External Analysis for Kraft Foods
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 STRENGHTSKraft 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. s 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 POLITICALThe 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 SOCIALSince 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 heir 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.
ood-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
