EXTERNAL ANALYSIS FOR KRAFT FOODS
EXTERNAL ANALYSIS FOR KRAFT FOODS
CHAPTER 1
- 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.
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.
- 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.
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.
3.
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).
- 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).
2.
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.ht m
Carnegie Research Inc.,
2009. Legal and Regulatory Issues, Retrieved on June 21, 2011 from
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/KFTFactSustainabilityProgress20 09.04FINAL.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=fe ed&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_platfor m
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
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