Strategic Management and External Environment for Kraft Food - Assignment Example

1. External Environment Economic High commodity and input cost (page 357) Increase in income level due to both the member being wage earner (page 358) Slow growth in traditional grocery stores by 3% (page 359) Grocery sale was estimated to be $ 103.2 billion in 2003 (page 359) Socio-cultural Slow to change to the changing consumer demand as can be seen from increase consumer concern towards extra cholesterol made competitors move ahead (page 357) Increasing trend towards meals that was easy to serve and prepare because of the following (page 358) Increase in woman workforce to 46.4% in 2004 as compared to 34% in 1964 Increase in families of two were both were wage earner (page 358) Increase in Single working parent (page 358) Political Strong government legislation in regard to food adulteration and inspection (page 357) Strong government agricultural programs that affected commodities used as inputs (page 357) Demographic Increase concern towards health and hygiene (page 358) 54 million Americans were on diet at any given time (page 358) 32 million Americans were altering their consumption behavior due to health issues Increase in health and wellness consumer base from 1% in 1990 to 5% (page 358) Aging population (page 358) 20 million American followed low carbon and high protein diet (page 358) 27% of the population preferred low carbohydrate compared to 20% a year ago (page 358) Change in minority and non Hispanic White population (page 358) Hispanic population is 18% of the population (page 358) Having a population of 37 million which will reach 44 million by 2010 Increase in Asian American Population Will reach to 14.6 million in 2010 and double by 2015 (page 358) Global Availability of product in 145 countries highlights global availability (page 353) Presence of different producers and opening of economies makes organization have a global effect Technological Matching the technology advancement as can be seen from the fact that color advertising was used as it was launched. (page 353) Increased media attention towards obesity and health related issues (page 358) Increased use of different form of advertising like billboards and elevated trains (page 354) Porter Five Force The porter five force model has been provided below Bargaining power of customer Low bargaining power of customer due to huge brand portfolio possessed by the company (page 354) Increase in health conscious customers with fewer products reducing their bargaining power (page 358) Bargaining Power of Suppliers High bargaining power for supplier as huge size due to consolidation provides better purchasing power for the company (page 354) Presence of many small manufacturers dealing with the local provides low bargaining power to those Availability of substitutes Availability if different products from different manufacturers provid an opportunity to use different product Low availability of health conscious products Barriers to entry Low on a local level (page 357) Requirement of low technology and finance further made the barriers low (page 357) Low distribution cost due to nearness to local market reduced barriers of entry (page 357) High on a regional level Huge capital requirements (page 357) High marketing and distribution cost (page 357) Intensifying completion Degree of rivalry among firms The degree of rivalry is very strong among firms as seen below Wal-Mart has 13% share in food market and grew at 16% from 1990 through 2000 (page 359) Kroger has a growth rate of 9% from 1990 through 2000 (page 359) 2. Internal Environment Tangible resources Strong network coverage by having its presence in 145 countries giving a strong market (page 353) Huge employee base of 100,000 who are loyal and produce high quality products due to their band image (page 353) Ability to identify areas to advertise like billboards, television, elevated trains to keep with the changing times (page 354) Addition of new products into the product line like meat, processed cheese, and coffee (page 354) Intangible resources Strong brand presence due to different brands like Kraft, Nabisco, Toblerone, Crystal Light, Maxwell house and others (page 353) Improved focus on business development by dividing the business into three core product line i.e. coffee, meat and assorted groceries (pg 354) Consolidation through huge size which provides competitive advantage as purchasing power multiplies. (page 354) Capabilities Developing new product through innovation which has been the key for years and attracted consumers due to it. (Page 353) Ability to identify business to acquire which will strengthen their vale as seen from the acquisition of Oscar Mayer which gave them access to already set supply network (page 354) Being in business since age’s shows the reputation level developed. Reputation thus had added to the growth and made customers look towards their products. (page 353) Core Competencies Rare: Development of new products like coffee with less caffeine content which earned them good brand name (page 353) Non substitutable: The presence in package good industry since 1780 cannot be matched by others (page 353) Differentiating factor: Ability to acquire new business through acquisitions and mergers have increased their market all around (page 353) The capabilities and the core competencies help to identify the developments and growth potential the market has. Kraft occupies a strong position in the food industry and has been growing on the basis of innovation. Recently the company’s performance has shown a dip due to poor management and development of new products. The SWOT analysis presented below highlights other important points Strengths Weakness Second Largest food and beverage manufacturer (page 353) Low category brand harming their image (page 353) Strong brand presence (page 353) More focus on non category killer i.e. low brands Strong product prowess (page 353) Diversification into non core areas made the loose focus New Product development (page 354) Slow to act on consumer changing demand Strong Marketing research (page 354) Shrinking profit margins Huge advertising budgets (page 354) Little innovation in healthy food (page 358) Innovative advertising (page 354) Increasing cost and pressure from private labels (page 359) Adding new products (page 355) Growing differences among companies (page 355) Opportunities Threats Launching products for health conscious customers Increasing Competition Launching products in ready meal Growth of private labels Increase promotion Growth of health conscious customers Increase Brand Recognition   3. The current strategy followed by the company is through restructuring and hiving of the projects which are not beneficial. The company is now looking towards ways to restructure their business operations. This will help the business to improve focus and concentrate on more important areas. The company is also looking towards area where low carbohydrate products can be launched so that the health conscious customers can be attracted. The company is also looking towards selling off secondary brands and brands which have low value. At the same time the company is looking towards acquisition along with divestures. Thus, the current strategy will help the company to be in line with new product development and improve their focus on core areas. 4. The company has followed an acquisition strategy since its inception to increase its market size and share. The company had acquired different brands like General Food Corporation, Kraft Inc, Nabisco Holding and many others. (page 353) Doing so has diversified their business into different lines which have diversified their risk but also reduced focus on core areas. The benefits and problems faced due to the acquisition strategy are provided below Benefits Diversifying into different activities like coffee, meat and assorted food (page 354) Reduces risk as diversifying spreads risk Improved distribution network (page 354) Problems Acquisition of many category B and C brands and products Reduced focus on core products Over reliance on acquisition and merger strategies reduces focus to continuously develop new products Difficult to integrate the different business (page 355) It increased debt of the company (page 355) 5. The company has launched various restructuring programs to bring about a change in their working and delivering service. The company is recently looking towards trimming 6000 jobs and closing 20 plants over 3 years. The cost for such a restructuring in the first year which is 2004 was $508 million and the savings were $84 million. (Page 353) The company had also followed a policy of restructuring early on when the differences among companies were growing and sales declining. This led to a situation where the company in the year 1993 was looking to close forty plants and reduce the workforce by 14,000. (Page 355) Another restructuring took place in 1994 to consolidate the entire unit into one and be called Kraft Foods Inc. Read More