Case Analysis: Kraft Food

By November 12, 2014 Case Analysis One Comment

Kraft’s corporate strategy has been restructuring their business lineup by acquiring other companies like Groupe Danone and Cadbury, selling its North American pizza business, and addressing weaknesses in its core businesses. A series of divestitures and acquisitions between 2007 and 2010 improved the company’s geographic mix, sector mix, and channel mix to increase its number of products in attractive country markets, product sector categories, and distribution channels.

Since their independence in 2007, their strategy has evolved into new market developments due to the planned spinoff of its North American grocery business, which resulted in Kraft Foods Group that retained U.S. Beverage, U.S. Cheese, U.S. Convenience Meals, U.S. Grocery, and Canada and N.A. Foodservices. A newly created Mondelez International would retain the company’s U.S. snacks business unit and all of the operations and brands included in its Kraft Foods Europe and Kraft Foods Developing Markets business units.

This corporate strategy was directed at building a globally dominant snacks business, leveraging its heritage foods brands, and creating a performance driven corporate culture that would bring about profitable growth capable of generating attractive returns for shareholders.

The long-term attractiveness of Kraft’s business portfolio is very good because of their diverse products and brands. While they have over 80 brands with annual revenues of over $100 million each and 12 brands with more than $1 billion each in revenues, they have definitely capitalized on the synergies between each business unit.

Kraft’s competitive strengths are characterized by strong competitive rivalry that require strong distribution and marketing skills to attract consumer demand and ensure product availability in supermarkets, discount clubs, mass merchandisers, convenience stores, drug stores, and retail food locations serviced by its food distribution operations. Brand building, consumer health and wellness, and advertising and promotions were all critical to the Kraft’s success. Their ability to compete against lower-priced branded and store-branded products was their ability to differentiate themselves from lower-priced alternatives. Differentiation was also essential in retaining shelf space as the retail grocery industry started to consolidate and provide retailers with greater leverage in negotiations with food manufacturers.

Kraft Foods exhibited a good strategic fit because of its synergies between business units through their acquisitions. The integration with Cadbury’s operations would result in cost savings and also create revenue synergies fro marketing and product development innovations. The U.S. Food and Drug Administration in the United States along with 170 countries have regulated Kraft’s production. The packaging practice also has been regulated by governmental agencies.

With Kraft Food’s planned restructuring in 2012, the Kraft Foods Inc. split into two different companies, Kraft Food Group and Mondelez International. The spinoff of the North American grocery business has allowed Kraft to focus its domestic strengths, while Mondelez focuses on its global brands. The restructuring would creat a high-growth global snacks business and a high-margin North American grocery business. Mondelez International would achieve industry-leading growth by competing in high-growth categories with opportunities for product innovation.

The company expects to pay modest dividends, but also invest in its product development and promotional campaign. The earnings per share increased by 9.6% during the first half of 2012.

I would recommend that Kraft Foods to keep pursuing acquisition of companies within their portfolio to improve their brand awareness. As well as develop strategic alliances with other companies to enhance production and distribution of their products. Just like acquiring Cadbury, revenues soared to $54.4 billion via organic growth.

Net Revenue


54365
2011
49207
2010
38754
2009

Gross Profit Margin

2011

34.97%

2010

36.38%

2009

35.95%

Operating Profit Margin

2011

12.24%

2010

11.51%

2009

13.37%

Net Profit Margin

2011

6.52%

2010

8.41%

2009

7.79%

While Kraft has shown improved revenues over the three years, their net profit margins have fluctuated and have decreased compared to 2010.

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