Kraft's competitive position: a Porter's Five Forces analysis

Kraft

Porter's Five Forces Analysis

Threat of Competition (Moderated)

To begin, the threat of competition is moderated by the large size and market position of Kraft. The food and beverage industry should grow, at least as fast of the overall population. Combined with market share growth, the company is well positioned to grow 3% to 5% a year. Kraft is one of the largest food and beverage distribution companies in North America. It is a publicly- traded limited partnerships in the U.S. However, Kraft faces competition in the industry, as there are other companies that offer similar services in addition to proprietary products owned and operated by large integrated companies, and also it is the possibilities of merge or acquisition to other companies. Information that can be used to better ascertain the companies position are trade publications such as the overall census report to determine population growth. Food and beverage, is the most trusted publication in the industry to help determine industry growth. Market share publications also can determine who is gaining market share.

Threat of New Entrants (Low)

Threat of new entrants is low due to the industry requires a large amount of capital, highly specialized workers and it is a highly regulated business. Potential competitors must be willing to invest extensively in new research and development to maintain market dominance. Kraft last year (2011) spent $1.3 Billion in research and development to innovate existing product lines. Kraft currently has 34% market share in both Europe and Latin America. This market share is growing in emerging markets further indicating the difficulty of new entrants are experiencing penetrating the market. So it difficult for new entrants to achieve a leading position in the industry. Publications such as emerging market census data would be helpful in determining the overall market.

Threat of Substitutes (Low)

With commodities such as wheat, sugar, and water there are no current economical replacements. In the transporting and storage segments of their business, trucks maybe an alternative but there are not efficient or viable taking in consideration the location and the amount of warehouses in a particular location.

Power of Suppliers (Moderate)

KMP suppliers are also their customers, as food production and exploration companies extract the resources that are being transported through the company's distribution network. Their main power comes from demand, which is set by energy and food prices; if commodity prices fell the revenue of Kraft in these segments will be affected.

Kraft's other materials like wheat and sugar is available all the time and the company uses their buying power to get a competitive price.

Power of Buyers (Low)

Kraft provides services to a large number of customers and not one customer Buyers have little power on the fees that Kraft charges. The transportation costs are regulated under FERC, the Federal Energy Regulatory Commission and they will adjust for inflation. Kraft, according to its most recent annual report, was experiencing difficulty raising prices on consumers. Meanwhile commodity prices are increasing exponentially as population increases. As such, Kraft is losing buyer power to a rising consumer population

Kraft: Market Conditions

With regard to market fluctuations, the natural gas industry is currently undergoing a shift in supply sources. Production from conventional sources is declining whereas commodity prices are rising. This will most certainly affect supply patterns and what can be charged on distribution systems. Impacts on Kraft's supply chain will vary. Reductions of imports to Canada as a result of declining production and increasing demand will also change supply patterns. This reduction in imports has led to increased demand for domestic supplies and related transportation services over the last several years, which will likely continue into the distant future. Exports to Mexico are increasing and are expected to increase over time as demand growth exceeds production growth in that country.

Resources with explanation

1) www.census.gov- this resource provided information regarding population growth and the subsequent expenditures of the population. This information provides an overview of the overall industry as it relates to Kraft. This information is very reliable as it is provided by the United States government.

2) http://www.census.gov/compendia/statab/cats/business_enterprise/investment_capital_expenditures.html- this resource provides information as to capital expenditures and investments as it relates to competition. These investments all Kraft to better gauge occurrences in the industry overall. This source is very reliable as it is very specific in regards to industry.

3) http://www.bizreport.com/magazines/food_and_beverage_packaging.html- this resource provides trends within the overall food and beverage industry. Kraft can utilize this information to better ascertain its ability to compete in a changing and dynamic industry.

4) http://www.stlouisfed.org/publications/re/articles/?id=2194- this resource provides information regarding foreign direct investment. This allows Kraft to view competitor's expenditures in other markets outside the United States. This information is very reliable by may be subject to mistakes. Areas such as China are not entirely accurate with their disclosures regarding investment.