External Analysis of Kraft Foods Essay

Kraft is the number one manufacturer of snacks in the U. S. and the world’s number two food company (Kraft Foods SWOT analysis, n.d.). Our goal is to maintain and improve those statistics. Results of the Porter’s 5-Forces There is a low threat of entry of new manufacturers. The food industry is already glutted with companies who rival Kraft. ConAgra ($11.62B revenues in 2012), and Nestle ($93.06B) represent the top across-the-board rivals. The Kellogg Company (13.65B) also holds 34.2% of the cereal market (Kraft Annual Report, 12/31/2011). There is a low availability of substitutes. The devastating drought in the U. S. has caused enormous drops in the supply of crops and animals. With diminished supplies when demand is high, suppliers bargaining power is also medium to high. Poor economic conditions coupled with heightened sensitivity to nutritional values have given customers a medium bargaining power (Lempert, P., 12/21/12). Results of the PEST analysis Political unrest in Egypt forced Kraft to suspend operations there (IUF newsier 2012). Likewise, the takeover of the Cadbury company and subsequent closing of the major plan in England have spawned much negativity toward Kraft (Chellel, Kit 5/23/2011). America’s middle class has shrunk by ten percent in the last 40 years and unemployment means consumers are being very cautious with how they spend their money (Lempert, P., 12/21/12). Shopping trends are focusing on health concerns and especially obesity (Kraft Foods SWOT analysis, n.d.). Over the net grocery shopping is becoming more popular (Lempert, P., 12/21/2012). With the advent of Facebook and Twitter, jilted employees, their families, and others who perceive unfairness dramatically weaken a company’s revenues with a few keystrokes. (Kraft Annual Report 10K 12/31/2011). Opportunities and Recommendations Kraft has the opportunity to re-configure marketing and packaging to tap further into the huge health and wellness market. They can educate the public about the advantages of healthy snacks. Kraft should promote the use of different individual pre-packaged and/or frozen items to make or supplement meals as opposed to buying a whole dinner. The consumer can be educated about the nutrition and time savings associated with a-la-carte items which can be used in conjunction with or in addition to a main dish. Kraft has the opportunity to re-examine the proteins in their products. Because of diminished supply of meat, alternate protein sources should be investigated. I feel the greatest concern right now is regaining and maintaining the Kraft name and reputation. It is imperative to keep the Kraft brand associated with good foods and healthy snacks. By implementing these changes, the company can go forward with even better bottom line results. INTRODUCTION In this report, I have analyzed the effects of Porter’s 5 forces upon Kraft Foods Industry. I have documented sources to validate those effects. The information presented is the latest available. I have also done a PEST analysis using the information gleaned from the previous sources as well as other references. I have given impressions concerning Kraft Foods Company from both an internal and external viewpoint. In conclusion, the recommendations for the company should result in better overall performance. Porter’s Five Forces Threat of Entry (low) There is a limited threat that more manufacturers will start up in the food industry. It is cost prohibitive pursuant to start up, marketing, advertising, and building brand loyalty. There are a sufficient number of competitors for Kraft Foods already. Especially at this economical slow down, no formidable threats seem likely (Food Retailing Industry, 2012). Rivalry (high) Kraft Foods has a high degree of competition rivals. ConAgra ($11.62B revenues in 2012), and Nestle ($93.06B) represent the most across-the-board rivals. Other peer groups with partial product competition and their 2011 revenues include: âž ¢ Campbell Soup Company (7.88B) âž ¢ The Coca-Cola Company(47.60B) âž ¢ General Mills, Inc.(17.12B) âž ¢ H.J. Heinz Company (11.62B) âž ¢ Hershey Foods Corporation(6.64B) âž ¢ Kellogg Company (13.65B) which also holds 34.2% of the cereal market, âž ¢ PepsiCo, Inc.(65.70B), and âž ¢ Unilever N.V. Hillshire (4.09B). (Kraft Annual Report 12/2011) (Morningstar KRFT competitors 2011). Substitutes (low) Kraft is the number one manufacturer of snacks in the U. S. and the world’s number two food company (Kraft Foods SWOT analysis, n.d.). Growing your own, buying fresh foods, and eating out would be alternatives to Kraft’s processed foods. For most consumers, time and money constraints would preclude these alternatives. Because of the slow economy and high rate of unemployment, many consumers are turning to home cooked meals rather than buying a complete processed meal (Reports, Statistics and Analysis (2/2/12). Bargaining Power of Suppliers (medium to high) According to Phil Lempert, the supermarket guru, the devastation of the drought in the United States in 2012 has caused exponential upsets in the food industry. There were enormous losses of both crops and animals. Because of this situation, suppliers have less produce and can demand higher prices. Higher prices of groceries have forced the consumer to take note of how much food is being wasted. They are investing those grocery dollars in good snacks and healthy meals (Lempert, P., 12/21/12). Bargaining Power of Customers (medium) Poor economic conditions have necessitated smarter use of grocery dollars. The grocery shopper wants quality products for a reasonable price. Pre-packaged whole meals have given way to more home cooking (Reports, Statistics and Analysis 2/2/12). Improved technology is adding to the clout that customers have. Baby boomers and millennials are using apps to search out similar products at better prices. Health concerns mean consumers are reading labels and demanding to know where their food comes from. (Food Retailing Industry 2012). There is little involved for the consumer in switching brand loyalty. Customers are commanding a heftier share of bargaining power than previously because of instant information about prices and alternatives. PEST Political In 2011, political upheaval in Egypt forced Kraft to suspend operations there. Of the 300 workers, 250 had joined to form a Union. In 2012, the new government instituted a social allowance which Kraft refused to pay resulting in a 3-day sit-in. Kraft fired five board members hoping to eliminate the union. This has caused much negativity toward Kraft. (IUF newswire 2012). Kraft Foods bought out Cadbury and executed some perfectly legal but questionable tactics in doing so. The takeover and subsequent closing of one of the main factories in England left many people with anger and bitterness against Kraft (Chellel, K., May 23, 2011). Both of these incidents give a glimpse into how inner company workings become front-page news. Government and political entities necessarily interact with corporations all the time but when the reputation of the company is damaged, it takes a long time to recover. Economic Environment The worst U. S. drought in 50 years has caused a significantly reduced supply of raw products. America’s middle class has shrunk by ten percent in the last 40 years and unemployment means consumers are being very cautious with how they spend their money (Lempert, P., 12/21/12). The world economy is also in a down slope. Sociocultural Environment The public demands for healthier foods and snacks has increased. Baby boomers and millennials (those born between 1982 and 2004) want better control of what they eat, where it came from and its nutritional value. They are more health conscious than any other generations of peoples. People in general are focusing on health concerns and especially obesity (Kraft Foods SWOT analysis, n.d.). With high unemployment and decreased disposable income, cooking at home has replaced purchasing whole meal packages (Lempert, P. 12/21/2012). Technological Environment Technology, especially the internet, has radically changed the lives of everyone. Today’s consumer is constantly on the move and looking for ways to save time and money. Some of that may be achieved by utilization of an app that lets the consumer compare values and prices of similar products. Over the net grocery shopping is becoming more popular (Lempert, P., 12/21/2012). In Kraft’s 2011 Annual Report, they recognize the impact of social networks such as Facebook and Twitter. Even more damaging than public media, unhappy customers can breed negativity with rumors and innuendoes (Kraft Annual Report 10K 12/31/2011). Overall Impressions Concerning the Company’s Environment Opportunities The cost of grains and meat will be constantly rising forcing grocery prices up over the next few years. Coupled with the growing nutritional and health concerns, Kraft has the opportunity to re-configure marketing and packaging to tap further into the huge health and wellness market. They can educate the public about the advantages of healthy snacks. Because money is tight and many people are returning to home cooking, Kraft has an opportunity to promote the use of different individual pre-packaged and/or frozen items to make or supplement meals as opposed to buying a whole dinner. The consumer can be educated about the nutrition and time savings associated with a-la-carte items which can be used in conjunction with or in addition to a main dish. Kraft has the opportunity to re-examine the proteins in their products. Because of diminished supply of meat, alternate protein sources should be investigated. Threats The Cadbury debacle and the politically-based problems in Egypt have produced much negative press about Kraft. When the reputation of the company is damaged, it takes a long time to recover. Even though Kraft ranks high on the national and global storefronts, a tarnished reputation causes consumers to re-think brand loyalty. . Even more damaging than public media, unhappy customers can breed negativity with rumors and innuendoes. With the advent of Facebook and Twitter, jilted employees, their families, and others who perceive unfairness dramatically weaken a company’s revenues with a few keystrokes. Conclusion Kraft continues to be a leading snack and processed food corporation. I feel their greatest concern right now is regaining and maintaining their reputation. It is imperative to keep the Kraft brand recognition associated with good foods and healthy snacks. By implementing these changes, the company can go forward with even better bottom line results. REFERENCES Chellel, Kit (5/23/2011) eFinancial News. Kraft vs. Cadbury: A bittersweet deal. Retrieved 2/3/13 from http://www.efinancialnews.com/story/2011-05-23/kraft-cadbury-bittersweet-deal. External analysis for Kraft Foods, (June, 2011) Retrieved 2/4/13 from https://docs.google.com/document/d/19liGjGKT76-tSjr_lz1M47bLd99BDFBJlSvHv5BYhzw/preview IUF newsier (2012) Kraft Egypt removes union leaders who called