strategic analysis of kraft foods

8/13/2019 Strategic Analysis of Kraft Foods

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Question:

Conduct a strategic analysis of Kraft Foods Company, with special emphasis on Value chain and

National Diamond model

Solution:

Industry Overview

Kraft Foods Inc operates in the food and beverages industry. The industry is constituted

by those companies that involve in stages of activities from procuring the raw food material

after harvest till the retail purchase. The activities involved are the processing of raw food

materials, manufacturing, packaging the food products and distributing them. The products

may be fresh, prepared foods, packaged foods, alcoholic and nonalcoholic beverages. All the

products that are meant for human consumption except the pharmaceutical products belong to

this industry.

The dairy sector forms the largest part of the food industry. The baked and cereal items

and chilled foods are the close second and third. In case of the beverages industry, it is divided

into alcoholic and nonalcoholic segment. A vast of the alcoholic market is made up of beer,

cider and other flavored alcoholic beverages. On the other hand, soft drinks, coffee, tea, juice

and water constitute the nonalcoholic beverage market.

The industry is highly competitive and fragmented. Though the competition is among

few notable players, no player has a dominant position to dictate the price levels. The players

rely largely on advertisements to promote their brand and secure the market position (Food

and Beverages Industry Profile, 2009).


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Market size:

With over 16.5 million people employed, the US food and beverages industry

constitutes around 10% of the countrys Gross Domestic Product. The average annual spend of

the consumers on food is $1 trillion. The worldwide sales of process foods are found to be US$

3.2 trillion in 2004. A huge percentage of world population involve in direct farming, and as a

result of when they fed themselves. On the other hand the modern food industry relies heavily

on modern equipment and technology and which results in food industry that is more global

than local (Food Industry Overview, 2009),

In recent years the urban population is increasing in the greater extent, as a result the

food production and the food buying becomes two different processes. This has paved way for

more firms to concentrate on food industry, which is evident from the number of super

markets and retail players in the food industry. Kraft Foods is one of such retailers having global

presence in the food and beverages industry. Nearly a million times per day, the consumers

around 150 countries all over the world reach the Kraft brands.

The Kraft Foods markets its product under various brand names, out of which there are

nine brands that produce revenue in excess of US$ 1 billion. Also there is more than 50 other

brand that generates revenue in excess of US$ 100 million. Out of these revenues, more than

half are from the brands which have a market share twice that of the competitor and around

80% of the these revenue are generated by brands that have the number one position in

market share. The total revenue of Kraft Foods in 2008 equals US$ 41.9 billion and 38% of

which is from its snacks brands, and 20% are from the Beverages brands (Kraft Foods - Fact

sheet, 2008).


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Industry Trends:

The major trends in the food and beverages industry of US that provides growth

opportunities to the companies are (U.S. Food and Beverage Industry Growth Predicted,

Despite Challenges, 2006):

Greater focus on innovations and new product developments. Shift in consumption pattern of the consumers. The consumers are in look out

for quality products with a combination of convenience and value.

Increased awareness of health and ethnic foods. Growing opportunities in foreign market. With increasing focus on water usage and energy efficiency, sustaining the

position in the market amidst the competition has become important.

Kraft Company Overview:

Kraft Foods Inc is the largest Food and Beverages Company in the United States. The

company operates in around 70 countries across the world with around 98000 employees and

sells its products in over 150 countries in Europe, Latin America, Asia Pacific, Middle East and

Africa through its subsidiaries, Kraft Foods International Inc and Kraft Foods North America Inc

(Kraft Foods Global, Inc, 2010).

The company manufactures and markets packaged retail food products like cookies,

confectionery, coffee, juices, powdered beverages, cheese products, ready-to-cereals, desserts,

convenient meals and processed meats. All these products cover major consumer sectors like

Snacks, Beverages, Cheese, Grocery and Convenient Meals under the major brands like Kraft,

Jacobs, Philadelphia, Maxwell house, Nabisco, Oscar Mayer, Post, Oreo and LU.


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The company focuses on providing foods that fit the consumers by concentrating on

health and wellness, snacking, quick meals and premium products. The Kraft products are sold

through various distribution channels like distribution centers, satellite warehouses, company-

operated and public cold-storage facilities, depots, and other facilities.

Porters National Diamond forKraft:

The Four basic forces according to the Michael Porters National Diamond model are,

Factor Conditioning:The recent technological advancement in the United States plays amajor role in production of agricultural products, also there are huge skilled labors

available to operate in modern equipments and the capital required for excess

production is easily available.

Intensity of the rivalry:The United States Food Industry is highly competitive, there aremany big players like the Unilever, Frito-Lay, Cargill, Tyson Foods, ConAgra Foods and

Smithfield Foods etc.

Local demand condition:The urban population of United States is high and its alwaysincreasing which is potential market for food industry, also the partnership with firms

like Safeway Store provides additional demand for products of Kraft Foods.

Competitiveness of related and supporting industries:The partnership agreements withfirms like Rainforest alliance, Metro group, AOL Time Warner, Bally Total Fitness,

Stewart-Hass racing, and Allreceipts.com etc. provides good opportunities for Kraft

Foods.


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management in accessing effectively the real-time master data during the decision making

processes (Kraft Foods deploys SAP NetWeaver technology platform , 2008).

The Kraft Foods works in association with United States Environmental Protection

Agencies for benefiting from the recent development in technologies. The Kraft foods to

minimize its truck miles work effectively on its transportation system. They have implemented a

no-ideal engine policy at their shipping location and focuses on intermodal transportation

system. Kraft Foods uses the Oracles transportation management software to effectively track

and minimize the empty mile trips (Kraft Foods Eliminated More Than 50 Million Truck Miles

Since 2005 Through Focus on Transportation Sustainability Efforts, 2009).

Distribution:

Kraft Foods have a strong Distribution system with more than 316 distribution centers

and depots all around the world. Out of these 316, the Kraft Foods owns 39 distribution centers

and leases 125 distribution centers. Also it owns three depots and leases 149 depots

worldwide. Kraft adopts a Multi-category distribution and consumer awareness system. Most of

their distribution in the Northern American circle follows warehouse deliver systems. They have

two direct stores delivery system to distribute the Pizzas and biscuits.

In North America alone the Kraft Food has more than 303 depots and distribution

centers. Most of these distribution centers and depots help in direct-store-delivery system. The

company also has around 13 distribution centers away from North America in eight different

countries. The distribution centers completes the following three functions,

Advertisements to consumers through various Medias. Sales Promotions such as incentives to consumers through coupons and contests.


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Snacking:Kraft provides a huge variety of snack products to customers who seek for onthe go foods. Oreo wafer sticks, Crystal light ready to drink are few of the largely sold

snacking products of Kraft Foods all around the world.

Premium:These are customers who wants high quality restaurant like food in theirhome. Kraft Foods satisfies their needs with premium foods like DiGiorno Ultimate

Pizza, Cote dOr Chocolates etc.

Competitors:

The Food Industry is highly competitive in nature. Kraft Foods is the second largest food

and Beverages industry worldwide and has competitors in all dimensions thought the world.

The main competitors include Nestle, PepsiCo, and General Mills etc. The Various competitors

of Kraft Foods based on product are listed below (Competitor by Products Report, 2009).

Coffee/ Tea/ Cocoa:The products in this category include Maxwell House, Jacobs andGevalia. The various competitors are, Alexander and Baldwin inc, Blyth, Coffee Holdings,

Farmer Brother Co., Green Mountain coffee roaster, Peets coffee and Tea, PepsiCo inc,

Sara Lee Corp, Starbucks, The Hain Celestial Group, The JM Smucker company, P&G,

Unilever etc.

Juice/ Soft Drinks:The products are Kool-Aid, Country Time, Capri Sum*, Tang andCrystal Light etc. The competitors include Campbell Soup Company, China Nutrifruit

Group, Cott Corporation, Dean Foods, Jones Soda Co, National Beverages Corp, PepsiCo,

The Coco-Cola Company, The JM Smucker Company, Unilever etc.

Snack Foods:The products are Balance, Kraft, Planters, and Nabisco etc. The Variouscompetitors are, Campbell Soup Company, ConAgra Foods, Diamond Foods, General


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Mills, J&J Snack Foods, Kelloggs Company, Lance, PepsiCo, The Hain Celestial Group,

P&G, Smart Balance inc.

Sauces/ Dressings and Oils:The various products are Miracle Whip, Grey Poupon andKraft. The Competitors are Archer Daniels Midland Company, B&G Foods, Bunge

Limited, Campbell Soup Company, ConAgra Foods, General Mills, The Hain Celestial

Group, Unilever etc.

Dairy Products:The Various products are Cracker Barrel, Hoffmans, Kraft and cool whipetc. The competitor includes American Diaries, Dean food Company, Farmer Brothers

Co, General Mills, Groupe Danone SA, Life way foods, Smart Balance, The Hain Celestial

Group, The JM Smucker Company, Unilever etc.

Value Chain:


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Partnerships:

Kraft Foods as a global firm has partnership agreements with various firms all around

the world for its functioning and support processes. Few of the most important partners of

Kraft are listed below:

Kraft Foods has recently announced a partnership agreement with the Rainforest

Alliance, one of the recognized international conservation leaders. This partnership was to

support Kraft with the production of coffee in Brazil, Mexico and Central America. By this

agreement Kraft Foods entrust its support by financing the training and technical assistance to

the workers in the coffee farms, by purchasing huge quantities of coffee and by kindle the

demand for coffee products.

Similarly the Kraft Foods of Europe made a partnership agreement with that of the

Metro Group to evaluate Radio Frequency Identifier to identify stock locations. The Kraft had

made similar partnership arrangement with many firms which includes AOL Time Warner, Bally


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strategic analysis of kraft foods

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