Kraft Foods Inc: Product, Sources and Supply, Customers, SWOT - Essay Example

?International Business Kraft Foods Inc. Part One: Introduction Product Kraft Foods is a world renowned food and beverages company, which is headquartered in Illinois. The company became famous in the early 20th century because of its remarkable product offerings of cheese. However the Kraft Cheese is no longer the best product marketed by the company. In fact Kraft boasts of a number of industry and category leaders such as Philadelphia Cream Cheese, Tang, Oreo biscuits, Maxwell House, Cadbury, Oscar Mayer and Tang. Kraft products hold major shelf space in big retailers such as Walmart and include many foodstuffs like mayonnaise, relish, sauces, biscuits, cereal and many other items. These varieties are available all over the world. Sources and Supply The Company’s raw material does not come from one source, but actually is recruited from all over the world. Furthermore, Kraft is the primary company of operations but for most products it utilises the services of manufacturers and licensees who are outsourced the job of making the Kraft goods. These locations are all over the world, for example one coffee factory is located in the United Kingdom. Kraft as a company makes effort to ensure that all its supply chain practices, from the raw material to the final packaged goods shipped to the wholesaler or retailer are made with the highest requirements of sustainability including energy consumption, water usage, transportation and distribution and waste management (“Securing food supplies up to 2050”). Conversion Manufacture Some manufacturing facilities for Kraft products are owned by the company; the rest are outsourced; the manufactured goods are marketed and sold by the company. Customers Kraft Foods has customers all over the world, with America and Europe being the oldest markets for the products. The customers come from all walks of life and different income strata as well; this is because Kraft has a very diverse portfolio of products that appeal to the middle and upper classes, as well as the lower middle classes in some regions. The company’s strategic focus has shifted since 2008 and now Kraft Foods is attempting to establish itself in the emerging economies. However, it is still in the initial phases of educating people about the kind of products marketed by Kraft. Distribution Kraft owns and manages the marketing and operations of all its brands except for certain functions that are outsourced for cost and efficiency purposes. One of these is the distribution of Kraft products. Kraft utilizes the services of some of the most reliable and well connected distributing companies in the world to reach consumers in many countries such as South Africa. However, the distribution channel is still weak because Kraft foods are not available in a lot of regions where there is demand but no proper channel utilized for delivery. For example, the United Arab Emirates represent a very affluent and commercial class that is happy to spend in well packaged, great quality food items (Kraft Foods targets the regions top buyers and distributors); according to the Business Development Manager of the company for emerging markets of the Emirates and Africa, the reason for this demand and supply gap could be “the absence of an agency/distributor, or...no means to source these products”. This is a rather big opportunity being missed. Part Two: Analysis 1. SWOT Strengths Second biggest food company in the world Has leading brands in multiple categories which do not require a lot of hard work by the company as they are already extremely successful Several products of the company are some of the most well-known brands in the world such as Philadelphia, Oreo and Maxwell House, with around twelve brands making over a billion dollars in sales each year. The company is able to offer its products in varied price ranges, mostly targeted at middle income to upper middle income people all over the world. Company has visionary leadership with a very entrepreneurial mindset (Jargon 2008) Financial and business acumen accumulated over decades The company has huge volumes in sale which allows ample budget for R&D Holds significant market share in many categories that its products compete in Weaknesses There has been too much centralisation which doesn’t allow a lot of decision making in the bottom management tiers. This results in lags and low response time to environmental changes. The CEO also thinks that control should be transferred to other subsidiaries/countries management for better decision making The company continually needs extensive marketing and R&D budgets for new product development and aggressively meeting competition Loss of management (Daft 2008) in the past couple of years has led to low morale and so has the general attrition of employees Burgeoning businesses become too big to handle: the global business includes maturing and saturated markets such as the United States as well as expansionary and emerging markets such as India. Balancing the two leads to much mismanagement as the strategy in both situations should be very different. Aging businesses are more likely to carry debt (Jannarone 2011) whereas the newer businesses soak up cash The company relies extensively on distribution networks. Unfortunately, this means the company is unable to reach many markets that it should be actively competing in. Opportunities The new obsession of the world with health food is likely to become the norm in the coming days so the company should proactively persuade this aspect Expansion in emerging economies like the BRIC countries, more Asian economies and Russia. New management is willing to take risks. This means that local and national management should also be willing to take riskier but more rewarding bets. The top management is likely to support them Globalisation has allowed cuisines from all over the world to be shared and enjoyed together. The attraction people have for Indian, Moroccan and Mexican cuisines implies that there is a great market for establishing products based on traditional spices. Chinese seasonings as well. Threats Competition globally in product categories especially for healthier eating options. Competition has been able to quickly respond to the growing need in the market for healthier and tastier choices of eating choices, whereas Kraft has been slow Ready to Cook, Ready to Eat and frozen foods represent an emerging industry which is imminent; it will seriously alter the food business as more and more people start opting for these; also, home cooked meals are too tedious. Economic Recession: Although most economies that were negatively impacted by the economic recession of 2007, including United States which was the worse for wear, are now on the verge of recovery. However, the recession has altered the way of thinking and spending of customers and has made them more wary. The customer is now very concerned about how much he spends his hard earned cash and on what. Increased prices of commodities in supplier countries have increased the prices of good overall. The management of costs in such a huge organization becomes very cumbersome as the profits have to be soaked in by less profitable businesses. 2. Issues (Positive and negative) a. The company has many established brands such as Philadelphia, Maxwell House, Nabisco, Cadbury and Tang. Each has a brand value over a billion dollars. However, the bulk of their revenue comes from established markets such as the US and Europe. These need to have a stronger presence in the developing world. b. Kraft Foods needs to stick its focus on the emerging economies of the world. Like any other foreign conglomerate, the company will need the support and the expertise of locals to successfully enter these markets and capture a market share from established local competition. For this reason, there is a great need for training and developing local managers so that they can create marketing plans for their respective countries. Also, these people need to be delegated authority so that they can make their own decisions and the company structure can flatten out. c. Educating people from different countries about the products of the company and localising them through promotion and advertising. Countries like China and Russia have their own preferred tastes and way of eating. Kraft is basically attempting to create entirely new categories in these markets and thus will need to make heavy spending in educational marketing. d. Investment needs of marketing, quality assurance and innovative product development (Palmer 2008) are perpetually high. e. Marketing healthier products such as those with fruits and vegetables and quickly respond to the market, ahead of the competition f. Making ‘relevant’ products i.e. products that the consumer of today, with all his concerns and budgetary constraints can buy and enjoy. g. Focusing of business is important. Categorising the brands in the house of Kraft into groups, reports Palmer: biscuits, chocolate, coffee, powdered beverages and cream cheese. 3. Significance for the activity The management of Kraft Foods is currently faced with a number of issues and they need to decide how they respond to these. The importance of the issues can be gathered from the following: a. Balancing the financial reporting of the company and also the inflows and outflows. This needs to be done because the cash flows and expenses need to be appropriately managed. The company has one legacy business in the United States which is generating a predictable amount of cash. It is excellent for investors who seek steady investments and a dividend at the end of the year. Conversely, there are those investors also who are risk takers and like high-risk and high return investments. The company needs to decide how to manage these potential and current investors. b. Increasing Market Share: The company has a decent market share in multiple categories in many of its established markets. However, as the company focus will be moving in emerging markets, there is increasing need to establish its brands there before competition from local and global companies establishes itself. c. Strong growth potential: There is a lot of potential in the emerging markets for the various brands of the company. d. Leveraging the brand names of Kraft to local tastes: The Kraft products are quite American in nature. They need to be adapted to local tastes so that they are more appealing to locals. Part Three: Resolution The global packaged food industry is worth nearly $1.6 trillion, based on a figure provided by the EUROMonitor International (Murray). Even at this moment more and more consumers in the developing world, with their burgeoning population sizes, are shifting to packaged food. This means by the end of this decade this figure could easily double. Furthermore, the World Bank reports that food and agriculture make up 10% of the world’s gross domestic product. Which could translate into something like $48 trillion and ten percent of that being $4.8 dollars (Murray). The accurate reporting of this figure is almost impossible but even these mentioned here are enough to point to the significance of the food industry. With that perspective, it can be said with no doubt that Kraft Foods, being the second biggest food player in the industry (Hoskins & Heavens 2010), has an enviable spot. In order to fully capture the potential mentioned here, the company needs to ensure that its footprint in the emerging economies is very strong. If the company fails to make the move now and invest more time and money in the emerging markets, it will be too late and the market will become flooded with competition. As of August 2011, it has been decided that Kraft Foods would be split into two independent companies: global snacks business which will look after Kraft Foods in Europe and the Developing markets, and also the North American snacks and confectionery businesses and the second will be the American grocery business along with the Canadian businesses (Ziobro 2011). This move is a brave one and is intended to overcome one of its biggest weaknesses which would have the potential of disbalancing the company in the future. The weakness, as mentioned previously, is the marked difference between the two segments: one being in a matured economy and the other being in an emerging economy. This move will strengthen the position of the company because one segment – the snacks business – is growing at a very rapid pace. It requires focused management attention and resource utilization. The second business, while steady and strong in its own right, is going at a much slower pace. The first business annually checks $36 billion in sales whereas the other segment rakes in $16 billion annually (“Kraft Foods Announces Intent to Split Business” 2011). This decision will also utilize some of the best strengths of the company in terms of management capital and entrepreneurial frame of mind. The management will now be focused on one strategy for one company that can be applied across the board rather than chalking a plan that will need to be adapted to different paces of business in different regions. Furthermore, the marketing expertise that the company has gathered over the years will be suitably employed here: emerging economies have a standard type of consumer as the middle class of the countries are increasing and the buying power is increasing. The marketing strategy here can be generic. This move will also appeal to two very different sets of investors: the risk takers and the risk averse. This will help either business in attracting more funds when there is need. For the people who want larger returns and are willing to take the risk, they can invest in the snacks business. The other grocery business, based on North America, is more steady and reliable. The European headquarters of Kraft should serve as the global headquarters of the global snack company as the bulk to revenue and resource is located in Europe and in developing countries. This will lessen the impact of the issue that the company has of decision making lags and slow response time to environmental changes. The decisions would be made as and when they happen. Consumer reports of countries all over the world remarkably display one common global trend and that is of opting for healthier food items and choices. This is a huge opportunity that the company needs to aggressively pursue. This can only be done through more research and development, through getting nutritionists and dieticians on board and by making this a part of the strategic focus of the company. Focusing of business is another important aspect for competitive advantage. Categorising the brands in the house of Kraft into groups such as biscuits, chocolate, coffee, powdered beverages and cream cheese will allow that. This is another suggested strategy that can help in shaping the strategy by combining the biggest assets of the company and sharing support functions such as supply chain, financial and human resource management. To avoid the failure of new products when introducing them in the market, Kraft needs to ensure that complete, one hundred percent homework has been done before the launch about the market preferences, likes and dislikes of the locals. For example, when the Oreo was launched in the 1990s in China, it was assumed that the world’s favourite cookie would be the preferred cookie in China as well. Contrary to popular belief though, cookies are not really preferred by the Chinese. In fact it wasn’t the general practice in China to take cookies (Oreo) and milk together. What followed was a brilliantly developed new Oreo cookie like never before that was executed equally well in a marketing stint by the Kraft people in China. This combination of strategy, new product development and marketing was able to bring Oreo into the limelight. If the company is able to manage these, it would help in minimising the effect of any threats to the business. Competition continues to be a big threat. To counter it, the company needs to actively pursue a strong market hold in the emerging economies and be the first to market. Another possible threat to business could be the inability to manage costs. However, once the headquarters are separated with the separate businesses, the cost heads would be more accurate as there would be no dragging of cash or debt from one business to another. Decentralization will also allow cost controls. Finally, the consumer needs to be properly educated about the products. No matter his wallet size, if he feels he needs a product, he will buy it. References Daft R, 2008, Management, Thompson Higher Education, OH Hoskins P & Heavens S 2010, Factbox: Kraft Foods vital statistics and history, Reuters, viewed 24 august 2011 < http://www.reuters.com/article/2010/01/19/us-cadbury-kraft-factbox-idUSTRE60I1JI20100119> Jargon J, 2008, Kraft Reformulates Oreo, Scores in China”, the Wall Street Journal Online, Viewed 24th August 2011 Jannarone J, 2011, Kraft Breakup Alone Won't Nourish Investors, The Wall Street Journal. Viewed 24 August 2011 < http://online.wsj.com/article/SB10001424053111903454504576488521705501438.html> “Kraft Foods Announces Intent to Split Business” 2011, Quality Assurance Mag, viewed 24 August 2011 < http://www.qualityassurancemag.com/qa-080811-Kraft-Foods-Announces-Intent-to-Split-Business.aspx> Palmer D, 2008, “Five categories, ten brands and ten markets: Kraft’s blueprint for the future”. Australian Food Network. Viewed 24 August 2011 < http://www.ausfoodnews.com.au/2008/09/04/five-categories-ten-brands-and-ten-markets-krafts-blueprint-for-the-future.html> “Securing food supplies up to 2050: the challenges faced by the UK, fourth report of session 2008-09” 2009, Great Britain: Parliament: House of Commons: Environment, Food and Rural Affairs Committee, The Stationery Office, 2 “Kraft Foods targets the regions top buyers and distributors with global, best-selling brands new to the region” 2010, AMEinfo.com, viewed 24 August 2011 Murray S, 2007, The World's Biggest Industry, Forbes, viewed 24 August 2011 < http://www.forbes.com/2007/11/11/growth-agriculture-business-forbeslife-food07-cx_sm_1113bigfood.html> Ziobro P, 2011, 4th UPDATE: Kraft Foods To Split Into 2 Publicly Traded Companies, The Wall Street Journal Online, Viewed 24 August 2011 < http://online.wsj.com/article/BT-CO-20110804-718708.html> Read More