V. Strategy Formulation A. Input Tools Key external factors that affect the Kraft Foods Inc. were obtained from the PEST analysis and Porters Five Forces of competition discussed earlier. The relevant external factors affecting the Kraft Foods Inc. are: 1. External Factor Evaluation (EFE) Matrix Table 19: EFE Matrix for Kraft Foods Inc.Key External Factors Opportunities 1. Operates in many fast growing categories 2. Growing demand for health and wellness products 3. Decreased input costs (raw materials) 4. Changing lifestyles 5. Growth in the coffee market overall 6. Growth in global confectionary and snacks market 7. Cadbury acquisition provides new products Threats 1. Increasing trend in dining out 2. Health concerns 3. Increasing obesity rate 4. Inflation (transportation) 5. Unfavorable impact of foreign currency 6. Intense competition from Mars Inc, Nestle SA Total Weight Rating Weighted Score 0.3 0.3 0.32 0.24 0.12 0.24 0.21

0.1 0.1 0.08 0.08 0.06 0.08 0.07

3 3 4 3 2 3 3

0.09 0.08 0.1 0.1 0.06 0.14 1.00

2 2 1 3 1 4

0.18 0.16 0.1 0.3 0.06 0.56 3.09

The average total weighted score is 3.1. It means that the company is doing well in handling its existing opportunities and threats in its industry. It indicates that the firms strategies are effectively utilize to maximize its opportunities and minimize the external threats.

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The main opportunities for Kraft Foods are the acquisition of Cadbury, the fast growing market share in some of its products, and also the value they create in their products. The threats show the external factors that directly affects the industry of Kraft Foods. There are more threats in the industry than there are opportunities. One of the major threats is its competition to Nestle, SA

2. Competitive Profile Matrix (CPM) Table 20: CPM Matrix for Kraft Foods Inc. Competitive Profile Matrix (CPM) CRITICAL SUCCESS FACTORS 1. Advertising 2. Global Expansion 3. Market Share 4. Customer Loyalty 5. Profit Margin 6. Attractiveness as employer 7. New Product Development TOTAL Weigh t 0.15 0.15 0.15 0.15 0.10 0.15 0.15 1.00 Kraft Foods Inc. Nestle Congra Foods

Rating Score Rating Score Rating Score 4 3 3 4 3 3 4 0.60 0.45 0.45 0.60 0.30 0.45 0.60 3.45 4 4 4 4 3 4 3 0.60 0.60 0.60 0.60 0.30 0.60 0.45 3.75 3 3 2 3 3 2 3 0.45 0.45 0.30 0.45 0.30 0.30 0.45 2.70

Note: 1=major weakness, 2=minor weakness, 3=minor strength, 4=major strength

The Competitive Profile Matrix shows the relative strength of Kraft Foods Inc. compared to its competitors by using the critical success factors in its

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industry. By identifying its strengths, we can also identify its relative weaknesses and address them to formulate effective strategies. Kraft Foods Inc. is relatively competitive in its industry, showing 3.45 as its total score. The company has to improve on global strength, market share and attractiveness as an employer to improve on brand loyalty and customer retention. Its profit margin has a rating of 3 just like the other industry because it is considered as a minor strength for they all want to focus on their brand and customer satisfaction.

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3. Internal Factor Evaluation (IFE) Matrix Table 21: IFE Matrix for Kraft Foods Inc.Key Internal Factors Strengths 1. Strong R&D 2. Increased organic revenues 3. Availability 4. Innovative advertising methods 5. Diverse range of leading brands 6. Focus on consumers 7. Strong distribution network 8. Strong brand image 9. Worlds second-largest company 10. 25% of global revenue emerging markets 0.07 0.05 0.09 0.08 0.04 0.05 0.08 0.9 0.09 0.04 from 4 3 4 4 4 3 3 4 4 4 0.28 0.15 0.36 0.32 0.16 0.15 0.24 0.36 0.36 0.16 Weight Rating Weighted Score

food

Weaknesses 1. Difficulty in launching new brands 2. Most of growth is dependent on acquisitions or expanding into new market. 3. Strong competition from Nestle, Hershey, etc. 4. Poor performance of North-American segment Total

0.03 0.05

1 2

0.03 0.10

0.15 0.07

1 2

0.15 0.14

1.00

2.96

The company receives a total of 2.96 weighted score which indicates that it has strong internal position. The company is able to handle its internal factors. Being the second largest food company in the world and having a strong brand image gave Kraft Foods Inc. its strong competitive position.

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B.

Matching Tools

1. Strengths-Weaknesses-opportunities-Threats (SWOT) Matrix The opportunities and threats that Kraft Foods Inc. possesses are now matched against its strengths and weaknesses by using the SWOT matrix in order to generate appropriate strategies. Table 22: SWOT Matrix for Kraft Foods Inc.Strengths 1. Strong R&D 2. Increased organic revenues 3. Availability 4. Innovative advertising methods 5. Purchasing power 6. Focus on consumers 7. Strong distribution network 8. Strong brand image 9.worlds second largest food company 10. 25% of global revenue from emerging market.

Weaknesses 1. Difficulty in launching new brands 2. Most of growth is dependent on acquisition or expanding into new market Decrease in sales 3. Strong competition from Nestle, Hershey Etc 4. Poor performance in North-American segment

Opportunities

1. Operates in many fast growing categories 2. Growing demand for health and wellness products 3. Decreased input costs [raw materials] 4. Changing lifestyles 5. Growth in the coffee market overall 6. Growth in global confectionary and snacks market 7. Cadbury acquisition providesnew products

Focus on retailers and restaurants O1,S1 Position itself as a healthy food producer O4,S3,S8 Focus on ready to eat products O4,S6 Promote ready to drink beverages O4,S5,S8

Look for divestiture in poor performing segments Sell packaged coffees to cafes W4,O1

Threats

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6.

Increasing trend in dining out 1. Health concerns 2. Increasing obesity rate 3. Inflation [transportation] 4. Unfavorable impact of foreign currency Intense competition

Introduce low fat products T3,S6

Launch a sub-brand (brand extension) for a healthier range of products T2, W3

Outsource operations to cheaper logistics partners T4,S7

2. Strategic Position and Action Evaluation (SPACE) Matrix The SPACE matrix provides an indication of whether Kraft Foods Inc. should pursue aggressive, conservative, defensive or competitive strategies. Table 23: SPACE Matrix for Kraft Foods Inc.Internal Strategic Position Rating

Average Rating+3.71

1. Financial Strength (FS) High Long term debt (18.5 Billion) Revenues increased to 42.2 Billion from 36.13 billion Liquidity increased from 567 million to 1.24 billion Saved $1.1 billion in 2009 through streamlined manufacturing Assets decreased from 67 billion to 63 billion Inventory decreased from 4 billion to 3.7 billion Receivables decreased from 5.1 billion to 4.7 billion 2. Competitive Advantage (CA) Strong Brand Name Largest Food Company in USA Available in over 150 countries New products Decrease in Sales Innovative advertising 9.8% increase in pricing

1 5 5 5 2 4 4

-1 -1 -2 -2 -5 -1 -3

-2.14

External Strategic Position 76

3. Environmental Stability (ES) Rising costs of petroleum Unfavorable impacts of foreign currency Brand conscious consumers Global recession 4. Industry Strength (IS) More people are dining out Development of health products (Obesity Concerns) Steady Growth in US market for packaged and processed food

-5 -5 -2 -5

-4.25

3 1 5

+3.00

FS & ES Total Score= -0.54 CA & IS Total Score = 0.86 Figure 22: SPACE Matrix for Kraft Foods Inc.FS Conservative Aggressive

IS

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CA Kraft Foods Inc.

(0.54,0.86)

Competitive Defensive ES

Based on the illustration, the directional vector suggests that Kraft Foods Inc.hould pursue competitive strategies. Therefore, the company can adopt market penetration, market development and product development. This can also include backward, forward and horizontal integration. Market penetration is defined as a strategy that seeks to increase market share for present markets through greater marketing efforts. Market development involves introducing present products or services into new geographic areas. Product development is a strategy that seeks increased sales by improving or modifying present products. 3. Boston Consulting Group (BCG) Matrix In the BCG matrix, (Table 24), Kraft Foods Inc. services are presented and compared with industrys growth rate. Table 24: BCG Matrix for Kraft Foods Inc.Total Revenue (in Mio. $) Food products 49,207 % Industry Growth Rate 8.44

Profits (in Mio. $) 4,114

% Market Share 18.67

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The percentage market share of Well Fargo was computed as follows:2010 Kraft Foods net sales X 100% 2010 industry total net sales

= 49,207197, 541 = 24.91%

X 100%

The percentage industry growth rate was obtained from the annual increase in revenues.

Figure 23: BCG Matrix for Kraft Foods Inc.Industry % growth rate High 1.0 Relative % Market Share in the Industry Medium 0.5 Low 0.0

+20

II STARS

I QUESTION MARKS(0,25,8.44)

Kraf t Foo ds

0

III CASH COWS

IV - DOGS

-20

Kraft Foods belongs to Question Marks Group seen in Quadrant I, it remains to be competitive enough although its market share is not that high but its growth rate in industry is high enough to cover the market. In order to be on 79

Stars the company must pursue an intensive strategy to strengthen the company and meet its goals in the industry.

4. Internal-External (IE) Matrix Krafts IE matrix is as follows: Figure 24: IE Matrix for Kraft Foods Inc. EFE Weighed Scores IFE Weighted Scores Strong4.0 High Grow and buildKraft Food s Co.

Average2.0 2.99 3.0 2.0

Weak1.0 1.99 1.0

3.0 4.0

I II(2.96,3.09)

III

3.0

IV

VHold & Maintain

VI

Medium

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2.0

VII

VIII

IXHarvest or Divest

Low

1.0

Kraft Foods Co. is in the Grow and Build position which means that its internal strengths are on the average and response to the external factors are on the above average. This means that Kraft can proceed in doing intensive and integrative strategies as suggested by the IE Matrix. Figure 25: GS Matrix for Kraft Foods Inc. Rapid Market Growth Quadrant II Quadrant I1. Market Development 2. Market Penetration 3. Product Development 4. Forward Integration 5. Backward Integration 6. Horizontal Integration 7. Related Diversification Kraf t Foo ds Inc.

Weak Competitive Quadrant III Position

Strong Quadrant IV Competitive Position

Slow Market Growth

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Kraft Foods Inc. falls under Quadrant I which is characterized by rapid market growth and strong competitive position. For Kraft Foods Inc. it would be best for them to continue their concentration on their current markets and strategies that would be best to use are market penetration and market development as suggested earlier in the other matrixes. If Kraft Foods is too heavily committed to a single product, then related diversification may reduce the risks associated with a narrow product line.

C. The Decision stage Table 25: QSPM Matrix for Kraft Foods Inc.Strategy 1 Key Factors Opportunities 1. Operates in many fast growing categories 2. Growing demand for health and wellness products 3. Decreased input costs [raw materials] 4. Changing lifestyles 5. Growth in the market overall 6. Growth in global confectionary and snacks market 7. Cadbury acquisition provides new products 0.05 0.10 0.15 0.05 0.10 0.03 0.05 4 3 3 0.4 0.24 2 1 0.2 0.08 2 0.3 2 0.3 2 0.1 4 0.2 Weight AS TAS Strategy 2 AS TAS

Threats 1. Increasing trend of dining out 2. Health concerns 3. Increasing obesity rates 4. Inflation [transportation] 5. Unfavorable impact of foreign currency 6. Intense competition from Mars Inc, Nestle SA 0.05 0.10 0.08 0.1 0.06 0.08 4 0.32 4 0.32 4 3 2 0.2 0.3 0.16 4 3 1 0.2 0.3 0.08

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Key Factors Strengths 1. Strong R&D 2. Increased organic revenues 3. Availability 4. Innovative advertising methods 5. Diverse range in leading brands 6. Focus on consumers 7. Strong distribution network 8. Strong brand image 9. Worlds second largest food company 10. 25% revenue from leading market Weaknesses 1. Difficulty in launching new brands 2. Most of growth is dependent on acquisition or expanding into new market 3. Strong competition from Nestle, Hershey Etc. 4. Poor performance of North-American segment Total

Weight

AS

TAS

AS

TAS

0.06 0.07 0.05 0.04 0.08 0.06 0.07 0.10 0.03

1 2 3 3 4 4 4 2

0.06 0.1 0.12 0.24 0.24 0.28 0.4 0.06

4 3 4 4 3 4 4 4

0.24 0.15 0.16 0.32 0.18 0.28 0.4 0.12

0.12 0.10 0.08 0.06 0.08

4 2 4 4 4

0.48 0.2 0.32 0.24 0.32

4 1 1

0.48 0.1 0.08

1

0.08

Strategy 1: A new line of low-fat products for the health conscious segment

Strategy 2: Develop the Maxwell House market by introducing it to cafes.

Result Strategy 1 Total TAS: 5.00 Strategy 2 Total TAS: 3.95

The recommended strategy for Kraft Foods Inc. would be to introduce a new line of low-fat products for the health conscious segment. Position its products as a healthy and organic.

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VI. Strategy Implementation A. Recommended Revise Vision Statement After a thorough analysis of Kraft Foods Vision Statement, we come up the a decision which is not to revise the vision of this company because as we analyze the statement it shows that the vision encompasses the thought and content on how the company position their selves in the market. The impact made by the vision truly captures the sentiments of its consumer and also the vision gives us a clear understanding that the company is customer-oriented and promotes a better way of living. B. Recommended Revise Mission Statement After a thorough study of Kraft Foods Inc. we can say the its mission statement contains information in terms of the companys concerns when it comes to its customer, public image and concern for its employees. Although it has a good 84

mission statement we think that it would be better if we do some revisions in order to elaborate more about how the company could fulfill its goals We hereby revise the mission statement and this would be the recommended mission for the company: In providing quality products and services to the public, We, Kraft Foods Inc. commit ourselves to excellent and satisfying production of products by; 1. Responding to the customer needs and be able to meet their expectation by providing products that are of high quality and safe from any toxic through the use of the modern technology and give them quality assurance ; 2. Delivering of product in good condition and securing that the delivery will come on time to the designated area. 3. Promoting good relationship between our company and customer and also the suppliers of our business. 4. Seeing to eat that we have the best employees that could participate in the decision making and providing them good working facility and quality trainings 5. Participating in community program and helping the community have a stable progress.

C. Recommended Departmental Objectives Marketing Objectives To increase sales by 15% for the next three years To increase market share by at least 3% for the next 3 years To maintain customer loyalty by developing more healthy products. 85

Financial Objectives To increase net income at least 30% of the sales for the next three years. To increase asset turnover by at least 5% per year.

Human Resource Objectives To enhance the training skills of the employees by implementing seminars. To be able to maintain good working condition and implement reward strategy.

Research and Development Objectives To be able to built a new R&D center for the next 3 years in other coverage area.

D. Recommended Revise Organizational Structure. The organizational structure of the company is fully a centralized one. It is only compose of the top executives of the company. We suggest the that company develop a line and staff structure wherein the middle and lower level of the organization is seen and have a direct communication in terms of decision making and finding solutions to the problems both on top to lower level management.

E. Recommended Strategies

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Upon the using the matrixes presented, the following are the recommended strategies that Wells Fargo should use. Market Penetration Increase advertising expenditures and specifically target the household population. Offer extensive sales promotion during peak season and creating bonus packages. Decrease the cost of the product if it would be possible so that buyers will be attracted to patronize it. Product Development Develop products containing low fat and calories for those health conscious individuals. Develop confectionary products that are sugar free to attract retiring individuals. Package products that are inter-related Improve technological systems, especially the online shopping center for mothers at home.

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F. Financial Projections Table 26: Financial Projections for Kraft Foods Inc (2011-2013)Benchm ark Year 2010 Projected Income Statement (in Mio $) Total Revenue Cost of Revenue Gross profit Operating Expenses Research development Selling, General, and Administrative Depreciation/Amortization Total operating expenses Operating income or loss Income From Continuing Operations Earning before interest and taxes Interest Expense Income before tax Income Tax expense Net Income 49,207.0 31,305.0 17,902.0 __ 12,001.0 211.0 12,847.0 5,415.0 5,415.0 1,790.0 3,642.0 1,147.0 4,114.0 54,127.0 32,870.0 21,257.0 105.0 13,531.0 222.0 13,858.0 7,399.0 7,399.0 2,165.0 5,234.0 1,831.0 3,403.0 59,539.0 34,513.0 25,026.0 121.0 14,884.0 233.0 15,238.0 9,788.0 9,788.0 2,381.0 7,407.0 2,592.0 4,815.0 65,492.0 36,238.0 29,254.0 140.0 16,373.0 244.0 16,757.0 12,497.0 12,497.0 2,619.0 9,878.0 3,457.0 6,421.0 Assuming that this is of revenue used in research and marketing Assuming this increases in proportion to revenue at 25% Assuming this increase at 5% per annum Assuming that revenue increases at 10% Assuming that cost of revenue increase at 5% of revenue

2011

2012

2013

Assumptions

Assuming this increases at 4% of revenue Assuming the tax rate is 35%

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Projected Balance Sheet Total Current Assets Total Non-current Assets 16,221.0 79,068.0 21,087.0 82,230.0 27,413.0 85,519.0 35,636.0 88,934.0 Increases assumed for buildup of new facilities and integration of technology

Total Assets

95,289.0

103,317. 0 53,150.0 50,167.0 103,317. 0

112,932. 0 42,699.0 70,233.0 112,932. 0

124,570. 0 26,244.0 98,326.0 124,570. 0 Decrease as equity increases and revenue

Total Liabilities Equity Total liabilities and equity

59,455.0 35,834.0 95,289.0

VII. Strategy Evaluation As an evaluation tool, the balanced scorecard shows the various selected key strategies on aspects of consumer perspective, internal business processes, financial perspective and learning growth. A set of quantitative measures has been enumerated for each strategy to enable the company to monitor progress or strategy attainment on a regular basis and review whether these need to be changed or revised.

Table 27: Balance Scorecard for Kraft Foods Inc.Goals Strategies Measures Time Completion

Customer perspective

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Provide quality products for all customers

Product development

Developing quality products such as low fat and less cholesterol products

Immediately after 2011

Internal business process More efficient internal control. Semi-centralization of the organization A main branch per area which controls other smaller branches 4th quarter 2005 2006

Financial perspective Attainment of 2011, 2012, and 2013 revenue target Having a large share in the global economy Using effective marketing and extensive product development Cutting cost if possible 3ndquarter 2011

Learning and growth Increase industry awareness regarding service in other country Development of intensive training program for human resource Intensify marketing promotions Offering seminars that will enhance skills in communicating and decision-making Use the partner companys expertise regarding the marketability of the country Increase of effectiveness and efficiency of skill performance 2nd 3rd quarter 2012 Immediately after 2011

VIII. Concluding Remarks Food industry is one of the fast growing industries ever since it started to appear in the global market. United States is the home where leading food companies are principally located. Indeed the advance technological adaptation in this country led the food industry to become innovative and more eager to develop new products as time goes by. The challenge in this industry is the tough competition of the various companies belonging in the same industry. On how 90

they could penetrate the market and what would be their advantage over their competitor. Kraft Foods is one of the companies belonging in this category. It can achieve its leadership and growth by doing intensive promotion and management of its existing clients and venturing other countries to promote business.

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