Food Packaging Industry - Research Paper Example

Food Packaging Industry The attractive looks of processed food packets that increases greed in human beings to consume, is provided by the food packaging industry. The industry is generally alarmed with activities related to packaging manners of food products with special emphasis on their protection. The protection is from harmful chemical, physical and biological particles. Food packaging industry is indulged in various types of packaging such as sterile package, cans, boxes, wrappers, bags, and cartons. The global packaging industry is on its growth stage and statistics shows that by the end of 2010, it will reach a growth rate of 4.3%. The three topmost food packaging industries are located at US, Europe and Asia. The demand for packaging is initiated by the consumption demand of food materials and it is predicted that consumption demand for items like nut and chocolates will infuse the demand for packaging industry. Along with the protection from all biological harmful elements, the food inside a packet also requires protection from certain other things like temperature, humidity, and vibration. The containment or the determination of amount is an important objective of food packagers. The containment is decided based on different conditions of the type and size of food concerned. The packaging should provide appropriate general information of the food inside. It should also take into consideration that there are certain information that government demands and the packaging industry should try to adhere to every demands of the people. Labels and packaging should be such that marketers can use them for successfully reaching out to the customer’s minds that is positioned. The design and outlook should be such that an image can be formed. Packaging industry should try to provide convenience in handling through packaging. This adds to convenient distribution, use and reuse of food contents (United Nations Industrial Development Organization, n.d.). The environmental factors, especially external environment of an industry plays a major role in its success. The objective of this part of the research paper is to focus on the general environmental trend analysis of food packaging industry along with analysis of this concern of Kraft Food Inc. The demographic environment of a packaged food industry consists of its customers profile mainly. If a company deals with packaged food internationally, then it is essential for it to consider customers variability all over the world. Food packaging manufacturers deals with the customers’ tastes and preferences and to understand their customers well in an attempt to increase their profitability, they need to evaluate customer’s profile from time to time. In Kraft Food Inc., the demographic environmental analysis shows that in the year 2008 and 2009, Wal-Mart Stores Inc. contributed 16% of its net revenue and 15% of net revenue in 2007. Apart from Wal-Mart Stores, many other customers worldwide have contributed largely towards its revenue generation. The socio-cultural environment of packaged food industry includes behavioral patterns and changing values of life of the people. Kraft Food is a multinational corporation dealing in more than 150 countries all over the world. Hence, it is very crucial for them to separately analyze the socio-cultural environment of its customers worldwide. They at times face decrease in sales volume due to various cultural events in various parts of the world and for this factor sales are not the same in every country. However, its overall sales volume balances over the year because cultural factors are not the same for all countries. At present it is not facing any problem in maintaining sales percentage but considering the increased competition, it might face such scenario in future. Thus Kraft food has to take initiatives in understanding the societal cultural factors of all the countries where they do business. This initiative will help them sustain sales during time periods where cultural events may hamper sales. For this purpose they need to employ marketing personnel in their subsidiaries. The personnel have to be belonging to those nations where they will operate (Kraft Food Inc, 2010). Governmental rules and policies for packaged food industry sometimes can act as a hurdle for operations of the companies. There are certain legal requirements in the industry which are: proper nutritional information, ingredients and origination, dating and storage, batch number, allergens. The industry is required to be well aware of the legal requirements, the violation of which can create problem. Kraft Food operates internationally and it shows its concern about its recent undertaking of Cadbury’s business. Their publication mentions that the fear of changes in legal and regulatory system in countries where they operate can act as a challenge towards their operations. The industry has faced challenge when Starbucks criticized them for disclosing terms of an agreement that Starbucks had intended to end. On May 10, 2010 in China Beijing Environmental Technology Information Centre Hyflux sued Donglaishun Fanzhuang on the ground of using a poor quality meal. The case was afterwards referred to food packaging quality and safety of consumer rights case. Technology has to be utilized in its fullest form in order to keep pace with the demands of consumers. In packaged food industry the companies not only depends on the manufacturing technology that are used but also depends largely on their infrastructure of information technology. Kraft Food hugely depends on timely and accurate numeral data and information for aiding their performance levels. As they operate worldwide, it might consequently happen that in certain parts of the world, the food products may become contaminated. This type of events can cause excessive delays that is hard to compensate and will directly have an impact on their profitability. The food products reach every corner of the world and it is not a matter of few hours. Technological innovations are essential for keeping food fresh and new. A number of the vital innovations in food packaging industry are: the films and sachets which acts as odor and flavor absorbers, digital technology and ripeness indicators to judge the freshness of food, and drip absorbing pads are there to control moisture. All these innovations have helped in proper maintenance of packaged food all over the world. For a food packaging company, the economic environment includes different macroeconomic conditions and policies and laws of the government. The food packaging manufacturers are trying to fight recession by decreasing their cost of packaging. According to a study in UK, many business owners have reorganized their product lines, and developed new modes of packaging to target customers who are budget constrained. Also they have reduced costs by introducing flexible plastics packets. It provides the products new looks, designs and evidently variability in prices. In the recent period of recession, Kraft food has followed the same marketing strategies but has tried to understand their customers better. Their key strategy was to deal with the customer’s demand and not to think about their own and change strategy accordingly. Kraft Food generally faces interest rate and exchange rate risks associated with its operations in different parts of the world. As they work worldwide with different currencies, exchange rate fluctuations largely affect its smooth functioning. Also the interest risk variances affect their functions. For example, if they are compelled to borrow from a particular country where interest rates are high, whereas they can borrow from a country where interest rates are low. In such conditions they may face financial crisis that might ultimately affect their financial performance as a whole. The global trend in external environmental analysis of any industry has helped in the acquisitioning functions of companies operating in that industry. Due to globalization, it has become convenient for companies to operate worldwide. Companies are now able to sell their brands in almost all parts of the world. Various studies are being conducted on this aspect and it has been found out that it is the phenomenon of globalization that helps companies go global. Packaged food, in recent times, are being sell in grocery stores also. This shows that the industry has become an essential part in the day-to-day life of people all over the world. Kraft Food depicts the best example of the effect of globalization. The current global environment of Kraft Food displays certain threats because as they grow globally and acquires more businesses and increase trades, the risk factor always remain on them. It may as a result happen that they base their decisions on certain unanticipated events in certain countries where there operational power is very less (FAQS, 2010). This part of the research paper deals with the analysis of competitive environment of food packaging industry putting special emphasis on Kraft Food. Five forces of Porter’s Model that defines the competitiveness of the company are explained below. Porter’s five force model is basically based on the grounds that a strategy of a company should be such that it meets all the opportunities and threats prevailing in an organizations external environment (Themanager, 2001). The bargaining powers of suppliers depend on the availability of the sources of inputs in the markets. Kraft Food operates worldwide and they can purchase inputs for their products from any part of the world, of course depending on their viability. The supplier’s power of bargaining would not be that high because there are a lot of options for Kraft Food to purchase inputs. Also the cost of switching would not be high as they are already established in the countries. Recently, a rise in input cost has posed as a threat in its third quarter’s earnings. Over the years, Kraft Food has created well established customers with high buying powers. High buying powers at times will also lead to high bargaining powers. The larger retailers, who are capable of operating with fewer inventories, can resist a sudden rise in prices of products. Also there are possibilities that the retailers choose to integrate backward. It is quite possible that new players enter the market with certain innovative strategies and ideas and challenges Kraft Food operation. Customers prefer variability, especially in snacks and beverages items. Kraft Food has been operating since a long time and customers may certainly like another new product type in snacks category and switch over to that. Kraft Food deals with snacks, beverages and various packaged grocery products. People have become more health conscious than before and normally prefer foods that not only keeps them healthy but also adds nutrition to them. In this scenario, people may prefer other food products like the breakfast items and sterilized products than snacks and beverages. Also people might prefer dairy products to cheese that adds calories. Kraft Food operates in an extremely competitive market and at times they may require reducing their product price. Also at times they may be resisted to increase prices. This might lead to decrease profitability. They basically deal with retailers who are also selling other brands of similar products and in that case they will not be able to increase their prices at higher margins than their competitors. The spending in terms of marketing and advertising may also outperform their profitability (FAQS, 2009). The company has formed a partnership with the licensing and research group of Medisyn technologies with the intention that it can discover the bioactive ingredients that can be used in the functional foods. There have been many strategic groups within the industry like Cadbury that was acquired in the year 2010 in order to create a global powerhouse in snacks, confectionary as well as quick meals. The company has also been divesting some of its unproductive business so as to remove the barriers of losses. In the year 2010, Kraft foods have sold its frozen pizza business at $3.7 billions. Moreover the company has also decided to split-off its post cereals trade into Ralcorp Holding, Inc. Other strategic groups within the industry were LU biscuits which were acquired in the year 2007 for $ 7.6 billions. Therefore, it is evident form the above facts that the company keeps on taking various strategic moves like acquisition or divesture as well as splitting off the business with various strategic groups so as to meet the profit targets as well as growth (Kraft Food Inc, 2010). The Kraft food has been facing competition in all aspects of their business. The main competitors have been the national as well as the international companies. Along with this there have been many local as well as the regional companies. The profit objectives of a few of the competitors have been different and the international competitors have been less vulnerable to the currency exchange rates. The company has been competing with the retailer brands and the generic products. Its other competitors have been the cooperatives and the wholesalers as well. The competition basically takes place with respect to the quality of the product, brand loyalty, marketing, brand recognition, advertising and price. On top of this in order to improve the market position and to introduce a new product any company may require lots of advertisement and promotional expenditures prior to that (Kraft Food Inc, 2010). Kraft has been ranked as the second largest food manufacturer after nestle in the world. The competitors of the Kraft food industry have been smaller, regional as well as large multinational firms because of the market being fragmented. There is intense competition among the Kraft Foods and the private level manufacturer. The major competitors of the Kraft foods have been the following: Nestle has been the world’s biggest food manufacturer with revenues of $76 billions in the year 2004. Nestlé’s Nescafe has been the leader in the coffee segment. The revenue structure of the Nestle is completely different from that of Kraft foods with one third of the revenue for the Nestle coming from America, one third of the revenue coming from Europe and the remaining one third coming from the rest of the world. This limits the competition for Nestle. However if Kraft Foods try to focus on any other markets rather than North America then the competition for the Kraft food will increase. ConAgra has been the major player as well as the competitor of Kraft foods whose revenue is half the revenue of Kraft foods producing different varieties of branded food items. It also focuses its attention in North American market like that of the Kraft foods. Kraft’s Oscar Mayers brands direct competitors have been ConAgra Butterball meats and Armour. Groupe Danone has been producing food in segments like dairy, beverages and biscuits which have been the Kraft’s key areas. The company has been focusing on the European markets which have helped them to generate greater revenue (Lutz, 2006). SWOT analysis is the strategic Planning tool that helps the company to identify its major strengths, weakness, threats and opportunities lying within it. The major threat for the company has been that the retailers have been providing retailers brand which are highly competitive with some of the products of Kraft foods. Moreover, at the time of economic uncertainty the consumers tend to shift their preferences towards the retailers brand or any other economy brands that eventually reduces the sales volume of the company’s products and it forces to shift the product mix to the lower margin offerings. This leads to the decline of the brand image of the company and has a material effect on the profitability and the market share of the Kraft food. The other threats for the company are in relation to the risk inherent in multinational operation like there is fluctuation in the currency values; there are chances of discriminatory fiscal policies, difficulties enforcing intellectual property and contractual rights in creating jurisdictions. The main strength for the company has been manufacturing and marketing the packaged food product like snacks, cheese, beverages, convenient meals and other packaged grocery products in more than 160 countries. The company has been the member of the Standard’s and poor 500, the Dow Jones Sustainability Index, Dow Jones Industrial Average and the Ethical Sustainability Index. The other strength for the company has been the positioning in the food group. It has been having major financial strength which is very important for any business to run successfully and to reach the aims and objectives of the company. Strength for the company has been that there has been more than $50 billion of revenues generated by the firm. It has been ranked in first position in terms of global confectionery and also in global biscuits. It gains more than 50% of its global revenue from the snacks and confectionery. The products of the Kraft food have been of high quality and have been the second largest food company in the world. Its customers have also been its major strengths as they account for most of the percentage of the revenues for the companies. In the year 2009, its five customers accounted for more than 27% of its net revenues and it was 29% in the year 2007. Its ten largest customers accounted for more than 36% of its net revenues in the year 2009. Wal-Mart itself accounted for more than 16% of its net revenues in the year 2009. It has been successful in introducing a shelf-stable probiotic nutrition bar in the year 2008. The benefit of the probiotic did appeal to the consumers. The major weakness of the Kraft food has been facing is in the difficulties in launching up of new brands. The stock performance of industry has also been too poor. The company has been suffering from low growth as a major problem in the United States. Moreover the stiff competition was another big weakness for the Kraft foods. Its competitors were Nestle, and Hershey. Its growth has been dependent on the acquisition and also at the expansion strategies into the new markets. The main opportunities for the companies are that it got the chance to operate in most of the fast rowing and developing categories. It has been operating in the international market which is the biggest opportunity for the Kraft Food. After acquiring the biggest chocolate maker i.e. Cadbury’s, it helped the Kraft food to expand its operation in new markets as well. The acquisition also provided new products to the Kraft Foods (Kraft Food Inc, 2010). The managers will make efforts to increase its strength by investing in the R&D department with the intention that it can develop healthier snacks and can prepare healthier pre packaged lunch foods that will contain low fats. In order to bolster the core brands of the Kraft the company has invested $200 millions in its advertising budget. Moreover, the managers are trying to bring vending opportunities for its Kraft branded machines with the intention that they can manufacture ready made foods for the shopping malls, movie theatres and other public venues (Daft & Marcic, 2008). The managers of Kraft see lots of opportunities in the environment. More of the American people are looking for Snack food as well as comfort foods as Kraft food is popular for the comfort food (Daft & Marcic, 2008). There are many environmental as well as competitive threats that have been building since a couple of years. The first threat is that the private-label brand that were less expensive have been successful in taking away the market share from the core brands of Kraft like Kraft Singles Cheese slices, Oscar Mayer Beef cold cuts, Ritz cracker and Maxwell House coffee. Moreover, many other companies have started providing less fattening and healthier food choices to the consumers. One of the biggest competitors in this regard have been the PepsiCo who have started to cut the fat from its products like Cheetos, and Tostitos and have found major increase in their sales volume. Another threat has been that the people are consuming more of ready made lunches instead of home prepared food like sandwiches that is made of cold cuts and cheese (Daft & Marcic, 2008). The Kraft food has been the world’s second largest food company in the world. The research study dealt with the history of the overall food packaging industry and has also been analyzed with the point of view of the environmental as well as the strategic issues of Kraft food industry. This study has also looked to analyze the general environmental trends of the Kraft foods and its competitors as well as the SWOT analysis for the industry. References Daft, R. L. & Marcic, D., (2008). Understanding Management. Cengage Learning. FAQS, (2010). Risk Factors. Sec-filings. Retrieved Online on November 15, 2010 from http://www.faqs.org/sec-filings/100203/KRAFT-FOODS-INC_8-K/dex993.htm FAQS, (2009). Risk factors. Sec-Filings. Retrieved Online on November 15, 2010 from http://www.faqs.org/sec-filings/091204/KRAFT-FOODS-INC_8-K/dex9911.htm Kraft Food Inc, (2010). Business. Morningstar Document Research. Retrieved Online on November 15, 2010 from http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDk3MDF8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1 Lutz, D., (2006). Global Companies – Global Unions – Global Research – Global Campaigns. Industry and Competitors. Retrieved Online on November 15, 2010 from http://www.ilr.cornell.edu/globalunionsconference/research/reports/kraft.pdf PriceWaterHouseCoppers, (2009). Leveraging Growth in the Emerging Functional Foods Industry: Trends and Market Opportunities. Functional Foods Marketing Fundamentals. Retrieved Online on November 15, 2010 from http://download.pwc.com/ie/pubs/pwc_leveraging_growth_in_the_emerging.pdf Themanager, (2001). Porters 5 Forces. Introduction. Retrieved Online on November 15, 2010 from http://www.themanager.org/pdf/p5f.pdf United Nations Industrial Development Organisation, (No Date). Packaging: functions. Introduction. Retrieved Online on November 15, 2010 from http://www.unido.org/fileadmin/import/32115_21PackagingFunctions.3.pdf Bibliography Canter, L., (2010). Kraft Foods Reveals New Growth Strategy. Food and Drink Digital. Retrieved Online on November 15, 2010 from http://www.foodanddrinkdigital.com/news/kraft-foods-inc/kraft-foods-reveals-new-growth-strategy KraftsFoodsCompany, (2010). About Us. Who We Are. Retrieved Online on November 15, 2010 from http://www.kraftfoodscompany.com/About/index.aspx Read More