Kraft Foods Is an Example of a Research Paper

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Kraft Foods is an example of a complex and innovative company. It is the largest branded food and beverage company in North America and the second largest globally. It operates in over 150 countries worldwide with a number of the world's preferred food brands. Kraft holds more than 35 major brands with over a century of successful sales: Oscar Mayer, Maxwell House, Jell-O, and Velveeta. In 2011 the company posted revenues of over $54 billion and continues to employee over 125,000 people worldwide (www.kraftfoodsgroup.com).

Kraft operates a diversified product portfolio with five core divisions: snacks, beverages cheeses, groceries and convenience prepared meals. The company is global in operations and has nine brands that exceed $1 billion in revenue. Kraft has over 223 manufacturing and processing plants worldwide, and 236 distribution plants. Conservative values of property and plant equipment top $14 billion. Kraft has just under 130,000 employees globally. As of December 31, 2010, Kraft held total assets of $95 billion dollars worldwide, with $5 billion tied up in inventories. The company has $28 billion in debt, making their actual assets at about $71 billion (Annual Report).

The company is strong, has good cash flow, but has experienced some lagging growth since the recession in 2006-7. Currently, it faces strong and robust competition, particularly in developed countries. Most of Kraft's growth, in fact comes from the developing world and new, emerging markets. Kraft faces a series of challenges that will require rethinking some of their branding and marketing paradigms, as well as the need to strategically partner with other market sectors in order to retain its dominant position in the food market.

Introduction

Part of Kraft's success and distinctive capabilities focuses on the way they have developed their brands into much more than the product. Jell-O for instance is not simply a gelatin desert, it is comfort food, it is food used in salads and numerous recipes, and it is food used when one is feeling ill. Thus, for Kraft, Brans communicate not just an image, but a personality. Because the company has over a century of success, however, they have not only built brand personality, but have built generations of consumers with brandy loyalty. The manner, in which brand equity is built, however, is a combination of the consumer's views and the influence of the advertiser via sales promotion and consistency of message (Valette-Florence, 26).

Kraft has a number of brands, but eleven particular brands that generate annual revenues of over $1 billion each: Oreo, Nabisco and LU biscuits; Milk and Cadbury chocholate; Trident gum; Jacobs and Maxwell House Coffee; Philadelphia Cream Cheeses; Kraft cheeses, dinner and dressings; and Oscar Mayer meats. In addition, they hold patents for 70 additional brands that generate annual revenues of over $100 million (2010 Annual Report Kraft, 2011). Kraft's performance has been fairly consistent globally, but declining somewhat in developed and/or first-world markets. To offset this, Kraft added Cadbury to its line. -- Cadbury is a multinational company now owned by Kraft Foods but headquartered in London. It operates in more than 50 countries globally, and was known as Cadbury Schweppes PLC until 2008, at which time the global confectionery business separated from the U.S. beverage unit, now called the Dr. Pepper Snapple Group. It became part of Kraft in 2010, and employees about 80,000 people worldwide with revenues approaching $9 billion (History of Cadbury, 2010).

Internal Analysis

Kraft realized that there were sliding revenues and share points. Since 2009, the company has pushed R&S by spending almost 1/2 billion dollars annually. The company now has more than 2,000 food scientists, chemists and engineers working in six key technology centers globally -- all pushing for the next great product and tweaking taste, texture and recipes of some of its underperforming brands. Additionally, Kraft invested $20 million to construct a new Biscuit R&S center in France. Combined with new products, Kraft is appropriately relooking at Philadelphia Cream Cheese, Oreos, Kool-Aid and Oscar Mayer to find ways to recapture a younger generation of consumers while still maintaining brand loyalty from a globally aging population (kraftfoods.com). Still, Kraft faces stiff competition, and while in the top five for Return on Equity, they are a long ways from being top in this category:

Kraft posts its company mission to help people globally have a better and healthier life style through the use of Kraft's product line. Their vision is to meet the consumer's needs by making food products more enjoyable, tastier, and more accessible. For the company to remain successful in the long-term, though, they must ensure that they constantly restrategize and energize their products to suit the needs of the customers, to expand sales capabilities, and to ensure new marketing strategies (kraftfoodgroup.com).

The core values that guide Kraft are intangible, but have tangible outcomes if used in an organization manner: to inspire trust, to have employees act like owners, to keep it simple, to be open and inclusive, to be truthful, to lead from the head and the heart, and to discuss- decide, and then deliver (kraftfoodgroup.com). Kraft's intangible resources focus more on brand loyalty, strategic branding, and reputation of the brands. Some of Kraft's brands have been staples in households for over 100 years, and multiple generations simply "know" the brand from childhood through adulthood. In fact, 98% of households in North America have Kraft brands in their pantries and refrigerators (kraftfoodgroup.com).

Overall Analysis

One of Kraft's primary strengths in the current and future market is its strong distribution network. In North America, for instance, Kraft's warehouse paradigm focuses on a go-to-market strategy with biscuits and frozen products through a maximum of two direct-to-store delivery systems. Globally, Kraft has 313 distributions centers, most than ae of which support the direct-to-store systems. This strong distribution system allows for an ease of product introduction, fresh product to the consumer, and a more efficient overall use of resources. As one might expect from a multinational leader in consumer products, Kraft supports sales efforts through consumer advertising, incentives (coupons and contests) and trade promotions and Point of Purchase offers. The distribution network also helps manage these marketing efforts while, if not particularly innovative, have remained effective.

Since 2006, Kraft's Gross margin has exceeded the industry standards while their net has hovered slightly above or slightly below.

However, we find that the return on investment figures paint a different picture and are significantly, in many cases, lower than industry standards:

This is also reflected in both sales and dividends. While sales over the last five years have beat the industry and hovered near the S&P 500, payment in dividends have lagged the Industry average of 8.33% to 5.8%, which is still above the S&P's 4.79% (moneycentral.msn.com).

On a positive note, Kraft maintains a strong and very public focus on environmental issues, and has been named to the Dow Jones Sustainability Index for the last five years running. The company has been accomplishing this by reducing Co2 from operations, reducing the carbon footprint of its operations through recycling, use of sustainable product and taking steps to source its key agricultural products (coffee, cocoa, cashews, sugar, dairy, wheat, and oils) through sustainable sources. It is also publically committed to reducing fertilizer and pesticides. This has been successful as well in aligning Kraft's core values with its suppliers, while still improving brand image and stakeholder loyalty (Kraft Foods Expands, 2011).

Kraft's three key challenges are:

Lower consumer demand -- Kraft, as a food and consumer company, is dependent upon consumer demand. The recent economic downturn negatively affected demand for some products based on the consumer's ability to spend. The larger grocery store chains are pushing their own brands of products, often using predatory price techniques to undercut Kraft. Thus, it is increasingly difficult for Kraft to maintain market share growth, especially in urban areas in the developed world.

Increased robust competition -- The food and beverage industry is very competitive -- both from large multinationals and numerous local and regional organizations. Nestle, Campbell, ConAgra, Heinz, Hershey, Kellogg, Sara Lee and Clorox are the major competitors, as well as generic and private label products.

Increasing labor costs -- Labor costs are rising everywhere. While globalization has opened many markets, it has also contributed to rising labor costs. In the U.S. And U.K., though, wages are such that Kraft's operational costs and profit margins are severely affected -- sometimes to the point that on certain product categories it is impossible to make an adequate margin (Hathaway, et.al., 2006).

SWOT

Kraft Foods, Inc.

Strengths

Weaknesses

Opportunities

Threats

History with top-named brands

Stock performance is irregular

Strategic partnerships with Fast Food

Compete for consumer discretionary spending

Positioning and scale of operations in key categories

Slowing growth in U.S. markets

High Quality Premium Pet Food

Continued robust competitors

Diverse range of brands

Dependence on emerging markets

New categories; vegan, gluten free, organic

Issues with volatility (corn, sugar, milk, etc.)

Fiscal strength and brand knowledge

Extreme competition from top players

Push Cadbury acquisition with new opportunities and products

Increasing amount…[continue]

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