Kraft and Cadbury Business Strategy, Power and Interest - Coursework Example

 Outline and evaluate Kraft’s diversification and growth strategies in the period prior to its acquisition of Cadbury in 2009/2010. Kraft was known to be a major leader in the global market dealing with food stuff. It was ranked to be the second largest food company in the world. The company mainly dealt with beverages, grocery, snacks, cheese and convenient meals. The different strategies used by the company in order to grow included customer satisfaction strategy, brand reframing, exploitation of other sale avenues, low cost products at premium quality. In its diversification strategy, use of mergers and acquisition were mostly used. Use of merger and acquisition as a diversification strategy By the year 2008, the company was operating in 150 countries. The company began its evolution by evolving from a cheese company. The main aim was to relieve grocers from travelling daily to produce cheese. This was a strategy by Kraft Company to start its operation as a food company. In 1930, it was followed by a quick merger between Kraft, Phenix and National dairy products corporation led to the further growth of the company. After the merger, the company launched new brands that include Velveeta pasteurized process cheese spread and miracle whip salad dressing. The company also came up with innovative advertising strategy. In 1945, Kraft was renamed to Kraft’s food company. A merger took place in 1980 between Kraft Food Company and Dart industries incorporation in order to diversify the company’s business. Business activities that Dart incorporation engaged include electric appliances, land development, plastic bags and pharma drugs. This was a different line of business since the two business organizations were involved in totally different business. This was meant to diversify Kraft Food Company. The merger of these two companies did not work well and hence was dissolved after six years. This made the Kraft Company focus on the food industry and applied innovative products strategy (Bhaskaran, 2009). Kraft’s food company was later sold to Phillip Morris Company at a value of $12.9billion and general food. This took place after the acquiring company had purchased general foods in 1988 at a value of $5.6billion. General food was the biggest food store with multinational and Multiproduct Corporation through acquiring small food companies. Merger between general foods with Kraft’s food under the name Kraft general food incorporation produced the largest food marketer in United States. At the same time, it acquired another small company Jacobs’s suchard. The merger saw a growth of 20% for two years between 1989 and 1990 despite the experiencing internal wrangles that was caused by large management. Some of the problems experienced include were slow response to consumer demand and growth rate, This enabled the company to find for ways of restructuring itself and by doing this; company will be able to grow. Some of the ways of restructuring the company that the management came up with include job cuts, elimination of products that lagged sales and closure of small companies that were associated with Kraft food store for instance disposal of bakery division in 1995. In the same year, 1995, there was a merger between Kraft, General food both in United State of America and Kraft General Foods Canada. The companies operated under one name Kraft Food Incorporation. The company launched a product by the name Digiorno rising crust pizza. This was diversification strategy by the company in order to expand its activities. Revival of company in late 90s was seen as a move for growth. It was possible for the company to acquire the license for the Taco Bell line of Mexican grocery products. Exploiting new Sales Avenue as a growth strategy, an agreement between Kraft Food Incorporation and Starbuck to market and help distribute their whole bean and ground coffee was also seen as a move for that will help the company grow. This is because Starbuck is a business entity that deals with beverages and drinks and so the agreement of the two companies was of beneficial to both parties. Through this agreement, Kraft food incorporation will be able to gain market because they will be advertising their products which are whole been and ground coffee courtesy of Starbuck. Starbuck on the other hand, will be getting the raw materials at a lower cost from the partnering company (Bhaskaran, 2009). In the year 2000, Kraft food incorporation went ahead to acquire Nabisco group holdings. This acquisition led to the integration of their activities as one company and later own the renaming of the company took place. It was renamed Kraft Food Incorporation. Another growth strategy that was used is the reduction of debt through the sale of 16.1% stake to the public by Philip Morris. The company was able to raise an additional capital of $8.68billion through the sale of 16.1% stake. Reframing brand as a growth strategy, The Company realized that product was an important factor for the success of Kraft foods and so the concept of open innovation was introduced. The company partnered with external people to develop new products and also launch them in the market. By doing this, the company reduced its costs that are related to research and development and also speed up the development of new products. The company also maintained a powerful brand portfolio which is considered to be growth strategy in business. A brand simply refers to a name, or a symbol used to identify the goods and services of one seller from another seller and also to distinguish them from those of another company. The function of the brand is to create awareness, reputation, and prominence in the market place. Consumers normally get confused when there is no proper branding, there is also wastage of resources and hence the consumers will not have the confidence they need to hire you. This give a clear picture that brand plays a big role in consumer buying behaviors. Brand function plays the roles such as creating Value for both the consumer and the firm and also plays a key element in consumer information. Becoming an independent company in the year 2007 through spunning off craft foods was a major step towards growth strategy. Public company enjoys numerous advantage compared to other forms of business and so the company was able to enjoy the merits that comes with this. In the same year, the acquired global business of group Dannone which also had a biscuit brand. From this we can say the company used both diversification and growth strategy. In diversification, it explored new sales avenues through acquisition of global business of group Dannone which was a leading biscuit brand. After this acquisition, it became a leading biscuit company and this made the company strengthen its growth and expansion. Doing away with post cereal business to Ralcorp Holdings was also seen as a growth strategy of the business. This was aimed at restructuring the company businesses with an objective of concentrating at what the firm can produce best. Kraft foods had become a leading food company after a series of acquisitions and divesture in its history. The food business was successful and innovative strategies helped the company to grow. The company came up with a three year long term sustainable growth. The management believed that the formulation of the three year plan will help the company grow. They include, focus on revival of top line growth in 2007, this will enable the company to get individual managers who can lead the company to a greater level. Growth at top and bottom lines of the company in 2008, by doing this the company will put in place serious manager both at top and bottom who will work together for the success of the company. Building of profit margin and market share in 2009, this will help the company to set targets that they want to meet in a given financial year. Building of market share will make the company have control in the market. This has an effect on sales, which is, it will increase the company’s sales. Another effect is that it will be able to compete favorably with other companies offering the same goods and services. What are the reasons for Kraft’s takeover of Cadbury Kraft is a major United States confectionery manufacturer. It is majorly a food company that operated in developed countries such as United States. Kraft’s takeover of Cadbury was mainly influenced by penetration into the market. This is because Kraft saw an opportunity for its entry into the developing country’s market through Cadbury. Cadbury Company already had a well established market into the developing countries such as Mexico, Brazil and India for over 50 years. The strong foothold that Cadbury was enjoying in these developing countries was reflected in the company’s financial statement because they were considered to be growing at the rate of 20% per year. By taking over Cadbury, Kraft will be having an advantage of penetrating into these markets since they will sell their products and increase their market share. Another reason is that Kraft food US had an ambition of making it to the top in the global confectionery. By then, Nestle its main competitor was the best company and was ranked first globally. Nestle company had an annual turnover of $99billion and a net profit of $9.55billion. It was followed closely with Cadbury Company with revenue of $5.4billion. Taking over Cadbury by Kraft food will enable it its objective of top slot in the global market (Bhaskaran, 2009). The takeover will also generate large cost saving to the two companies. This is because both companies deal in food industry and by takeover, cost of production will be reduced significantly and this will help the company to offer low cost products at premium quality. This will augment the revenue of the company and position it on top. Another effect of this is high quality of earnings growth and also generating strong free cash flow. The need to control market share by Kraft food, both companies have strong holds for their businesses. For instance, Kraft food has a well established market in developed countries while Cadbury has a strong market in developing countries. By taking over Kraft food will be having an advantage of Cadburys strength in the developing nations along with its well established market brands. Identify key stakeholders in the Kraft/Cadbury acquisition and their relative power. The key stakeholders in the acquisition of Kraft and Cadbury include Irene Rosenfelds who by that time was the chairman and CEO of Kraft foods. As the chief executive officer, she had the power to represent the company in the bid to take over Cadbury Company. She approached the chairman of Cadbury Company to start negotiation of the takeover. Mr. Carr writes back to Kraft rejecting the offer as it was too low. Representing the shareholders of Cadbury Company, Mr. Carr is given the authority by the stakeholders of Cadbury Company. This means that he has been given the power by the company to transact the activities involving the bid by the Kraft foods. The two entities are also stakeholders in the acquisition since according to company’s Act; a company is treated as a distinct entity. The two companies were dealing in different lines of production, each controlling given market share. Each company had its own power on a given market, for instance Kraft foods had a well established market in developed countries while Cadbury had a strong market share in developing countries. The confectioners too were key stakeholders. They include Hershey and Ferrero. They had an interest in bidding Cadbury but this did not work out well since there value was also low and hence rejected by Mr. Carr who was given mandate to do such transactions. Their position on the power/interest matrix is represented below High POWER Low low high INTEREST Power/Interest matrix shows the interest of shareholders towards what one is doing and the power of influence towards what one is doing. Minimal effort, in this category we have Hershey and Ferreri. This is because they had low power in the business field. Their bid for Cadbury was rejected on the spot because of their minimal power in the industry. Keep informed, in this group, we have Kraft foods represented by Irene Rosenfelds. They had high interest on what Cadbury was doing. Keep satisfied, this is a group where Cadbury had to keep satisfying and they include majorly the shareholders. Manage closely consisted of Mr. Carr and Irene Rosenfelds Ethical and policy issues that this particular takeover raised Ethics refers to behavior that characterizes an individual or an organization in its daily running of activities. Some of the ethical issues that were raised include reputation shredded after the takeover by the CEO of the company. It also saw Irene Rosenfeld extremely unpopular. After the takeover there were hopes of workers were dashed off and this earned Kraft a stem rebuke from the takeover panel. Some of the policies brought up include knocking the two businesses, closure of three offices in Cheltenham, satellite offices in Banburi and Sheffield and also creating of opportunities. Work citations Bhaskaran, S. (2009). Kraft food acquisition of cadbury: a strategy to become a global leader in food and confectionery. Banglore: amity research center HQ. Read More