main segments:

Kraft Foods North America, Kraft Foods Europe and Kraft Foods Developing

Markets. Kraft Foods is the second largest food and beverage company in the world

after Nestle. Its portfolio consisted of 11 brands which earn Kraft foods more than $ 1

billion worldwide. The brands includes: Oreo, Nabisco and LU biscuits; Milka and

Cadbury chocolates; Trident gum; Jacob and Maxwell house coffees; Philadelphia

cream cheese; Kraft cheeses ; Oscar Meyer meats (Trefis, 2011).

At December 31, 2010, it had operations in more than 75 countries and made its

products at 223 manufacturing and processing facilities worldwide. Kraft is an

independent public company listed in the stock exchange of NY City and was listed

in the Dow Jones industrial average in 2008 (USA Today, 2008). It acquired Cadbury

against $ 19.7 billion in 2010 resulting in several boycotts of all Kraft related

products.

CHAPTER 2

2.0 SWOT ANALYSIS

2.1 SWOT MATRIX

The SWOT analysis of Kraft Foods Inc. is as follows:

Strengths

World’s second largest food

company

Strong brand equity

Innovation

Distribution network

Ad Hoc R&D

Weaknesses

Market share

Competition

Debt requirements

Geographic concentration

Opportunities

Expansion in developing

markets

Explore Cadbury markets

Repositioning

Offer Organic Products

Threats

Cadbury purchase issues

Fierce competition

Poor implementations on

Cadbury division

Unhappy customers

2.1.1 STRENGHTS

Kraft Foods Inc. enjoys the position of world’s second largest food company after

Nestle (Trevis, 2011). The company masters the manufacturing and marketing of

confectionary, food items and beverages. It has more than 11 brands in the markets of

America, Europe and Asia. The company has strong brand image and offers innovative

products to its customer base. More than 40 of its brands has 100 years heritage (Kraft

Foods, 2011). Kraft Foods provides an interesting portrait of a company that employs

traditional distribution network as well as 2 tier direct store delivery distribution network

(MWPL, 2011). With its continuous Research and development units the company is

continuously in a process of offering safe, healthy and innovative products to its

customers. The effective R&D is a key to sustain its market position and competition in

the industry.

2.1.2 WEAKNESSES

The company is weak on its market performance. Kraft foods acquired Cadbury

which no doubt increased its profit ratio to many folds but it also added lot of debt

pressure on the company. Along with the debt requirements the company faces cut throat

competition with Nestle and Harshey in the markets. Despite of its operations in various

markets and presence in US and other markets, the company is weak on geographic

concentration. Kraft foods has low market share but it enjoys high margins in grocery

business. Kraft has about 9% market share in the $40 billion global grocery market.

Although the grocery division's contribution to Kraft's revenues is lower compared to

other divisions, it has EBITDA margins of 33% which are higher than the 14-15%

margins in Kraft's other businesses.  The high profit margins make grocery a lucrative

business line for Kraft (Trevis, 2011).  

2.1.3 OPPORTUNITIES

Kraft Foods has long way to go. It can utilize number of options available

currently to get rid of debt requirements and other frills that are causing low market share

to the company. Firstly, Kraft Foods can engage itself in the market expansion process.

This can be achieved in the developing markets of Asia like India, China, and Japan etc.

these markets show great potential for the business. Although Kraft Foods have acquired

Cadbury but lots of its resources of revenue are still untapped to the company. Cadbury is

a major player in the developing countries and earns billions of revenues from its

customers in India, China and other Asian countries. Kraft foods can use Cadbury’s

brand equity to offer new products in these markets to explore these markets and

opportunities present there further. Secondly, Kraft Foods can reposition itself in the

existing markets with more unique and health centered products. There is an increasing

trend among the customers that they like to buy fresh, original and organic products. The

company can reposition itself in the market as a provider of farm fresh products to gain

the customer attention.

2.1.4 THREATS

The main issue currently faced by Kraft Foods Inc. is the Cadbury purchase

related issues. After the purchase of Cadbury, there was lot of protest among the British

nationals against this acquisition. The profit margins of the company dropped

subsequently during this. The customers stopped purchasing the products offered by

Kraft Foods, thus, hurting the market position of the company badly (YouGove

SixthsSense, 2011). The acquisition brought no changes to the company as they failed to

properly utilize the resources of Cadbury and failed to implement the proper positioning

structure in the markets. There are chances that this acquisition can lead to the customer

walk outs from Kraft products as a reaction to the purchase of Cadbury. This does not

end here, the company faces fierce competition with Nestle and Harshey, the two giants

that Kraft is competing with.

CHAPTER 3

3.0 PESTEL ANALYSIS

The PESTEL analysis contains the analysis of Political, Economic, Social,

Technological, Environmental and Legal environments of a country with reference to a

particular object. The PESTEL analysis of Kraft Foods Inc. is as follows:

3.1 POLITICAL

The political environment is suitable for the Kraft Foods. The company has a long

history of involvement in various political and community based initiatives. This includes

supporting candidates who understand and appreciate the public policies that impact their

business, brands and employees. The company has started a political action committee

called Kraftpac which makes funding to US. Federal, state political parties, committees

and candidates. The company takes reasonable steps to make corporate contributions to

the political committees, parties etc. if permitted by the law (Kraft, 2011). Kraft Foods

and Kraftpac consider the following criteria (among others) in determining which

candidates to support:

Positions on public policy issues important to Kraft Foods

The presence of Kraft Foods employees or facilities in a candidate’s district or

state

Key committee membership or leadership position

3.2 ECONOMIC

Despite the bad economic conditions of the world around, Kraft foods is making

good earnings from its market involvements via its products and brands. The company is

delivering high quality earnings to its shareholders despite the difficult economic

environment. They are continuously investing in their brands and businesses to further

provide excellent product offerings to their customers. As a result of their investment

strategies, the Kraft Foods is very well positioned to deliver sustainable top-tier

performance, with or without Cadbury (Kraft foods financial news, 2011). In 2008, Kraft

Foods was once again named to the Dow Jones Sustainability World Index and the Dow

Jones Sustainability North America Index in recognition of the company’s economic,

environmental and social performance (KFSPFS, 2009).

3.3 SOCIAL

Since 2010, Kraft Foods is continuously working on its Corporate Social

Responsibility related activities. It issues its CSR report in 2010 called creating a more

delicious world. According to that report, Kraft foods committed itself to focus on the

products, policies and partnerships to drive meaningful and lasting change around health

and well-being, sustainability and food safety, as well as other important topics of

societal interest. The company took initiative to improve the living standards of more

than 1 million farmers with effective partnerships with them. They increased their cocoa

and coffee purchase to further benefit their partner farmers. Kraft Foods Reduced

greenhouse gas emissions by 18 percent and water consumption by 30 percent since

2005, as measured against total production. Furthermore, the company improved the

nutritional profile of more than 5,500 products during the last five years. They removed

nearly 6.5 million pounds (3 million kg) of salt from products in 2010 and helped to

provide more than 1 billion servings of food since 1999 in the United States alone (CSR

wire, 2011).

3.4 TECHNOLOGICAL

The Kraft foods are successfully implementing innovative ideas and processes that

create values to their consumers or customers. They continuously strive to embed

innovation in all the ends of the company from developing innovative new products and

services to doing things innovatively. The company keeps consumer needs in their minds

before designing their strategies. They adapt and anticipate their needs in order to meet

them efficiently. The company has employed SAP Netweaver technology platform to

ensure effective information and business transformation strategy within all the business

units (FBR, 2008). Kraft foods have established a hub and spoke model where a centrally

led team focuses on the overall strategies, systems, enabling tools, networks and metrics.

And, they have complemented that central team with R&D people—the open innovation

"technical scouts"—embedded in each of Kraft's business units (Steven Goers, 2008).

3.5 ECONOMIC

Kraft Foods has set an example in the global industry by determining a push to to

reduce the impact of its operations on the environment in the US and around the world.

The company released its CSR report in 2010 which stated its environmental goals

agenda to reduce the effects of energy and the carbon dioxide emissions in food plants to

the conservation of water and minimizing excess packaging. They are creating packaging

that uses less material, weighs less and reduces impact on landfills – without

compromising food safety or freshness. As part of their plan to reduce our "carbon

footprint," Kraft foods are improving their energy efficiencies, using less energy and

finding new and cleaner sources of energy. Kraft Foods look for opportunities to reduce

the use of water to minimize the impact of water discharge and even reuse water in ways

that help the environment and save money. Lastly they are not only focusing on creating

less waste in the manufacturing process, they are also finding new and better ways to

reuse, treat and even put waste to work (KFSPFS, 2009).

3.6 LEGAL

The company has a long history of maintaining corporate compliance with all the

local and international legal implications. The company abides by the laws, rules, and

regulations of the national as well as international countries in order to sustain its

profitability and its business operations. Almost all of the activities of the Company’s

food operations outside of the United States are subject to local and national regulations

similar to those applicable to Kraft North America Commercial’s United States

businesses and, in some cases, international regulatory provisions, such as those of the

European Union relating to labeling, packaging, food content, pricing, marketing and

advertising and related areas. The European Union and certain individual countries

require that food products containing genetically modified organisms or classes of

ingredients derived from them be labeled accordingly (Carnegie, 2009).

CHAPTER 4

4.0 PORTER’S FIVE FORCES ANALYSIS

4.1 BARGAINING POWER OF SUPPLIERS

The food and beverage industry is quite high and competitive in nature. The

prices offered are usually competitive to remain in the market. The suppliers in the

industry do not hold much power to drive the company as a hostage to extract their

profits.

3.2 THE BARGAINING POWER OF BUYERS

The buyers preferences changes with the passage of time and they are likely to

switch to the seller who offers good quality at less price. Wal-Mart has played a major

role in this case. It offers less priced goods to attract the buyers’ attention. There is a

significant opportunity for the buyers to extract industry and firm profits.

3.3 THE THREAT OF THE ENTRY OF NEW COMPETITORS

There are already so many competitors present in the market that there are very

less chances for the new comers to set foot in and enjoy there share in the market. The

existing companies have already spent so much on their brands, quality and positioning

that it will be difficult for the new comers to entice switching among consumers.

3.4 RIVALRY AMONG ESTABLISHED COMPETITIONS

Intense competition lies in the food and beverage industry. The main vehicle by

which firms in the industry preserve market share is through brand loyalty and

diversification. In general, the products of these firms are highly elastic with consumers

weighing the tradeoff between price and quality between companies and products.

Consumers in the industry have minimal switching costs and there is never the guarantee

of brand loyalty. Therefore, the way these firms maintain market share is by providing

brand quality at an affordable price. Thus, there is some cooperation among firms against

the erosion of market share to private label products. With all firms promoting brand

quality, there are signals passed onto the consumer that brand name products are superior

to private label products in quality and elegance. There have been restructurings and

realignments at Kraft and at other companies in the industry in order to increase volume

and profitability despite increasing input costs, sluggish top line growth, margin

contraction, and rising pension costs.

3.5 THE THREAT OF SUBSTITUTE PRODUCTS OR SERVICES

The consumers evaluate the quality of products and their prices with that of others

to decide which product to buy. The treat of substitutes is medium in this case. The

private label products, also referred to as “generic” products, pose a serious threat to

industry and firm profits.

CHAPTER 5

5.0 RECOMMENDATIONS

This study provided brief overview on the external environment analysis of

Kroger Co. The findings of the study suggested that Kroger should focus on the

following factors in order to excel its business and social image in the world:

1. Expand the geographical concentration to the various other markets especially

in the developing markets.

2. Utilize the brand equity of Cadbury to reinstall its products in the markets

specially developing markets

3. Expansion will help the company to earn more profits to meet its debt

requirements.

4. Reposition its brand image in the markets to communicate with the customers

to remove the negative thinking from their minds which arose after Cadbury’s

acquisition.

REFERENCES

2010 Form 10-K, Kraft Foods Inc. United States Securities and Exchange Commission, Retrieved on June 21, 2011 from http://www.sec.gov/Archives/edgar/data/1103982/000119312511048979/d10k.htm

Carnegie Research Inc., 2009. Legal and Regulatory Issues, Retrieved on June 21, 2011from http://www.angelfire.com/jazz2/vernonhead/carnegie/kraft.pdf

KFSPFS, 2009. Kraft Foods Sustainability Progress Fact Sheet, Retrieved on June 21, 2011 from http://www.kraftfoodscompany.com/assets/pdf/KFTFactSustainabilityProgress2009.04FINAL.pdf

Kraft Foods is Creating a More Delicious World, 2011. CSR wire Website, retrieved on June 21, 2011 from http://www.csrwire.com/press_releases/32274-Kraft-Foods-is-Creating-a- More- DeliciousWorld?

tracking_source=rss&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+csrwire%2FPRfeed+%28CSRwire.com%29

Food Business Review (FBR), 2008. Kraft foods deploys SAP Netweaver technology, Retrieved on June 21, 2011 from http://www.food-business-review.com/news/kraft_foods_deploys_sap_netweaver_technology_platform

Kraft Foods, 2011. Financial News Release, Retrieved on June 21, 2011 from http://phx.corporate-ir.net/phoenix.zhtml?c=129070&p=irol-newsArticle&ID=1374445

Kraft Foods, 2011. Political Involvement, Retrieved on June 21, 2011 from http://www.kraftfoodscompany.com/investor/corporate-governance/politicalcontributions.aspx

Kraft Foods Brands, 2011. Retrieved on June 21, 2011 from http://www.kraftfoodscompany.com/Brands/largest-brands/index.aspx

Kraft Foods Company, 2011. Trevis Website. Retrieved on June 21, 2011 from https://www.trefis.com/company?hm=KFT.trefis#

Kraft replaces AIG in Dow Jones Industrial Average. USA TODAY, Associated Press, Retrieved on June 21, 2011 from http://www.usatoday.com/money/markets/2008-09-18-dow- adds-kraft_N.htm

MWPL, 2011. DSD vs Centralized Distribution Network, Retrieved on June 21, 2011 from http://www.mwpvl.com/html/dsd__vs_central_distribution.html

Steven Goers, 2008. Fostering Innovation at Kraft Foods, Retrieved on June 21, 2011 from http://www.ideaconnection.com/interviews/00058-Fostering-Innovation-at-Kraft-

Foods.html

YouGov SixthSense, 2011. Kraft Foods Inc. Retrieved on June 21, 2011 from http://sixthsense.yougov.com/food--drink-reports/snacking-.aspx