Kraft-Foods Case study.doc

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Kraft Foods Inc. – 2009Case Notes Prepared by: Dr. Mernoush Banton

Case uthor: Kr!stopher ". B#anchard

. Case bstract

Kraft Foods Inc. (www.Kraftfoodscompany.com ) is a comprehensive strategic

management case that includes the company’s calendar December 3! "##$ financialstatements! competitor information and more. %he case time setting is the year

"##&. 'ufficient internal and eternal data are provided to enable students toevaluate current strategies and recommend a threeyear strategic plan for the

company. *ead+uartered in ,orthfield in the -.'. state of Illinois! Kraft Foods Inc. istraded on the ,ew or/ 'toc/ 0change under tic/er symbol KF%.

B. $!s!on %tate&ent 'ctua#(

12ne company growing by nourishing lives and finding a better way today one bite at

a time.

C. M!ss!on %tate&ent 'ctua#(

14a/e %oday Delicious.

M!ss!on %tate&ent 'Proposed(

5s a global company (3)! we pride ourselves in producing superior products andservices (") to our customers. 6ith superior technology (7) and dedicated employees(&)! we are constantly wor/ing on introducing new and innovative products! meeting

our customer’s epectation (8) and ensuring to achieve higher than epected returnto our shareholders (9). 2ur desire is to be the number one choice for our loyal

customers (:! $).

. ;ustomer".


2/18

D. )*terna# ud!t

CPM – Co&pet!t!+e Prof!#e Matr!*

Kraft Nest#e Con,raCr!t!ca# %uccess

Factors -e!,ht at!n,

-e!,hted

%core at!n,

-e!,hted

%core at!n,

-e!,h

%core


3/18

/hreats

. 2besity is increasing drastically in both children and adults and accordinglyconsumers are deviating from having snac/s! cheeses and such

". ising costs of petroleum cause an increase in cost for companies in the foodindustry and in the agriculture end

3. Food safety programs have been adopted recently as issues of chemical andbacterial contamination and new foodborne pathogens remain a public health

concern7. Because the industry is so competitive! it is difficult for these companies to

raise their prices accordingly! and profit margins have suffered as a result dueto wea/ economy and increase in unemployment! many consumers have

switched from brand name to generics9. Due to increase in fuel charges! the cost of distribution can increase as well

8. ?lobal warming becoming a maEor political issue and food producers aresimultaneously cast as perpetrator and potential healer

)*terna# Factor )+a#uat!on ')F)( Matr!*

Key )*terna# Factors -e!,ht at!n, -e!,hted

%core

4pportun!t!es

. 4ore people are dining out! and food producers

are devoting more attention to productsdesigned for restaurants! vending machines!

and other foodservice providers

#.#8 7 #."7

". Be able to sell to restaurants at a higher margin #.#: 3 #."

3. ;onsumers are shifting toward food containingless trans fat or fewer calories! or those

containing only organic ingredients

#.#: " #.7

7. Bottled water has become well established in

the mar/et and enhanced waters containingvitamins or supplements are gaining popularity

#.#: 3 #."

9. ;onsumer prices for ba/ed goods increased#.: percent in Canuary "##& compared to

Canuary "##$

#.#8 3 #.$

8. Input costs for ba/ers! included commodities

such as wheat! eggs! and natural gas! have

declined recently

#.#7 " #.#$

:. %he -.'. mar/et for pac/aged and processedfoods has seen large profits in retail sales! and

this number is epected to see steady growth

#.#& 7 #.38

8. 6orldwide! demand is also on the rise for

pac/aged type of food as more people adopt alifestyle that includes less time for the

preparation of food

#.#& 3 #.":

&. %he greatest asset of any retail and consumer

product company is its reputation andperceived value among consumer

#.#8 3 #.$

;opyright = "# imited


4/18

/hreats

1. 2besity is increasing drastically in both children

and adults and accordingly consumers are

deviating from having snac/s! cheeses andsuch

#.#$ 3 #."7

". ising costs of petroleum cause an increase incost for companies in the food industry and in

the agriculture end

#.#& 7 #.38

3. Food safety programs have been adopted

recently as issues of chemical and bacterialcontamination and new foodborne pathogens

remain a public health concern

#.#: 7 #."$

7. Because the industry is so competitive! it is

difficult for these companies to raise theirprices accordingly! and profit margins have

suffered as a result due to wea/ economy andincrease in unemployment! many consumers

have switched from brand name to generics

#.#7 7 #.8

9. Due to increase in fuel! the cost of distributioncan increase as well

#.#8 3 #.$

8. ?lobal warming becoming a maEor politicalissue and food producers are simultaneously

cast as perpetrator and potential healer

#.#9 " #.

/ota# .00 1.9

Pos!t!on!n, Map


,estle

Brand>oyalty(*igh)

Brand>oyalty(>ow)


5/18

). Interna# ud!t

%tren,ths

. 5fter two incidents of contamination! the company voluntarily recalled more

than " million pounds of nuts and has temporarily shut down itsmanufacturing plants

". Increase in sale in the developing international mar/ets by " percent

3. %he company operates in 9 different business segments snac/s! beverages!cheese! grocery and convenient meals

7. Despite economic downturn! the company’s revenues increased to -'G7"."billion "##$! while earnings increased to -'G".& billion

9. Increase in current asset from "##: to "##$ by almost -'G8## million8. Decrease in current liabilities by around -'G8 billion from "##: to "##$

:. Kraft sells over ## different brand names

-ea5nesses

. 6or/ers at one of Kraft’s manufacturers in Illinois turned up a batch of fruitsand nuts that were contaminated with salmonella in December "##: with a

similar incident in 'eptember "##$". Drop in sales in the company’s snac/ division from "##: to "##$ by ".3#

percent3. Drop in sales in the 0uropean -nion mar/et by 7. percent from "##: to "##$

7. Despite &.$ percent increase in price! Kraft Foods lost #.3 percent mar/etshare during "##$

9. %he company has over -'G":.9 billion in ?oodwill8. Increase in longterm debt by about 9# percent in "##$ from "##:

:. ,o new innovative product introduction in recent years$. ,ew ;02 in "##8



6/18

F!nanc!a# at!o na#ys!s (December "##&)

6ro7th ates 8 Kraft Industry %P 00

'ales (Atr vs year ago +tr) 9.:# 3.3# 7.$#

,et Income (%D vs %D) 33.## "#.:# 8.##

,et Income (Atr vs year ago +tr) 9&.7# :. "8.$#

'ales (9ear 5nnual 5vg.) 8.: 8.7 ".&&

,et Income (9ear 5nnual 5vg.) .38 9.#& ".8&

Dividends (9ear 5nnual 5vg.) .8 #.97 .$3

Pr!ce at!os Kraft Industry %P 00

;urrent


7/18

"H#: "".8# .77 .$3 8.9

"H#8 $.$# .:$ ".#9 $.9

"H#9 $.3# .7# .9& $.9

"H#7 "#.:# . ".#3 $.3

"H#3 9.$# .$3 .&7 .

"H#" "#.7# ".3 ".8 .3

"H# ":. .$: ".9 8.7

"H## ,5 ,5 ,5 $.:

"H#$ "7.$# #.&8 .:$ 7.7

Boo5 $a#ue;

%hare

Debt;

)


8/18

2. Increase in sale in the developing international

mar/ets by " percent

#.#$ 7 #.3"

3. %he company operates in 9 different business

segments snac/s! beverages! cheese! grocery

and convenient meals

#.#8 7 #."7

4. Despite economic downturn! the companyJs

revenues increased to -'G7"." billion "##$!while earnings increased to -'G".& billion

#.#$ 7 #.3"

5. Increase in current asset from "##: to "##$ by

almost -'G8## million

#.#$ 7 #.3"

6. Decrease in current liabilities by around -'G8

billion from "##: to "##$

#.#$ 7 #.3"

:. Kraft sells over ## different brand names #.#9 3 #.9

-ea5nesses

1. 6or/ers at one of Kraft’s manufacturers in

Illinois turned up a batch of fruits and nuts that

were contaminated with salmonella in December"##: with a similar incident in 'eptember "##$

#.#8 #.#8

2. Drop in sales in the companyJs snac/ division

from "##: to "##$ by ".3# percent

#.#: #.#:

3. Drop in sales in the 0uropean -nion mar/et by

7. percent from "##: to "##$

#.#8 " #."

7. Despite &.$ percent increase in price! KraftFoods lost #.3 percent mar/et share during "##$

#.#8 " #."

5. %he company has over -'G":.9 billion in

?oodwill

#.#8 #.#8

8. Increase in longterm debt by about 9# percent

in "##$ from "##:

#.#: #.#:

:. ,o new innovative product introduction in recentyears

#.#& #.#&

$. ,ew ;02 in "##8 #.#7 " #.#$

/ota# .00 2.2

F. %-4/ %trate,!es

%tren,ths -ea5nesses

. 5fter two incidents of

contamination! thecompany voluntarily

recalled more than "million pounds of nuts

and has temporarilyshut down its

. 6or/ers at one of

Kraft’s manufacturersin Illinois turned up a

batch of fruits and nutsthat were contaminated

with salmonella inDecember "##: with a



9/18

manufacturing plants". Increase in sale in the

developinginternational mar/ets

by " percent3. %he company operates

in 9 different businesssegments snac/s!

beverages! cheese!grocery and convenient

meals7. Despite economic

downtime! thecompany’s revenues

increased to -'G7"."

billion "##$! whileearnings increased to

-'G".& billion

9. Increase in currentasset from "##: to

"##$ by almost-'G8## million

8. Decrease in currentliabilities by around

-'G8 billion from "##:to "##$

:. Kraft sells over ##different brand names

similar incident in'eptember "##$

". Drop in sales in thecompany’s snac/

division from "##: to"##$ by ".3# percent

3. Drop in sales in the0uropean -nion mar/et

by 7. percent from"##: to "##$

7. Despite &.$ percentincrease in price! Kraft

Foods lost #.3 percentmar/et share during

"##$

9. %he company has over-'G":.9 billion in

?oodwill

8. Increase in longtermdebt by about 9#

percent in "##$ from"##:

:. ,o new innovativeproduct introduction in

recent years$. ,ew ;02 in "##8

4pportun!t!es %=4 %trate,!es -=4 %trate,!es

. 4ore people are dining

out! and foodproducers are devoting

more attention toproducts designed for

restaurants! vendingmachines! and other

foodservice providers". Be able to sell to

restaurants at a highermargin

3. ;onsumers are shiftingtoward food containing

less trans fat or fewercalories! or those

containing only organicingredients

7. Bottled water hasbecome well

established in themar/et and enhanced

waters containing

. Develop a new product

line! focusing onorganic ingredients

(23! 28! '7! '9! ':)

2. 5c+uire a small

competitor that sells torestaurants and H or

intermediary channels(2! 2"! 28! 2$! '"!

'3)

. Improve the +uality by

educating the wor/erson how to test and

sample products beforethey are shipped (6!

2&)



10/18

vitamins or

supplements aregaining popularity

9. ;onsumer prices forba/ed goods increased

#.: percent in

Canuary "##&compared to Canuary"##$

8. Input costs for ba/ers!included commodities

such as wheat! eggs!and natural gas! have

declined recently:. %he -.'. mar/et for

pac/aged and

processed foods hasseen large profits in

retail sales! and this

number is epected tosee steady growth

$. 6orldwide! demand isalso on the rise for

pac/aged type of foodas more people adopt

a lifestyle that includesless time for the

preparation of food&. %he greatest asset of

any retail andconsumer product

company is itsreputation and

perceived value amongconsumers

/hreats %=/ %trate,!es -=/ %trate,!es

. 2besity is increasing

drastically in bothchildren and adults and

accordingly consumersare deviating from

having snac/s! cheeses

and such". ising costs ofpetroleum cause an

increase in cost forcompanies in the food

industry and in theagriculture end

3. Food safety programshave been adopted

. Improve distribution in

0uropean mar/et withnew and innovative

organic products ('"!'3! '7! '9! %! %"! %3)

". 2pen additional small

distribution center in0urope and otherregions where sales

are increasing in orderto reduce distribution

costs ('"! '3! ':! 2!2"! 2$)

. Implement a better

+uality controlinternally and with

suppliers to reducefood contamination

(6! %3! %8)

". Discontinue products insnac/ division that arenot selling (6"! 67!

%! %"! %9! %8)



11/18

recently as issues of

chemical and bacterialcontamination and new

foodborne pathogensremain a public health

concern

7. Because the industry isso competitive! it isdifficult for these

companies to raisetheir prices

accordingly! and profitmargins have suffered

as a result due to wea/economy and increase

in unemployment!

many consumers haveswitched from brand

name to generics

9. Due to increase in fuelcharges! the cost of

distribution canincrease as well

8. ?lobal warmingbecoming a maEor

political issue and foodproducers are

simultaneously cast asperpetrator and

potential healer



12/18

6. %PC) Matr!*

F!nanc!a# %tab!#!ty 'F%( )n+!ron&enta# %tab!#!ty ')%(

eturn on Investment 3 -nemployment 9

>everage %echnological ;hanges 3

>i+uidity 7


13/18

ais F' 0' L 3." (3.8) L #.7Mais ;' I' L (3.") (7.#) L #.$

@. 6rand %trate,y Matr!*

. 4ar/et development". 4ar/et penetration

3.


14/18

I. /he Interna#=)*terna# 'I)( Matr!*

/he IF) /ota# -e!,hted %core

'trong3.# to 7.#

5verage".# to ".&&

6ea/.# to .&&

*igh

3.# to3.&&

I II

Kraft Foods Inc.

III

4edium".# to

".&&

I I I

>ow

.# to.&&

II III IM


he )F)

/ota#e!,hted

%core


15/18

". A%PM

Develop a

new product

line!focusing onorganic

ingredients

5c+uire a

smallcompetitor

that sells to

restaurantsand H orintermediary

channels

Key Factors -e!,ht % /% % /%

4pportun!t!es

. 4ore people are dining out! and food

producers are devoting more attention toproducts designed for restaurants!

vending machines! and other foodserviceproviders

#.#8 " #." 7 #."7

". Be able to sell to restaurants at a highermargin

#.#: #.#: 7 #."$

3. ;onsumers are shifting toward foodcontaining less trans fat or fewer calories!

or those containing only organicingredients

#.#: 7 #."$ #.#:

7. Bottled water has become well established

in the mar/et and enhanced waters

containing vitamins or supplements aregaining popularity

#.#:

9. ;onsumer prices for ba/ed goodsincreased #.: percent in Canuary "##&

compared to Canuary "##$

#.#8

8. Input costs for ba/ers! includedcommodities such as wheat! eggs! andnatural gas! have declined recently

#.#7

:. %he -.'. mar/et for pac/aged andprocessed foods has seen large profits in

retail sales! and this number is epectedto see steady growth

#.#& 3 #.": #.#&

$. 6orldwide! demand is also on the rise forpac/aged type of food as more people

adopt a lifestyle that includes less time forthe preparation of food

#.#& 7 #.38 " #.$

&. %he greatest asset of any retail and

consumer product company is itsreputation and perceived value amongconsumer

#.#8 7 #."7 #.#8

/hreats

. 2besity is increasing drastically in bothchildren and adults and accordingly

consumers are deviating from havingsnac/s! cheeses and such

#.#$ 7 #.3" #.#$

". ising costs of petroleum cause an #.#& 3 #.": " #.$



16/18

increase in cost for companies in the food

industry and in the agriculture end

3. Food safety programs have been adoptedrecently as issues of chemical and

bacterial contamination and new foodborne pathogens remain a public health

concern

#.#:

7. Because the industry is so competitive! it

is difficult for these companies to raisetheir prices accordingly! and profit

margins have suffered as a result due towea/ economy and increase in

unemployment! many consumers haveswitched from brand name to generics

#.#7 #.#7 " #.#$

9. Due to increase in fuel! the cost ofdistribution can increase as well

#.#8 #.#8 3 #.$

8. ?lobal warming becoming a maEor politicalissue and food producers are

simultaneously cast as perpetrator andpotential healer

#.#9

/4/ .00 2.01 .??

%tren,ths

. 5fter two incidents of contamination! thecompany voluntarily recalled more than "

million pounds of nuts and hastemporarily shut down its manufacturing

plants

#.#8

2. Increase in sale in the developing

international mar/ets by " percent

#.#$ 3 #."7 #.#$

3. %he company operates in 9 different

business segments snac/s! beverages!cheese! grocery and convenient meals

#.#8 7 #."7 3 #.$

4. Despite economic downtime! the

companyJs revenues increased to -'G7"."

billion "##$! while earnings increased to-'G".& billion

#.#$

5. Increase in current asset from "##: to

"##$ by almost -'G8## million

#.#$

6. Decrease in current liabilities by around

-'G8 billion from "##: to "##$

#.#$

:. Kraft sells over ## different brand names #.#9 7 #." " #.

-ea5nesses

1. 6or/ers at one of Kraft’s manufacturers inIllinois turned up a batch of fruits and

nuts that were contaminated withsalmonella in December "##: with a

similar incident in 'eptember "##$

#.#8

2. Drop in sales in the companyJs snac/

division from "##: to "##$ by ".3#percent

#.#: 3 #." #.#:

3. Drop in sales in the 0uropean -nion #.#8 7 #."7 " #."



17/18

mar/et by 7. percent from "##: to "##$

7. Despite &.$ percent increase in price!Kraft Foods lost #.3 percent mar/et share

during "##$

#.#8

5. %he company has over -'G":.9 billion in

?oodwill

#.#8

8. Increase in longterm debt by about 9#percent in "##$ from "##:

#.#: 7 #."$ " #.7

:. ,o new innovative product introduction in

recent years

#.#& 7 #.38 " #.$

$. ,ew ;02 in "##8 #.#7

%B/4/ .00 . 0.3

%M /4/ //C/I$)N)%% %C4) 1.3 2.1

K. eco&&endat!ons

Develop a series of products mainly made with organic products and arehealthy in nature by having low carb! low saturated fat and sugar. Introduce

the new product under its own business unit in case the company decides toepand its line or sell it off.

. )P%;)BI/ na#ys!s

-'G 5mount ,eeded G## million'toc/


18/18

% "!:"7!$99!&9" "!$8$!799!&9" 3!"":!799!&9" "!:":!93!&$$ "!$:!3!&$$ 3!"3#!3!

ares !9#"!9:9!7"3 !9#"!9:9!7"3 !9#"!9:9!7"3 !9#!#3!:93 !9#!#3!:93 !9#!#3!

' .3 .9 2. .32 .9 2.

M. )p!#o,ue

ecently! Kraft announced that they will be cutting the salt in its products sold in

,orth 5merica by an average of # percent over the net two years. %his decisionwas based on consumers demanding healthier products and better ingredients in the

food they consume. Kraft is planning to complete the reduction of salt over the nettwo years.

Kraft also has made an offer to ac+uire ;adbury which many analysts have rated as

a positive move on behalf of Kraft Foods! Inc. and accordingly! the stoc/ price was

raised by -'G3 from G33 to G38.


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