Kraft Case Study
Kraft Foods continues to grow and change to meet changing consumer needs, in part by building on its history — the legacy of its well-known brands, the character of its founders and the dedication of its employees. The company has continued to build on the innovative spirit of its past, with new products such as low-fat and fat-free products in a variety of categories.
As for our case strategic management analysis of Kraft Food Inc, our group had structured the findings from examine their statement vision and mission, audit the external factors of the company opportunities and threat by doing the five forces model of competition, Competitive Profile Matrix (CPM), External Factor Evaluation Matrix (EFE) and Positioning Map as to evaluate the Kraft’s rivals position in the market. Besides, our groups observe the company’s internal factor as such their own strength and weakness by going through the Financial Ratio analysis and Internal factor Evaluation Matrix (IFE).
Also, we had included the SWOT Analysis, Grand Strategy Matrix, Internal-External Matrix (IE), Quantitative Strategic Planning Matrix (QSPM) and some recommendation and justifications from our point of views. The objective of the assignment is to help us understanding the practicality that management people in each organization have done in the process of formulating strategies as to ensure the strategies will maximize a long term return to the company yet to achieve the sustainable competitive advantages. Therefore, this assignment has given an ease for us to understand more about the course of Strategic Management. . 0 STATEMENT OF VISION AND MISSION (ACTUAL) Vision: “Helping People around the World Eat and Live Better” Mission:
Our vision tells the world-our employees, customers, consumers and the communities where we make and sell our products-what we care about. It captures the importance of health and wellness, but it also embodies all the ways we can eat and live better, such as the enjoyment of a dessert, the convenience of a microwave meal, the safety and value of our products and the services and solutions we provide. . 0 STATEMENT OF VISION AND MISSION (PROPOSED) Vision: “Being the First Choice of Healthy Food Products” Mission: A mission statement is often the most visible and public part of the strategic management process, it is important that it includes all of these essential components: 1. Customers 2. Products or services 3. Markets 4. Technology 5. Concern for survival, growth and profitability 6. Philosophy 7. Self-concept 8. Concern for public image 9. Concern for employee
The recommended mission statement for Kraft Food can be as follows: “Kraft Food is devoted to providing its customers appetite for life, which love to laugh and live to eat. At Kraft Food we believe it is the best in the world. We aim to be the most successful food company in the world at delivering the best customer experience in markets we serve. By do so; Kraft Food will meet its customer expectations through highest quality food prepared with leading technology and by hiring and retaining personnel with exceptional capabilities.
Michael porter provided a framework that models an industry as being influenced by five forces. The strategic business manager seeking to develop an edge over rival firms can use this model to better understand the industry context in which the firm operates. According to Porter, the nature of competitiveness in a given industry can be viewed as a composite of five forces which are rivalry among competing firms, potential entry of new competitors, potential development of substitute products, bargaining power of suppliers, and bargaining power of consumers.
As for our case analysis, we need to identify and evaluate the Kraft Food Inc. ’s five forces model competition. Rivalry among competing firms is the most powerful of the five competitive forces which describes the intensity of competition between existing players (companies) in an industry. The ongoing war between firms competing in the same industry for gaining customer share tends to increase revenues and profits. The competition is more intense if firm pursue strategies that gives competitive advantage over the strategies pursued by rivals.
High competitive pressure will results in pressure on prices, margins, and hence, on profitability for every single company in the industry. In such ways, we had come across from the case; Kraft has its own rivals in the same competing industry as such Nestle and Con Agra. These two companies give an intensity in selling essentially the same products as there will always end up being a price war which will severely hurt the company’ profits. These food industry companies have had problem and fierce competition for them to make a profit.
For example, Nestle, is the largest food processing company yet it also produces health and beauty and pet care products. Not only that, the majority of Nestle’s revenues from international sales compared to Kraft Food Inc. is primarily generated their revenue from North American Company. Moreover, Kraft also finds itself competing with generic products and retailer brands, wholesalers and cooperatives. These products are largely competitive threat to Kraft. Otherwise, ConAgra Food is the largest publicly held firm that Kraft Food competes with in the US market.
It also leading the branded foods company and one of the nation’s leading specialty potato providers to restaurants and other foodservice establishments. Thus, it gives a big intensity towards Kraft to lead the industry in to reach the sustainable competitive advantages. Another force might come from potential entry of new competitors. The competition in an industry will be the higher; the easier it is for other companies to enter this industry. In such a situation, new entrants could change major determinants of the market environment for instance; market shares, prices, customer loyalty at any time.
The latent pressure of a new organization entering the industry is high when it is easy for an organization to enter the industry i. e. entry barriers are low. An organization will look at how loyal customers are to existing products, how quickly they can achieve economy of scales, would they have access to suppliers, would government legislation prevent them or encourage them to enter the industry. Threat of entrants is high and unfavorable in the industry. This is a real threat in a place like Pakistan where the food industry views constantly changing patterns in demand.
Due to its consumer base, that is always on the look-out for new and changed product which suit with the current trends and customers’ eating habits and preferences at home and restaurants. Every now and then, it can be seen that currently market for packaged and processed food has been increased and many retails brand has offered new product of which only a few are able to successfully survive in the long run. Thus, Kraft must concentrate its efforts on ‘differentiation strategy’ as that is the key of survival in the food industry especially, in the market for packaged and processed foods.
For examples, Kraft has made a major successful with its OREO biscuits as they were no other brand offered such product at that time. After that, a number of rivals whether the existing rivals or the new entrants tend to imitate OREO biscuits. Moreover, this OREO biscuits also had been used by many other markets as such Mc Donald has been used this product with their ice creams which is Mc Flurry Oreo. There are also some forces that affect the threats of new entrants which are political, economic, social and technological.
As for political, if the government brings out higher product license cost and increased taxes or implements strict health and safety regulations along with more documentation procedures, this will increase the barriers to entry. Besides, in case of improvement in the economy, more people could afford to go buy more products which give more opportunities for new brands and products to come up. The current social trend is in favor of the consumer to choose type of food that were eased in packaging as more people adopt a lifestyle that includes less time for preparation of food.
Thereby, increasing their demand will also increasing the threat of new entrants. The rise in innovative technology has made management and the process of manufacturing the products very easy and the new sophisticated software now enable the manufacturers to run with less number of employees, thereby, reducing the labor cost. Thus, this factor increases the threat of new entrants. As for the force of potential development of substitute product, it is actually a threat from substitutes exists if there are alternative products with lower prices of better performance parameters for the same purpose.
They could potentially attract a significant proportion of market volume and hence reduce the potential sales volume for existing players. This category also relates to complementary products. In easy words this type of force is a pressure from the substitute or alternative products which is offering lower price and better performance. As it can be seen from Kraft cases, we analyzed that there are several substitute products competing in the current trends as such the development of health product.
This force comes from the demanding of consumers towards these health products as those containing less trans fat or fewer calories or those containing only organic ingredients. As currently, customers’ awareness is increasingly towards healthier lifestyle and more people suffering in many diseases such as obesity. Another substitute product that had been analyzed by our group is the currently trend of bottled water. It has becomes well established in the market and enhanced waters containing vitamins or supplements are gaining popularity.
Another factor which gives the pressure from substitute products is the current trends of people dining out, and food produces are devoting more attention to products designed for restaurants, vending machines and other foodservice providers. Thus, this gives a stress to Kraft to develop their products in completing the demands of current trends towards the substitute products. One of the five forces is bargaining power of suppliers. The term ‘suppliers’ comprises all sources for inputs that are needed in order to provide goods or services.
Suppliers have a great deal of influence over an industry as they affect price increases and product quality. Suppliers are also essential for the success of an organization. Raw materials are needed to complete the finish product of the organization. Suppliers do have power. This power comes from; if they are the only supplier or one of few suppliers who supply that particular raw material either it costly for the organization to move from one supplier to another (known also as switching cost) or there is no other substitute for their product.
The bargaining power of suppliers might be high because the inputs are not easily substituted, keeping in mind only those companies in the industries that are rather cautious about their inputs as poor quality inputs can cause them a hefty amount of business. Also, the inputs are usually of a perishable nature, thus, stock-ups are not possible, that is why reliability of suppliers is very important. Therefore, these companies usually have one or two major supplier of main inputs, who can provide good quality inputs in a timely manner.
This is an unattractive aspect of this industry, that’s why; Kraft should integrate backward by probably has their own packaging factory or other ways in producing their own input without relying to other suppliers as such have their own dairy milk. It is in order to eliminate this power of suppliers. Besides, in other circumstances, when the input cost for bakers likes wheat, eggs and natural gas have declined recently, some bakeries and food manufacturers will slightly have an advantages of earning higher revenue as they offer the same price to the market even the suppliers had reduced the input price.
The last five forces model is the bargaining power of customers. Similarly, the bargaining power of customers determines how much customers can impose pressure on margins and volumes his buyer’s power is significant in that buyers can force prices down, demand higher quality products or services, and, in essence, play competitors against one another, all resulting in potential loss of industry profits. In the case of Kraft, many consumers are cutting back on their spending by switching to store-brand products which will give a big impact towards Kraft product in trying to compete with those generally low price products.
The bargaining powers of consumers tend to be seen from the impact of consumers are trying to stretch their dollars further and competition increasing. This is because the corporate and brand reputation are expected to become increasingly important in the way that they will try to improve their product, quality and services as such there are food safety programs have been adopted recently. Therefore, based on these recently trend, Kraft need to developed their services, products yet their strategies in increasing the brand’s name and reputation.
Besides, customers today view food as an expression of their cultural and social identity and therefore asking a lot more from producers than just good quality. Thus, Kraft can look at this kind of pressure as their own opportunity to improve their existing products. As for the whole review, it can be seen that all of these five forces tend to give high and big pressure or force to Kraft. Hence, the strong pressure and intensity will make the result look negative towards the Kraft as it needs to compete in the fierce market and industry competition.
Despite of all these stress and intensity, Kraft is still able to maintain and compete strongly within the food industry till these days even the company and all the management teams had faced fluctuation times with the company. Mostly, the firm that seems to have strong forces from these five forces model competition will take a step to quit or switch to another industry which has less severe forces. However, Kraft still continues operating and pulls through with all the intensity by implementing wise strategies to achieve its own mission and vision.
This is resulted in the company’s market share and industry growth also tends to look good. In addition, Kraft always improves their strategies and means as to adapt quickly with the changes in the market. For examples, the CEO Rosenfeld has been leading the Kraft through a turnaround process designed to return the company to sustainable growth. Therefore, with all of these strong incoming pressures will give a hard time for Kraft to achieve sustainable competitive advantage yet they still able to compete strongly in the market.
As a cessation, Porter’s fives forces model is an excellent model to use in analyzing a particular environment of an industry. So for example, if we were entering the industry, we would use Porter’s model to help us find out about; Competitive rivalry, Power of suppliers, Power of buyers, Threats of substitutes and Threat of new entrants. The above five main factors are key factors that influence industry performance; hence it is common sense and practical to find out about these factors before we enter the new industry. | Kraft Food | Nestle| Con Agra|
Critical Success Factors| Weight| Rating| Weighted Score| Rating| Weighted Score| Rating| Weighted Score| 1) Research and Development 2) Advertising 3) Restructuring 4) Product Brand Name 5) Financial 6) Health and Wellness Product 7) Market share| 0. 200. 200. 150. 100. 150. 100. 10| 4432321| 0. 800. 800. 450. 200. 450. 200. 10| 4344423| 0. 800. 600. 600. 400. 600. 200. 30| 3122241| 0. 600. 200. 300. 200. 300. 400. 10| Total| 1. 00| | 3. 00| | 3. 50| | 2. 10| 5. 2 CPM –Competitive Profile Matrix Analysis: Kraft Food is currently below Nestle which is 0. 50 in different as compared to Nestle total weighted score above.
A key of success of Kraft Food was James Kraft’s commitment to developing new products. For example in 2010, Kraft Food China launched a strong pipeline of innovative products, including Oreo Ice Cream Flavor and Mini-snack biscuits. Moreover, the other key critical success factor is on the advertising. In advertising also is one of the important key success factor that makes the company more well know to the customers and the way they advertise the company are based on the media, consumers journals, outdoors billboard and others. Contrary with ConAgra, they are not actively focusing on the advertising method.
In terms of restructuring, as a result of merger with Philip Morris and National Company, the company became the largest food company in US and the second largest in the world. However, as compared to Nestle, it has established joint ventures with giants like Coca Cola, General Mills and L’Oreal that are helpful in providing knowledge on different technological aspects and to ConAgra, they only realignment of ConAgra Foods from three operating channels to two, with the previous ConAgra Foodservice being merged with ConAgra Food Ingredients to form ConAgra Foods Commercial.
Furthermore, in terms of products brand name, Kraft Foods only have 100 different brand name food products and tracks as compared to Nestle which is it has a vastly diversified product portfolio containing approximately 6000 brands (beverages, ice creams, frozen food items, chocolates and biscuits, pet care nutrition items, etc. ) Nevertheless, Nestle is doing outstandingly better in terms of financial as their key success factor compared to Kraft Food and ConAgra because in 2010, a turnover of RM4. billion for the Financial Year Ended 31 December 201, 7. 5% increase over the previous financial year, benefiting from positive consumer sentiments and renewed confidence arising from strong developments in both the global and local economies as with Kraft Foods, only RM49, 207,000. In terms of health and wellness of the products, Kraft Foods is doing the same as its competitors Nestle, and ConAgra is doing better because they are continuously upgrading in food safety by investing $25million into training initiatives.