Top Banner
Prepared By: Aaron Haberern Leonard Kendall Michael Linehan Eddie Malecki Toni Nowak Ethan Rand Lawrence Wooten
73
Welcome message from author
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Page 1: Kraft Final Document Paper - Print This One!

Prepared By:Aaron HaberernLeonard KendallMichael Linehan

Eddie MaleckiToni NowakEthan Rand

Lawrence Wooten

Page 2: Kraft Final Document Paper - Print This One!

Table of Contents

• Introduction– History– Operating Segments

• Vision and Mission Statements– Actual/Revised

• Input Stage– External Factor Evaluation EFE Matrix– Competitive Profile CPM Matrix– Internal Factor Evaluation IFE Matrix

• Matching Stage– Strengths-Weaknesses-Opportunities-Threats SWOT Matrix– Strategic Position and Action Evaluation SPACE Matrix– Boston Consulting Group BCG Matrix

• Domestic Market Share• Global Market Share

– Internal-External I/E Matrix– Grand Strategy GSM Matrix– Data Collection Matrix

• Decision Stage– Quantitative Strategic Planning QSPM Matrix

• Final Thoughts– Recommendations– Epilogue– Citations

Kraft Foods Case Report Page 2

Page 3: Kraft Final Document Paper - Print This One!

History

Kraft Foods Incorporated is the largest brand food and beverage company in North America and

the second largest in the world with operating in more than 150 countries from Mexico to Singapore.

Kraft operates in two main segments; Kraft Foods North America (KFNA) and Kraft Foods International

(KFI).

Kraft, the holder of some of the world’s favorite food and beverage brands, markets in five

product sectors named beverages, snacks, cheese, grocery and convenient meals. It was started by

James L. Kraft in 1903 with a horse drawn wagon delivering wholesale cheese he manufactured in

Chicago, Illinois. Through the years the company has been built on a strong sense of innovation and

quality. You will find Kraft’s brands in a Parisian market in France, a vending machine in Japan and a

grocery store in America. Kraft Foods is the number one food distributor in the United States and

second only to Nestlé worldwide.

In 1909, J.L. Kraft & Brothers is incorporated and extensive public relations begin. Using

innovative marketing, advertisements were placed on Chicago’s elevated trains and on billboards en

route to the city. Being one of the first to produce in color advertising, circulars were mailed to retail

grocers and placed in the top national magazines of the time. In 1933, Mr. Kraft also sponsored a radio

show “Kraft Musical Review”.

By 1923, Kraft Cheese Company acquires its first company Fred Walker & Company, makers of

vegemite, which is a yeast spread. Around 1937 in response to World War II where our young men

were going off to war and women went to the factories to help with the war efforts, Kraft saw an

Kraft Foods Case Report Page 3

Page 4: Kraft Final Document Paper - Print This One!

opportunity to make the women’s life a little easier. They came up with a new product based on the

slogan “A meal for four in nine minutes”, and the Kraft macaroni and cheese dinner was born. Kraft was

an innovator in responding to its consumer needs.

In 1928, Kraft acquired Phenix Cheese Corporation (Philadelphia Cream Cheese) and changed its

name to Kraft-Phenix Cheese Corporation. Many of Kraft’s well know products were started after this

acquisition namely Velveeta (1928), Miracle Whip salad dressing (1933), and Cheez Whiz (1952).

In 1930, after operating as a subsidiary to the National Dairy Company, the bulk of the products

& brands owned by Kraft Foods Company came from a merge with Philip Morris Company. Philip Morris

Co. Inc.’s first step into the food industry came in 1985 when it had acquired General Foods Corporation.

It next acquired Kraft General Foods, Inc. They operated separately until a merge in 1995 and became

the company we know today as Kraft Foods. After Philip Morris purchased Nabisco Holdings

Corporation for $14.9 billion in cash - plus an assumed debt of 4 billion in December 2000, it merged

Nabisco with Kraft Foods. Nabisco Holdings Corporation contained well-known brands such as OREO,

Ritz, Honeymaid and Triscuit and many others thus expanding Krafts product sectors and brands.

The year 2001 was a year of firsts for the company. Kraft appointed its first women CEO, Betsy

Holden to head up one of its two main business units from Kraft Foods at that time; Kraft Foods North

America and Kraft Foods International. At that time there were 5 women CEOs running Fortune 500

companies. Also in 2001, Kraft began trading on the NYSE making it the biggest IPO (Initial Public

Offering) at that time only to be surpassed by Google who is presently has the largest IPO in history. At

$8.68 billion, it weighs as the 2nd-largest IPO in the United States history behind Google. Kraft sold 280

million shares @ $31.00 each on the day of its initial public offering.

Kraft Foods Case Report Page 4

Page 5: Kraft Final Document Paper - Print This One!

Operating Segments

Kraft Foods Inc. manages over 100 different brand-name food products and operates in five

specific consumer segments. Those segments are snacks, beverages, cheese, grocery, and convenient

meals.

In the snacks segment, the products are primarily biscuits (cookies and crackers), salted snacks,

and chocolate confectionery. Some examples of brands in this segment that Kraft manages are Oreo,

Chips Ahoy!, and Planters nuts. The beverages segment consists of primarily coffee, packaged juice

drinks, and powdered beverages. Examples of brands that Kraft owns in this segments include Maxwell

House, Capri Sun, and Kool-Aid. Products in the cheese segment are primarily natural, processed, and

cream cheeses. Some of Kraft’s cheese brands are Philadelphia cream cheese, Polly-O, and Cheez Whiz.

Spoonable and pourable dressings, condiments, and desserts are what primarily make up the grocery

segment. Brands such as Jell-O, Cool Whip, and A.1 steak sauce are some of Kraft’s owned brands in the

grocery segment. The final segment that Kraft operates in is convenient meals, which are primarily

frozen pizza, packaged dinners, lunch combinations, and processed meats. Such brands like Oscar

Mayer, Lunchables, and DiGiorno microwave pizza can be found in this segment.

Kraft Foods Case Report Page 5

Page 6: Kraft Final Document Paper - Print This One!

Mission StatementActual

Make Today Delicious We inspire trust. We act like owners. We keep it simple. We are open and inclusive. We tell it like it is. We lead from the head and the heart. We discuss. We decide. We deliver.

Revised

Here at Kraft Foods we strive to produce superior products and services to our customers

ranging from wholesalers to households. The 21st century is sure to bring more innovation, new

products, and new food technology, thus enabling us to create and deliver better and healthier products.

Kraft Foods continues to lead the food industry as the largest food supplier in North America with plans

to continue expansion into new and existing global markets. We support the goals of the company by

applying the highest ethical conduct within our corporate philosophy in all our business transactions,

treatment of employees, and social and environmental policies. We at Kraft Foods focus highly on our

consumers’ lifestyles and aim to grow profitable in the worlds’ food market and provide a higher than

expected return to shareholders. Our company takes pride in making today and the future-delicious.

As a group we felt that Kraft’s mission statement was fun but lacked some of the components

discussed in our study of strategic management. Their mission statement was inspiring but talked

Kraft Foods Case Report Page 6

Page 7: Kraft Final Document Paper - Print This One!

mainly about themselves. The “We deliver; We inspire trust, We…..” read as if Kraft was all about

themselves with no mention of customers or shareholders in their mission. We covered that by stating

the base of customers were from wholesalers to households with a sort of jingle tone to it. The

products and services were not mentioned so a point was made to identify the superior Kraft brand. We

had to emphasize the expansion into new and existing markets because the Kraft brand is already

penetrated in North America and many countries across the globe such as China, Britain and France.

Sustainability is characterized by social, economical and environmental responsibility and should

be addressed globally through the corporate world. We carry the resources to make the world a better

place and should strive to use those resources in that manner. The values from sustainability tie into a

good public image. We feel as a group that the employees are a company’s most valuable asset.

Including the employees in the mission statement would inspire the trust needed within and we thought

it was worth mentioning in the design of the statement.

As a group we believe that Kraft could have been less vague and more forthcoming in their

mission statement. They positioned themselves as very competitively advantaged and are a company

that is socially, economically and environmentally responsible. It would erase the stigma that Kraft is just

a junk food company.

Kraft Foods Case Report Page 7

Page 8: Kraft Final Document Paper - Print This One!

Kraft Foods Case Report Page 8

The External Factor Evaluation (EFE) Matrix      

Key External FactorsWeight

Rating

Weighted Score

Opportunities      

1. U.S. sales of organic food and beverage have increased from $1 billion (1990) to $26.7 billion (2009). 0.08 3 0.24

2. Food manufacturers have experienced increase sales due to a higher number of people dining out. 0.10 4 0.40

3. Women are becoming more common in upper management (11.2% in 1995 to 16.4% in 2005). 0.06 4 0.244. Baked goods prices increased 10.7% compared to 2008. 0.03 1 0.035. Increased trends of flavor enhancer for bottled water. 0.13 4 0.526. Growing environmental consensus. 0.06 3 0.18

7. Increased demand for packaged and processed foods around the world due to change in lifestyles. 0.07 3 0.21

Threats      1. Increasing obesity rates in North America. 0.03 2 0.06

2. Due to a weak economy and increased competition, the food processing industry saw an employee reduction of7.5% in 2009. 0.04 1 0.04

3. Rising petroleum costs causing an increase in product and manufacturing costs for the food processing industry. 0.05 2 0.10

4. Difficult to differentiate product pricing between competitors in the food processing industry. 0.04 2 0.085. Customers switching to generic brands. 0.09 3 0.27

6. Increased intensity for market share in European as well as other markets. 0.07 3 0.21

7. Declining value of the dollar with increasing value of the Euro. 0.02 2 0.048. North American competition is now primarily focused on the food industry. 0.13 4 0.52

Total 1.00   3.14

Page 9: Kraft Final Document Paper - Print This One!

Our team conducted the External Factor Evaluation Matrix in order to evaluate the

opportunities and threats affecting Kraft and the food processing industry. We gathered economic,

social, cultural, demographic, environmental, political, governmental, legal, technological, and

competitive information to develop our key external factors. These factors include 7 key external

opportunities and 8 key external threats, all of which were assigned a weight and rating in order to

develop a weighted score which are accumulated to determine Kraft’s external position in the industry.

A weight is given to indicate the relative importance of each factor to being successful in the food

processing industry. A rate is assigned to each factor to indicate how effectively Kraft’s current

strategies respond to the factor. The rates are evaluated on scale of 1 through 4, where 4 indicates their

response is superior, 3 shows their response is above average, 2 means their response is average, 1

indicates their response is poor. The rates are based by the company whereas the weights are based on

the industry.

Starting with our key external opportunities, U.S sales of organic foods and beverages have

increased from $1 billion in 1990 to $26.7 billion in 2009. This key external factor was given a weight of

0.08 to show that this is an important factor that the food processing industry can potentially take

advantage of because organic food is a rapidly growing trend with areas to be capitalized. We rated this

external factor a 3 because Kraft has developed organic product lines that target a more health

conscious consumer group. However we feel that their response wasn't superior because there are

many more products within all of their business segments that have the potential to be redesigned to fit

the organic label. Another key external factor is the increasing trend of dining out resulting in food

manufacturers experiencing increase sales from the restaurant industry. We weighted this factor a 0.10

to show that this is a major factor to being successful in the food processing industry. Companies in the

food processing industry wouldn’t have to make any major changes to product packaging or

manufacturing in order to change suppliers from wholesalers to restaurants. We rated this external

Kraft Foods Case Report Page 9

Page 10: Kraft Final Document Paper - Print This One!

factor a 4 because Kraft has developed and redesigned some of their product lines to be sold to either

consumers or distributors. We felt that Kraft’s response was superior due to the fact that they have

created a new segment in their North American division called Canada & N.A. Foodservice which has a

primary focus on distributing to restaurants.

A key external opportunity in the food processing industry is the fact that women are becoming

more common in upper management increasing by 5.2% from 1995 to 2005. Kraft had a superior

response to this factor when they appointed Irene Rosenfeld in 2006. We weighted this factor a 0.06

because we felt that there is an increasing trend for women in upper management in many industries.

One particular factor that we rated as a poor response by Kraft was the opportunities of baked goods

prices increasing by 10.7% compared to 2008. However this is not a particularly crucial success factor

resulting in a weight of only 0.03.

The opportunity that we considered to be the highest importance to being successful within the

food processing industry is the increasing trend of flavor enhancer for bottled water. There is a huge

market for bottled water which Kraft saw an opportunity in when they designed their new innovative

bottle water flavor enhancer MiO. We weighted and rated this opportunity 0.13 and 4, respectively.

Another important external factor is the growing environmental awareness in the U.S and Europe. We

weighted this factor a 0.06 because we feel that for food processing companies to go green they would

have to allocate many resources in developing new ways to reduce waste. These changes would be

expensive and long running so companies would find them overvalued and not profitable. We rated this

3 because Kraft has reduced the waste in 6 out 9 of their major manufacturing plants in the U.S. by 80%

with plans to reduce waste disposal to zero by 2015. Our final key external factor under opportunities

was the increased demand for packaged and processed foods around the world as a result of a change

in lifestyles. These days it is more common to have double income families who are bound to have less

time to cook and having extra cash for quicker meals. We felt that this was a fairly important success

Kraft Foods Case Report Page 10

Page 11: Kraft Final Document Paper - Print This One!

factor for the food processing industry because of the high demand for convenience food. We rated

Kraft’s response to this as above average because they focus on developing quick meals that are easy to

prepare.

Under our threats section of the external factor evaluation displays our key external threats

which start with increasing obesity rates in North America. We weighted this threat low because most of

the products within the food processing industry are labeled “junk” food and cannot be the primary

source of nutrition for kids and adults. We rated this factor a 2 because even though Kraft has

developed healthy choice product lines, many of their best selling products still contain high levels of

saturated fat, sodium and sugar. Kraft has responded to this by not advertising to children under 6, only

promoting their Better-For-You products for children between the ages of 6-11 and absolutely no school

advertising. Another key threat we observed was a workforce reduction in the food processing industry

of 7.5% in 2009. This was due to a weak economy and increase competition which is affecting most

companies within the industry evenly which is why we weighted this factor 0.04. Prior to 2008

companies where experiencing the peaks of a booming economy resulting in a bloated work force.

These peaks were quickly diminished when the recession took effect resulting in many companies

reducing their work force in order to remain operational. We rated this factor 1 because Kraft reduced

its work force by 19,000 employees in 2009, which is way above the industry average. Petroleum is used

for many operations within the food processing industry, from agricultural costs, to shipping and

distributing. This is why we weighted the threat of rising petroleum cost a 0.05 because of the industries

lack of control on the topic but also its importance. Kraft has long-term objectives to reduce their

petroleum consumption by 15% by 2015. We feel this is a great start but that much more can be done

which is why we rated this threat a 2.

One external threat we dogged is the difficulty in differentiating product pricing between

competitors in the food processing industry. We weighted this factor 0.04 because we felt that this is

Kraft Foods Case Report Page 11

Page 12: Kraft Final Document Paper - Print This One!

the result of free trade and as long as they have competitors in their industry then this threat will not

change. We rated this threat a 2 because we feel that Kraft’s pricing policies are developed in order to

receive the greatest profit margin. These prices are based on their competitors prices and therefore

cannot be changed due to decreased profit margin. One of our most important key factors is the threat

of customers switching to generic brands. Especially during a recession consumers for looking for more

lower priced products rather than name brand products. As a result we weighted this threat a 0.09 to

show it has high importance in the industry. We rated Kraft’s response to this threat a 3 because of their

above average marketing efforts to show consumers their products have high value and to maintain

their long lasting reputation of good food for lower prices.

The intensity of competition in the food processing industry has been an increasing external

threat that Kraft responded well to with the acquisition of Cadbury in England. This factor was weighted

a 0.07 because of the need to globalize and expand into European and other markets. In the world today

you’re either growing or dying and the food processing industry is no exception, companies within the

food processing industry know they must expand into new markets to retain market share and remain

profitable. Another factor regarding competition in the food processing industry is the increased

intensity of competition in North America. Kraft Foods is the number one food processor in North

America which is why we regard this threat to be the most important to the success in the industry.

ConAgra which is Kraft’s main competitor within the U.S. has recently sold off its beauty and health care

divisions in order to focus primarily on food processing. Kraft has responded heavily to this threat with

increased advertising in the U.S. to $50 million in 2009. The last external threat is also the least

important to the success of the food processing industry. The declining value of the dollar and the

increasing value of the euro has been an increasing threat over the past few years. We weighted this

factor low at 0.02 because we feel the food processing industry has no control over inflation rates. We

Kraft Foods Case Report Page 12

Page 13: Kraft Final Document Paper - Print This One!

rated this factor a 2 because we feel that because Kraft operates in both the U.S. and Europe they will

experience changes in monetary values no matter where they choose to operate.

Kraft Foods Case Report Page 13

Page 14: Kraft Final Document Paper - Print This One!

Competitive Profile (CPM) Matrix

Critical Success Factor Weight

Rating Score Rating

Score Rating Score

1. Advertising 0.12 3 0.36 4 0.48 2 0.24

2. Financial Position0.10 3 0.30 4 0.40 2 0.20

3. Global Expansion0.09 3 0.27 4 0.36 2 0.18

4. Market Share0.10 3 0.30 3 0.30 2 0.20

5. Product Diversity 0.16 4 0.64 4 0.64 3 0.48

6. Consumer Demands 0.14 4 0.56 3 0.42 3 0.42

7. Customer Loyalty0.13 3 0.39 3 0.39 2 0.26

8. Product Safety0.16 2 0.32 3 0.48 3 0.48

Total 1 3.14 3.47 2.46

Kraft Foods Case Report Page 14

The Ratings values are as follows: 1= major weakness, 2= minor weakness, 3= minor strength, and 4= major strength.As indicated by the total weighted score of 2.46, ConAgra is the weakest, followed by a weighted score of 3.14 for Kraft and 3.47 for Nestlé who is considered the leader of the food processing industry.

Page 15: Kraft Final Document Paper - Print This One!

The Competitive Profile Matrix is a vital strategic management tool to compare the firm with the

major competitors of the industry. The competitive profile matrix displays a well-defined picture to the

firm about their strengths and weaknesses relative to their competitors. The primary competitors to

Kraft are Nestlé and ConAgra, so we used those two companies in this matrix. After an in depth analysis

of the external and internal environment we came up with these critical success factors: Advertising,

Financial Position, Global Expansion, Market Share, Product Diversity, Consumer Demands, Customer

Loyalty, and Product Safety. After we came up with each factor, we must weight and rate each factor for

each company. The rating in the CPM represents the response that the firm has towards the critical

success factors. The response scale is from 1 to 4. A poor response is represented by 1, the response is

average if it's represented by 2, the response is above average if it's represented by 3, and the response

is superior if it's represented by 4.

In this industry we felt that Kraft has an above average effort in their advertising field, but felt

that Nestlé does a little more in their efforts. We see more diverse advertising by Nestlé, whether its

newspaper ads or commercials. Also their advertising is more eye catching and appealing to the public.

ConAgra received a 2 because they aren’t really on the same page regarding global aspect. Financial

position, we rated this based upon their net sales. Nestlé is the leader in the food processing industry so

it is obvious that their response is a 4 because they are leading the pack. Kraft wasn’t too far behind so

they are above average because they are ahead of most food processing companies in this industry.

ConAgra is lower in this field for the fact that they don’t offer as much as these other two companies.

The next factor we found important was global expansion. ConAgra received a low rating for this

because they have decided to mainly focus on the North American markets, they aren’t focused on

going global at this time. Nestlé’s headquarters is in Switzerland; they are based off international and

global expansion. Many of their products are in undeveloped countries. The next factor we focused on

was market share. We found this important because companies need to be able convert sales targets

Kraft Foods Case Report Page 15

Page 16: Kraft Final Document Paper - Print This One!

into market share because this will show whether forecasts are to be attained by growing with the

market or by capturing share from competitors. We felt, using that information, that all three companies

displayed either average or slightly above average in this area. For product diversity Kraft does an

exceptional job, they have over 100 brands that cover the a wide array of products. Kraft however

doesn’t have any bottled water, but they have a flavor powder portfolio for water that leads the

industry. Nestlé has a very diverse product line also, whereas ConAgra has a diverse product line but not

as many brand names as these two companies. Another factor is consumer demand, which refers to

how much of something a consumer desires. A company needs to know the consumer demand so they

know how much of a product to make. Each of these companies, we feel are above average in this area.

Kraft continues to expand and be innovative with their products. A current example is the launch of their

new product MiO that is a water flavoring substance. Nestlé is also great in this area, especially when it

comes to their baby nutrition products. They continue to make these products that babies need to

survive and bring them to developing countries. The last two success factors are customer loyalty and

product safely. These two factors are so important that you can rate each company based on only these

factors and you would still get a good view on who would be successful in this industry. Regarding

customer loyalty we rated Kraft and Nestlé a 3 and ConAgra a 2, reason being that everyone knows the

Kraft and Nestlé brands, everyone picks their favorite and they stick with those products. ConAgra on

the on the hand doesn’t have the same value with their company name and many consumers may not

know the products they carry. As for product safely, this was a big concern for Kraft which will be

explained later in our IFE and SWOT matrices, which is why Kraft was rated a 2. Kraft recently removed

batches of fruits and nuts after one of their workers discovered they were contaminated with

salmonella.

The weight attribute in the CPM indicates the relative importance of each of the factors to being

successful in the firm’s industry. The sum of all weighted score is equal to the total weighted score; final

Kraft Foods Case Report Page 16

Page 17: Kraft Final Document Paper - Print This One!

value of total weighted score should be between ranges 1.0 (low) to 4.0(high). The average weighted

score for CPM matrix is 2.5, any company's total weighted score falling below 2.5 is considered weak. A

company’s total weighted score higher than 2.5 is considered strong in competitive position. In this case

Kraft received a total weight of 3.14, Nestlé a weight of 3.47, and ConAgra a weight of 2.46. This

indicates that Nestlé is the premier company in this matrix, but Kraft still is a strong company in this

industry. With ConAgra’s weight being below the average 2.5 it is clear that they are considered weak in

this industry.

Kraft Foods Case Report Page 17

Page 18: Kraft Final Document Paper - Print This One!

Kraft Foods Case Report Page 18

Major Weakness (rating =1)Minor Weakness (rating =2)Minor Strength (rating =3)Major Strength (rating =4)

The Internal Factor Evaluation (IFE) Matrix      

Key Internal Factors Weight RatingWeighted Score

Strengths      

1. Positive sales in all 5 operating segments; Snacks, Beverages, Cheese, Grocery, Convenient Meals. 0.06 4 0.242. High priority and standards on food safety. 0.06 3 0.183. Diverse range of brands and products. 0.08 4 0.324. Strong focus on R&D. 0.08 4 0.325. Sales increased by 2.9% in North American markets. 0.04 3 0.126. Strong reputation and perceived value among customers. 0.12 4 0.487. Organic food revenue increased by 2.3% in first quarter 2009 0.07 4 0.28

Weaknesses      

1. Possibility of perceived weakness from female CEO in certain foreign markets. 0.02 2 0.042. Risk of contamination in agricultural products. 0.12 1 0.123. Sales drop 5.9% in second quarter 2009. 0.08 2 0.164. High amount of goodwill - over $27.5 billion. 0.07 1 0.07

5. $18.5 billion in long-term debt - increased 50% in 2008 from 2007. 0.07 1 0.076. Difficulty launching new brands. 0.09 1 0.097. Margins depend on commodity prices. 0.04 2 0.08

Total 1.00   2.57

Page 19: Kraft Final Document Paper - Print This One!

Our team conducted an Internal Factor Evaluation Matrix in order to evaluate the major

strengths and weaknesses in Kraft’s functional areas of business. We used our intuitive judgments to

determine the factors and assign each with a weight and a rating. A weight is given to each factor to

indicate the relative importance of it being successful in Kraft’s industry, then a rating is provided to

indicate whether the factor is a major strength, minor strength, major weakness, or minor weakness.

Then we calculated a weighted score for each factor and summed them together to determine Kraft’s

internal position.

Each factor under strengths received a rating of 3 or 4; 3 being a minor strength and 4 being a

major strength. Kraft has shown positive sales growth and has been operating effectively in all five of its

operating segments, which we considered to be a major strength of the company, so it received a rating

of 4. We weighted this strength as a 0.06; we felt that this was of average importance to Kraft’s success.

The same weight was given to the next factor under strengths; Kraft’s high priority and standards on

food safety. It would be expected of any large company in the food industry to have a high priority and

standards on food safety, so we determined this factor to be minor strength that is of average

importance to the company’s success in this industry.

Kraft’s diverse range of brands and products as well as its strong focus on research and

development were given a weight of 0.08 and a rating of 4. We consider the diverse brands and

products to be a major strength and of fairly high importance because the company competes in such a

wide market, so it is key to cover all grounds. We labeled Kraft’s strong focus on R&D as a major

strength and evaluated it as moderately high importance because of the company’s ability to be new

and innovative has been a huge factor to their success. Sales increasing by 2.9% in the North American

market were considered by us to be a minor strength with a below average importance to the

company’s success because this sales increase was mostly due increased prices of 9.8% and money

saved from laying off 19,000 employees.

Kraft Foods Case Report Page 19

Page 20: Kraft Final Document Paper - Print This One!

We determined Kraft’s strong reputation and perceived value among customers to be a major

strength and as one of the most important factors for Kraft’s success in its industry. The greatest asset

of any retail and consumer product company is reputation. Kraft has built a strong reputation and

perceived value among customers through a lot of marketing efforts and many years of being

established. We weighted this factor as 0.12. The final strength factor was the 2.3% increase in organic

revenue in the first quarter of 2009. We gave this factor a rating of 4 and a weight of 0.07. The increase

in organic revenue is a major strength for Kraft and has somewhat high importance to the firm’s success

in the industry because organic food is becoming more popular among consumers now with health

concerns on the rise.

The factors labeled as weaknesses are rated on a scale of 1 to 2; 1 being a major weakness and 2

being a minor weakness. The possibility that Kraft being perceived as weak as a result of having a

female CEO is as only a minor weakness and resulted in a weight of 0.02, meaning it has low importance

to the success of the company because this only applies to certain foreign markets. We considered the

risk of contamination in source products to be another one of the most important factors for Kraft’s

success in its industry. This factor received a weight of 0.12 and was rated a 1. This major weakness is

an important factor in the company’s success because contaminated products could hurt Kraft’s already

strong reputation and perceived value among consumers. A minor weakness considered was the 5.9%

drop in sales in the second quarter of 2009. We weighted this factor as 0.08, which is considered to be

of fairly high importance.

Kraft’s has over $27.5 billion in goodwill, and over $18.5 billion in long-term debt; a 50%

increase in 2008 from 2007. Both of these factors have been given a weight of 0.07 and a rating of 1,

making them major weaknesses that have a moderately high importance to the success of the firm. As a

result, Kraft is going through a turn-around process designed to return the company to sustainable

growth. In recent years, Kraft has experienced difficulty launching new brands. Being able to launch

Kraft Foods Case Report Page 20

Page 21: Kraft Final Document Paper - Print This One!

new brands is an important factor to the success of Kraft because of who they are competing against;

ConAgra, Nestlé. We considered this major weakness and gave it a weight of 0.09. Lastly, we

determined that margins depending on commodity prices are a minor weakness and weighted it at 0.04.

The price of commodities is something that is not controlled by Kraft, and this affects other companies

in the industry all the same.

We solved for each factors weighted score by multiplying each weight by its rating. From there,

we added up each weighted scores to come up with a total weighted score. Kraft’s total weighted score

came out to be 2.57. This score tells us that Kraft’s internal position is not weak, but not strong either ,

just slightly above average.

Kraft Foods Case Report Page 21

Page 22: Kraft Final Document Paper - Print This One!

Kraft Foods Case Report Page 22

Strengths-Weaknesses-Opportunities-Threats SWOT MatrixWeaknesses1. Possibility of perceived weakness from female CEO in certain foreign markets.

2. High risk of contamination in agricultural products.

3. Sales drop 5.9% in second quarter 2009.

4. High amount of goodwill - over $27.5 billion.5. $18.5 billion in long-term debt - increased 50% in 2008 from 2007.

6. Difficulty launching new brands

7. Margins depend on commodity prices.

Opportunities WO Strategies1. U.S sales of organic food and beverages have increased from 1 billion (1990) to 26.7 billion (2009).

Use quality organic ingredients to reduce risk of contamination. (W2, O1) –Product Development & Related Diversification

2. Food manufacturers have experienced increased sales to restaurants due to a higher number of people dining out.

Target new brands to restaurants instead of households.(W6, O2) – Market Penetration

3. Women are becoming more common in upper management (11.2% in 1995 to 16.4% in 2005).

Inform foreign markets of women in upper management positions. (W1, O3) – Market Development

4. Bakes goods prices increased 10.7%

compared to 2008.  5. Increased trends of bottle water and flavoring consumption  

6. Increased trends of flavor enhancer for

bottled water.  7. Increased demand for packaged and processed foods around the world due to change in lifestyles

Threats WT Strategies1. High obesity rates in North America. Maintain advertising to remind our customers of our high quality

products (W6, T5)- Market Penetration2. Due to a weak economy and increased competition, the food processing industry saw an employee reduction of 7.5% in 2009.

Divest from high intensity European markets to focus more in North America. (W3, W5, T8, T6)- Retrenchment

3. Rising petroleum costs causing an increase in product and manufacturing costs for the food processing industry.  4. Difficult to differentiate product pricing between competitors in the food processing industry.  

5. Customers switching to generic brands.  6. Increased intensity for market share in European as well as other global markets.  

7. Declining value of the dollar with increasing

value of the Euro.  8. North American food processing companies are now primarily focused on food related consumer products.

Page 23: Kraft Final Document Paper - Print This One!

Strengths-Weaknesses-Opportunities-Threats SWOT Matrix

Strengths1.Positive sales in all 5 operating segments; Snacks, Beverages, Cheese, Grocery, Convenient Meals.

2. High priority and standards on food safety.

3. Diverse range of brands and products.

4. Strong focus on R&D.

5. Sales increase by 2.9% in North American markets.6. Strong reputation and perceived value among customers.

7. Organic food revenue increased by 2.3% in 2009.

Opportunities SO Strategies

1. U.S sales of organic food and beverages have increased from 1 billion (1990) to 26.7 billion (2009).

Create new organic products to add to existing product lines.(S7, O1)-Product Development

2. Food manufacturers have experienced increased sales to restaurants due to a higher number of people dining out.

Use customer loyalty and diverse range of products to increase sales in restaurant industry.(S6,S3,O2)- Market Penetration

3. Women are becoming more common in upper management (11.2% in 1995 to 16.4% in 2005).

Use diverse brands to market processed food to global markets.

(S4,S3, O7) – Product Development ,Market penetration & Development

4. Baked goods prices increased 10.7%

compared to 2008.  

5. Increased trends of bottle water and

flavoring consumption.  6. Growing environmental consensus.

7. Increased demand for packaged and processed foods around the world due to change in lifestyle. ST Strategies

Threats Use R&D capabilities to develop new healthier food options due to increasing obesity rates. (S4, T1) – Product Development

1. Increasing obesity rates in North America. Use reputation to increase market share in current markets to decrease switching to generic products. (S6, T5) – Market Penetration

2. Due to a weak economy and increased competition, the food processing industry saw an employee reduction of 7.5% in 2009.

Continue marketing efforts in North America with a heavy emphasis on retaining loyal customers. (S5, S6, T8) – Market Penetration

3. Rising petroleum costs causing an increase in product and manufacturing costs for the food processing industry.4. Difficult to differentiate product pricing between competitors in the food processing industry.  

5. Customers switching to generic brands.  6. Increased intensity for market share in European as well as other global markets.  

7. Declining value of the dollar with increasing

value of the Euro.8. North American food processing companies are now primarily focused on food related consumer products.

Kraft Foods Case Report Page 23

Page 24: Kraft Final Document Paper - Print This One!

While our team was creating the SWOT matrix we looked through both the EFE and the IFE

matrices to check back on what the key external and internal factors were for Kraft Foods. While

thinking of ways to match strengths and weaknesses to opportunities and threats for this matrix we

came up with 11 strategies that we derived from the input stage. There were three weakness-

opportunity strategies, two weakness-threat strategies, three strength-opportunity strategies, and three

strength-threat strategies.

Our first weakness-opportunity strategy uses our number two weakness (high risk of

contamination in agricultural products) and our number one opportunity (U.S. sales of organic food and

beverage have increased from $1 billion in 1990 to $26.7 billion in 2009) in order to develop this

strategy. Use quality organic ingredients to reduce risk of contamination which we said would be

product development and related diversification. If Kraft would use a high quality organic product from

a group of trusted farms across the world then the contamination factor could almost be taken out of

the equation entirely. This would help Kraft develop its product because all customers would rather

have a good quality organic product to feed to their families instead of foods that have been produced

in places where contamination may occur. This strategy could also be related diversification because

Kraft could come out with a brand new line of organic foods that could boost revenues in that area. This

could possibly turn into a new product line for Kraft that could turn out to be a major success.

Our second weakness-opportunity strategy would use our sixth weakness (difficulty launching

new brands) and our second opportunity (food manufacturers have experienced increased sales due to

a higher number of people dining out) to develop this strategy which would target new brands to

restaurants instead of households which would be considered a market penetration strategy. This

would fall into that strategy because Kraft would market new products and brands to restaurants to gain

further market share within that segment.

Kraft Foods Case Report Page 24

Page 25: Kraft Final Document Paper - Print This One!

Our third and last weakness-opportunity strategy would combine weakness one (possibility of a

perceived weakness from female CEO in certain foreign markets) and opportunity three (women are

becoming more popular in upper management, 11.2 % in 1995 to 16.4 % in 2005). By matching these

two elements our strategy would be to inform and educate foreign markets about women in upper

management positions. This would be market development because if Kraft informs people in other

nations of their female CEO they may gain the customers in that area. Cultures where females don’t

really get a chance to do different jobs may be inspired by Irene Rosenfeld and may become a loyal

customer to Kraft.

On to our weakness-strength strategies our first strategy will use weakness six (difficulty

launching new brands) and threat number five (customers switching to generic brands). The strategy will

be to maintain advertising to remind our customers of our high quality products which will considered

market penetration. People are switching to more generic brands these days due to the high cost of

some other brands and economic downturn. Kraft should realize this and remind their customers that

spending a little bit more money will really make the difference in having a good, quality meal rather

than having an average Joe meal.

This brings us to our last weakness-threat strategy. This strategy will use weaknesses three

(sales drop 5.9% in second quarter 2009) and five ($18.5 billion in long-term debt – increased 50% in

2008 from 2007) and match them with threats eight (North American food processing companies are

now primarily focused on food related consumer products) and six (increased intensity for market share

in European as well as other global markets). Our Strategy for this would be to divest from high

intensity European markets to focus more in North America. This would be retrenchment because we

would stop competing in Europe to raise our sales and numbers in North America.

Kraft Foods Case Report Page 25

Page 26: Kraft Final Document Paper - Print This One!

After looking at the weakness orientated strategies we will now look at the strength strategies

and our first one included our seventh strength (organic revenue increased by 2.3 % in 2009) and our

first opportunity (U.S. sales of organic food and beverages have increased from $1 billion in 1990 to

$26.7 billion in 2009). Our strategy would go as follows, create new organic products to add to existing

product lines which would be classified as a product development strategy. As the organic sales

continue to go up within the industry and the organic revenue continues to go up for Kraft they should

develop more organic based foods to put on the shelves so that people can have a verity.

The second strength-opportunity strategy looked at strength six and three (strong reputation

and perceived value among customers and diverse range of brands and products) and opportunity two

(food manufacturers have experienced increased sales due to a higher number of people dining out).

Our strategy for this is to use customer loyalty and diverse range of brands to increase market share in

the restaurant industry. This falls into the market penetration strategy because once again we will be

focused on getting a larger part of market share within the restaurant field. Next we will match

strengths four (strong focus on R & D) and strength three (diverse range of brands and products) with

opportunity seven (increased demand for packaged and processed foods around the world due to

change in lifestyle). Given these circumstances Kraft should use diverse brands to market processed

food to global markets. This would be product development because they can use their R&D functional

area to do extensive research on packaged and processed foods to make their products healthier. This

would be classified as a market development strategy because of the way that they are introducing their

products to more global markets. It would also be market penetration because they can try to get more

market share within the countries that they are already doing business within.

Now we will look at the possible strength- threat strategies which to start them off included

strength four (strong focus on R&D) and threat one (increasing obesity rates in North America). Kraft

Kraft Foods Case Report Page 26

Page 27: Kraft Final Document Paper - Print This One!

could use R&D capabilities to develop healthier food options due to increasing obesity rates. This would

be product development because by researching and developing new healthier foods they are making

their product better and as a result parents will want to buy the healthier food so that they can either

battle obesity or prevent it from occurring. Our next possible strategy will match strength six (strong

reputation and perceived value among customers) and threat five (customers switching to generic

brands). Given this situation Kraft could use their reputation to increase market share in current

markets to decrease switching to generic products. This would be market penetration because the goal

of this is to increase their market share within current markets. With their well-known brand name they

could persuade customers that their products are better and worth a little extra money.

Lastly our final possible strategy looked into strengths five (sales increase by 2.9% in North

American Markets) and six (strong reputation and perceived value among customers) matching them

with threat eight (North American food processing companies are now primarily focused on food related

consumer products). For this situation they should continue marketing efforts in North America with a

heavy emphasis on retaining loyal customers. This would be penetrating the market because they will

be trying to gain new customers within the market and trying to get them to become loyal customers

and buy only Kraft products.

Kraft Foods Case Report Page 27

Page 28: Kraft Final Document Paper - Print This One!

Strategic Position and Action Evaluation Space Matrix

FINANCIAL POSITION (FP)Factors Rating

Revenues increased 16.8% to $42.2 billion 4Earnings increased 12% to 2.9 billion 3Total L+SE+ Assets decreased 7.5% to $6.3 billion 3Gross profit margin of 34.1 compared to the industry average of 31.1 4Current ratio of 1.1 2 TOTALS 16

INDUSTRY POSITION (IP)Factors Rating

Growth potential 5Ease of market entry 4Profit potential 4Financial stability 3Resource utilization 3

TOTALS 19 STABILITY POSITION (SP)Factors Rating

Competitive pressure -4

Barriers to entry -4Unemployment -5Technology changes -2Price range of competitors products -4 TOTALS -19

COMPETETIVE POSITION (CP)Factors Rating

Customer loyalty -3Product quality -3Market share -2Technological knowledge -4Competition -5

TOTALS -17

Kraft Foods Case Report Page 28

Page 29: Kraft Final Document Paper - Print This One!

ConclusionsSP Average: -19/5= -3.8 IP Average: 19/5= 3.8CP Average: -17/5= -3.4 FP Average: 16/5= 3.2

Directional Vector Coordinates: X-axis: -3.4 + (3.8) = .4 Y-axis: -3.8 + (3.2) = -.6

Kraft Foods Case Report Page 29

AGGRESSIVECONSERVATIVE

DEFENSIVE COMPETITIVE-Backward, forward, horizontal

integration-Market penetration

-Market development-Product development

CP IP

SP

FP

Page 30: Kraft Final Document Paper - Print This One!

The Strategic Position and Action Evaluation Matrix, also known as the SPACE Matrix is an

important matching stage tool used to match different variables along two axis. With the two axis

intersecting in the middle then creating a four quadrant matrix which are labeled going top-right to

bottom-right is aggressive, conservative, defensive and competitive. The Y-axis includes two

dimensions; one internal which is the financial position (FP) and one is external, which is the stability

position (SP). The X-axis includes the other two dimensions the competitive position (CP) which is

internal and the industry position (IP) which is external. These factors are possibly the most important

determinants of an organization’s strategic position.

To begin the SPACE Matrix we first selected a set of variables to define the four positions on the

graph. After this we assigned a numerical value to each of the factors ranging from +1 (worst) to +7

(best) for the FP and IP dimensions, and a -1 (best) to -7 (worst) for the SP and CP dimensions. The

financial position factors are as follows, revenues increased 16.8 % to $42 billion which we rated as a 4

because it was good when compared to competitors and the industry. The next factor was that earnings

which increased 12% to $2.9 billion which we rated a 3. Next we have the fact that the total liabilities

+stockholders equity + assets decreased 7.5% to $6.3 billion which we also rated as a 3 because it wasn’t

quite as bad as our competitors. Gross profit margin of 34.1 compared to the industry average of 31.1

was rated as a 4 because even though Kraft’s margin was larger than the industry average it still wasn’t

as good as it could be compared to its competitors like Nestlé. The last factor in the Financial position

was the fact that the current ratio was 1.1 which we rated as a 2 because the ratio is just barely above 1

which means that Kraft's current liabilities are barely covered by their current assets and therefore it

could use improvement.

The Industry Position is located on the X-axis and we decided to rate those next. First we had

growth potential which we rated as a 5 because although Kraft has a lot of market share in North

Kraft Foods Case Report Page 30

Page 31: Kraft Final Document Paper - Print This One!

America they can grow even more compared to their competitors in Europe and other global areas.

Next was the ease of market entry which we rated as a 4 because this industry isn’t very easy to get into,

and other than Nestlé, Kraft is the largest company so we believed that they were above average. The

barriers to enter the food processing industry are quite high, with conglomerates like Kraft and Nestlé

dominating all markets. Profit potential was rated a 4 because they're making a profit compared to

many other industries where most companies are struggling just to stay out of negatives, and if they are

receiving profit, they most likely aren’t doing as good as Kraft. Another factor of the IP was financial

stability which we rated as a 3 because although there is stability in Kraft’s financials other industries are

more stable and there is a lot that can go wrong in the food industry. Stable industries include the

medical industry, and the insurance industry where most companies are recession proof. Last in the IP

factors we have resource utilization which we rated as a 3 because we feel that Kraft could utilize other

areas better than they are, examples would include their European and developing markets divisions

that are only allocated 15% of resources.

After the Industry Position we rated the stability position which started with competitive

pressure. We rated this as a -4 because within that industry Kraft has some major competitors and we

think that the pressure could be handled better in European markets. When it comes to barriers to

entry we rated Kraft as a -4 because it is difficult to enter this industry. Large companies like Kraft and

Nestlé have extensive customer loyalty which is something new companies won't be able to rely on and

will have to fight to gain. Our next factor is unemployment and we rated this as a -5 because Kraft shut

down 36 plants at the end of 2009, which eliminated 19,000 jobs. The next factor to consider is

technology changes, and we rated this a -2. We rated this as good because although Kraft shut down 36

plants, they streamlined their manufacturing and simplified their organizational structure which led

them to save $1.1 billion in 2008. Also with new organic products being developed Kraft is always on the

edge of innovation, always ready to capitalize on the latest trend or market switch.

Kraft Foods Case Report Page 31

Page 32: Kraft Final Document Paper - Print This One!

The final position of the SPACE matrix is competitive position. Here we look at Kraft's external

competitive position compared to not their other competitors like the CPM matrix but compared to how

they respond to each factor. We start with customer loyalty which is no problem for Kraft, with products

like Mac N' Cheese, Velveeta, and Miracle Whip that have all been on the shelves for over 50 years it's

easy to say that Kraft has a good customer loyalty position, which is why we rated them a -3. The next

factor on our list is product quality, which was rated a -3. We and Kraft wants it to be known that Kraft

strives to put the best ingredients to develop the best product that they possibly can, but with

contamination in a few of their plants becoming a problem we had to stay away from giving them top

marks. Also market share was a tricky factor to rate for Kraft because even though they dominate the

North American markets especially the U.S. market, they still are lacking in the large European markets,

which is why they received -2 instead of a -1. The final competitive position factor is competition itself

and here we rated Kraft a -5 because we feel they still remain focused on North American markets when

their biggest competitor, Nestlé, dominates global markets without anyone to slow them down. We feel

that Kraft needs to focus more on global markets in order to become a bigger contender against the

food giant that is known as Nestlé.

Kraft Foods Case Report Page 32

Page 33: Kraft Final Document Paper - Print This One!

Boston Consulting Group BCG Matrix Domestic Market Share

Kraft Foods Case Report Page 33

+20

0

-20

1.0 .50 0.0

Backward Integration Forward Integration Horizontal Integration Market Penetration Market Development Product Development

Relative Market Share Position in the Industry

Indu

stry

Sal

es G

row

th R

ate

(Per

cent

age)

0.70, 6.41%

DivisionRevenue (millions)

Percent Revenues

Profit (millions)

Percent Profit

Relative Market Share

Industry Growth Rate (%)

Company $ 42,201 100% $ 2,901 100% 0.70 6.41%

Page 34: Kraft Final Document Paper - Print This One!

Boston Consulting Group BCG Matrix Global Market Share

Kraft Foods Case Report Page 34

+20

0

-20

1.0 .50 0.0

Market Penetration Market Development Product Development Divestiture

Relative Market Share Position in the Industry

Indu

stry

Sal

es G

row

th R

ate

(Per

cent

age)

0.39, 6.41%

Page 35: Kraft Final Document Paper - Print This One!

The Boston Consulting Group (BCG) matrix is intended to help with multidivisional firm efforts to

formulate strategies. The BCG matrix was founded by the a consulting firm based out Boston, MA, which

is why it’s called the Boston Consulting Group Matrix. The BCG matrix will graphically show the

differences among operating segments in terms of relative market share and industry growth rate.

Relative market share is defined as the ratio of the divisions own market share or revenues compared to

the market share or revenues held by the largest rival in the industry. Relative market share is measured

high when a division has over 0.50 or half of the market share of the industry and low when it’s less than

half. The other factor of the BCG; industry sales growth, is considered high when it’s a positive industry

sales growth and therefore is considered weak if there is no industry sales growth. These factors will

become useful later in our evaluation. The relative market share is located on the X-axis of the matrix

whereas the industry growth rate is displayed as a percent on the Y-axis. As you can see in our BCG

matrix the quadrants are broken down into four categories and there are from top-right to bottom-right,

question marks, stars, cash cows, and dogs. Question marks are described to have low relative market

share and compete in a high growth industry. They are called question marks because the companies

must decide whether to continue with operations by pursuing an intensive strategy to gain market share

or divest in the current markets and get out while they still can. The next quadrant is the stars category;

stars represent the organizations best divisions regarding growth and profitability. These operating

segments have high relative market share accompanied with a high industry growth rate. Intensive and

integration strategies would be the best for course of action for divisions that end up in this quadrant.

The next quadrant in the BCG is the cash cow, here divisions have high relative market share but have

low growth in there industry. Most of the time former star divisions are eventually turned into cash

cows where they are “milked” of cash. Divisions or companies can stay as a cash cow for a very long

time, for example, Tabasco sauce has been a cash cow for over 100 years! Cash cow divisions need to be

closely observed in order maintain their status and make necessary changes with the industry needs.

Kraft Foods Case Report Page 35

Page 36: Kraft Final Document Paper - Print This One!

The best strategies for cash cows are intensive and diversification, but if they become weak they may

need to be retrenched or liquidated. The final quadrants is the dog category and trust me, this is an area

that no division wants to be located within. A dog is classified as having low relative market share along

with competing in a low or no market growth industry. The best strategy for dog divisions would be

through retrenchment, many dogs can be reorganized into better divisions. If this doesn’t work dogs

should be liquidated or divested. Remember that these categories are not set in stone; most divisions

will change quadrants many times throughout their economic life span.

In our particular case with Kraft we had a hard time putting the BCG matrix together due to lack

of information from our case and lack of information from external resources. We determined after

scanning through the case and Kraft’s 10-k annual statement for 2009, that they don’t report earnings,

percent profit, or market share for any of their divisions. There are a few reasons Kraft many choose to

not disclose this information. First the can become easily accessible competitive information for rival

firms, also it can hide performance failures, and lastly is can reduce rivalry among segments. Whatever

their reasons may have been we needed to do the BCG matrix anyway so instead of using Kraft’s

divisions we used Kraft as a whole company. We started by finding the industry sales growth rate in our

case which we determined was 6.41%, which would mean Kraft operates in a high sales growth industry.

This means that Kraft would be classified as either a star, or a question mark depending on relative

market share. The next crucial piece of information we need to obtain was Kraft’s relative market share.

This was done by comparing Kraft’s total revenue to the revenues of their largest competitor. This would

mean that we would be comparing Kraft’s revenue with Nestlé’s revenues, seeing as they are by sales

volume their largest competitor. To find Nestlé’s total revenue we looked at their financial statements

for 2009 and found they had revenues of $109,908 billion. After converting the amount from Swiss

Franc’s to U.S. dollars using 12/31/2009 conversion rates, Kraft’s relative market share compared to

Nestlé came to be 0.39. (($109,908 x .96586= $106,155) ($42,201/$106,155 = .39)) This put Kraft in the

Kraft Foods Case Report Page 36

Page 37: Kraft Final Document Paper - Print This One!

question mark quadrant, we which we thought was accurate because it states in our case that Kraft is

unsure of their access to European markets where Nestlé has large control on market share. This would

mean Kraft’s recommending strategies for their Global position would be to either strengthen their

business by pursing strategies such as market development or product development or sell off and

divest from these markets.

Also in our case it mentions that Kraft is the market share leader in the United States and North

America but they lack in market share in Europe and other foreign markets from being rather new to

penetrate these areas. This led us to believe that comparing Kraft to Nestlé was unfair for their portrayal

in BCG matrix. That being said we decided to develop two BCG models, one for Kraft’s global position,

and one their domestic position. In calculating Kraft position for their domestic model we compared

revenues of Kraft to their biggest competitor in North America, ConAgra. Using revenues we found in

our case we were able to determine that Kraft has a .70 relative market share in North America

compared to ConAgra. (1-($12,731/$42,201)) Add this is a high industry sales growth percentage and

Kraft is now located as a star for our BCG domestic matrix model. This is quite a change and a good

example of how just one change of the equation can give you a whole new perspective on Kraft’s market

share position. We again thought this information was accurate because Kraft is the leading food

processor in North America and the BCG displays this very well. In this situation Kraft has the best long

run opportunities for growth and profitability. We recommend that they implement integration and

intensive strategies to take advantage of their high relative market share position in North America.

The BCG, like all matrices has a few limitations. Most of the time companies cannot be labeled in

one particular category because they fall right in the middle of the BCG matrix. Therefore the BCG

matrix does show whether divisions or companies are growing over time, rather it’s a snapshot of an

organization a particular point in time. Finally, there are other important variable we found besides

Kraft Foods Case Report Page 37

Page 38: Kraft Final Document Paper - Print This One!

relative market share and industry sale growth that are important in making strategic decisions.

Therefore the BCG should, like all of the matrices we calculated for this project be accompanied with

other matrices in order to be compared and to looks for outliers or incorrectly calculated models.

Kraft Foods Case Report Page 38

Page 39: Kraft Final Document Paper - Print This One!

Internal-External I/E Matrix

Kraft Foods Case Report Page 39

4.0

3.0

2.0

1.0

4.0 3.0 2.0 1.0

IFE Total Weighted Scores

Grow and Build• Forward, Backward, or

Horizontal Integration• Market Penetration• Market Development• Product Development

2.57, 3.14

Strong3.0 to 4.0

Average2.0 to 2.99

Weak1.0 to 1.99

High3.0 to 4.0

Medium2.0 to 2.99

Low 1.0 to 1.99

EFE

Tota

l Wei

ghte

d Sc

ores

Page 40: Kraft Final Document Paper - Print This One!

The I/E matrix, by definition, is a strategic management tool that is used to evaluate the current

position of a company and to suggest strategies to improve in the future. The I/E matrix is formed by

nine quadrants in a three by three chart. To find the point on the matrix where the company stands, the

total weighted score of the IFE is plotted on the X-axis and the total weighed score from the EFE is

plotted on the Y-axis. Where the two points intersect reveals what strategies should be used by the

company. Quadrants 1, 2, 4 represent a grow and build strategy, quadrants 3, 5, 7 represent a hold and

maintain strategy, and quadrants 6, 8, 9 represent a harvest or divest strategy. If a company lands in a

“grow and build” quadrant, then product development, market penetration, and market development

should be utilized. Also, backward, forward, and horizontal integration should be focused on within

operations. Landing in a “hold and maintain” quadrants suggests strategies of market penetration and

product development. Finally falling into a “harvest or divest” quadrant suggests that retrenchment or

divestiture strategies should be exercised.

To create an I/E matrix for Kraft required getting the weighted average scores for both the EFE

and the IFE matrices. The EFE had a total weighed score of 3.14 and the IFE had a total weighted score of

2.57. These numbers were placed on their respective axis on the I/E matrix and the intersection was

found within quadrant two. Quadrant two suggests a grow and build strategy, encompassing the

integration and intensive strategies. Using this information, Kraft could use market penetration to gain

competitive position. This would include using products they already have and are well known, such as

Easy-Mac and Oreo’s, to build new or more advertising in order to increase sales. It would require

allocating more funds towards existing items, but would add new elements such as logos and or slogans

to rejuvenate the products image among consumers. Kraft could also try new ventures through product

and market development. Product development would add new products to differentiate from

competitors, which has already begun through the creation of the water enhancer MiO. Kraft can and

has used market development by expanding where they sell their products, moving more towards

Kraft Foods Case Report Page 40

Page 41: Kraft Final Document Paper - Print This One!

restaurant services and even European markets. Integration strategies can be used to take control over

major distributors, retailers, or competitors. During the current time period, it appears the Kraft is

accustomed to using horizontal integration, taking control of its competitors. In the past they have taken

control of companies such as Nabisco and Tombstone pizza. The I/E matrix is a good tool to show what a

company like Kraft should do to remain a key player in a respective industry.

Kraft Foods Case Report Page 41

Page 42: Kraft Final Document Paper - Print This One!

Grand Strategy GSM Matrix

Kraft Foods Case Report Page 42

Rapid Market Growth

Strong Competitive

Position

Slow Market Growth

Weak Competitive

Position

Page 43: Kraft Final Document Paper - Print This One!

The Grand Strategy Matrix is based on two evaluative measures, competitive position and

market growth. Kraft Foods is the leader in North America when it comes to the food industry, and the

food processing industry is growing both domestically and internationally. There are new technologies

coming around that the industry needs to look into so that they can continue to expand and keep their

products at the top of their potential. When we were making the Grand Strategy Matrix we found that

because of the market growth and Kraft’s strong competitive position they belong in quadrant one. The

strategies that suggest they use from being in that quadrant are market development, market

penetration, product development, forward integration, backward integration, horizontal integration,

and related diversification. As a result of this matrix we can conclude that the company is in great

strategic position and can even take on some aggressive risks if necessary. Kraft can continue to

concentrate their efforts within the food processing industry by working on their market or on their

products. They are in excellent strategic position and because of that they have a great chance to

continue being successful in the future.

Kraft Foods Case Report Page 43

Page 44: Kraft Final Document Paper - Print This One!

Data Collection Matrix

Kraft Foods Case Report Page 44

Page 45: Kraft Final Document Paper - Print This One!

The data collection matrix is the culmination of all previous matrices created throughout the

examination of Kraft Food. Its purpose is to review the strategies and find which ones repeatedly

appear. It can be a helpful tool in deciding what is being done within a company and what should be

continued in the future.

In the case of Kraft, all of the integration strategies appear consistently along with all of the

intensive strategies. The defensive strategies do rarely occur in the BCG matrix and the SWOT, but

otherwise do not appear anywhere else. This is the same for diversification strategies only appearing in

the SWOT and the GSM matrices. All of that being said, what we have taken from the interpretation of

the decision matrix is that we are suggesting that Kraft use the intensive strategies to formulate and

implement new strategies, which appear in every matrix. This means that Kraft should heavily focus on

market development, product development, and market penetration. They have and still push to release

products in new markets in North America, but more recently globally. To compete with global

companies such as Nestlé, this is essential. It could help to increase profits, as well as an enhanced

public image. Kraft also is constantly making new products, along with making current products better.

This is a way to stand out and say that they have the best and most innovative food products in the

industry. It is important to Kraft to remain strong and show that they will continue the push to continue

to grow.

All of these efforts require intensive efforts by a company to increase competitive position

within an industry. The data collection matrix reaffirms that this is what Kraft is doing and what works

for the company. It ties up all of the loose ends and draws a viable conclusion quickly and fairly easily

with accurate data.

Kraft Foods Case Report Page 45

Page 46: Kraft Final Document Paper - Print This One!

Quantitative Strategic Planning QSPM Matrix STRATEGIC ALTERNATIVES

1 2

Market Penetration Product DevelopmentUse customer loyalty and diverse range of products

to increase sales to restaurants.Create new organic products to add

to existing product lines.

Key Factors Weight AS TAS AS TAS

Opportunities 1. U.S. sales of organic food and beverage have increased from $1 billion (1990) to $26.7 billion (2009). 0.08 1 0.08 4 0.322. Food manufactures have experienced an increase in sales due to a higher number of people dining out. 0.10 4 0.4 2 0.2

3. Women are becoming more common in upper management (11.2% in 1995 to 16.4% in 2005). 0.06 ― ―

4. Baked goods prices increased 10.7% compared to 2008. 0.03 ― ―

5. Increased trends of flavor enhancer for bottled water . 0.13 ― ― 6. Growing environmental consensus. 0.06 1 0.06 4 0.247. Increased demand for packaged and processed foods around the world due to change in lifestyles . 0.07 1 0.07 4 0.28

Threats 1. Increasing obesity rates in North America. 0.03 1 0.03 4 0.122. Due to a weak economy and increased competition, the food processing industry saw a work force reduction on average of 7.5% in 2009. 0.04 ― ― 3. Rising costs of petroleum cause an increase in cost for food companies. 0.05 2 0.1 1 0.054. Difficult to differentiate product pricing between competitors in the food processing industry. 0.04 ― ― 5. Customers switching to generic brands. 0.09 2 0.18 1 0.09

6. Increased intensity between competitors in European as well as other Markets. 0.07 ― ― 7. North American competition is now primarily focused on the food Industry. 0.13 3 0.39 4 0.52

8. Declining value of the dollar with an increasing value of the Euro. 0.02 ― ―

Strengths 1. Positive sales growth and operating effectively in all 5 operating segments; Snacks, Beverages, Cheese, Grocery, Convenient Meals. 0.06 2 0.12 3 0.18

2. High priority and standards on food safety. 0.06 ― ― 3. Diverse range of brands and products. 0.08 2 0.16 4 0.32

4. Strong focus on R&D. 0.08 ― ― 5. Sales increased by 2.9% in North American markets. 0.04 2 0.08 4 0.166. Strong reputation and perceived value among customers. 0.12 2 0.24 3 0.367. Organic revenue increased by 2.3% in first quarter 2009. 0.07 1 0.07 4 0.28

Weaknesses

1. Possibility of perceived weakness from female CEO in certain foreign markets. 0.02 ― ―

2. Risk of contamination in source products. 0.12 ― ― 3. Sales drop 5.9% in second quarter 2009. 0.08 2 0.16 3 0.24

4. High amount of goodwill - over $27.5 billion. 0.07 ― ― 5. $18.5 billion in long-term debt - increased about 50% in 2008 from 2007. 0.07 ― ― 6. Difficulty launching new brands. 0.09 1 0.09 4 0.36

7. Margins depend on commodity prices. 0.04 ― ―

Kraft Foods Case Report Page 46

Page 47: Kraft Final Document Paper - Print This One!

Total 2.23 3.72

Our team developed a Quantitative Strategic Planning Matrix (QSPM) to determine the most

effective alternative strategy for Kraft Foods. To develop this matrix, we selected two strategies taken

directly from the SWOT Matrix that we felt Kraft should consider implementing and listed the key

external and internal factors taken directly from the EFE and IFE that related to both of those strategies.

The strategies that we selected were to create new organic products to add to the product line, and to

use customer loyalty to increase market share in the restaurant industry. After examining each factor,

we were able to determine which ones would affect the choice of the strategies being made, and from

there we determined the Attractiveness Score to indicate the relative attractiveness of each strategy in

the set of alternatives. Scores ranged from 1 through 4; 1 meaning not attractive, 2 showing there were

somewhat attractive, 3 meaning reasonably attractive, and 4 indicating there were highly attractive.

Each factor’s weight was multiplied by the Attractiveness Score to come up with the Total Attractiveness

Scores. By summing the Total Attractiveness Scores in each strategy column of the QSPM, we were able

to determine which alternative strategy would be best for Kraft to implement.

The U.S sales of organic food and beverage have increased from $1 billion in 1990 to $26.7

billion in 2009. There is much opportunity in the rapid growing organic food market that Kraft can

exploit by creating new organic products. More opportunities that would best be taken advantage of by

this strategy would be the growing environmental consensus and the increased demand for packaged

and processed foods around the world due to a change in lifestyle. People are purchasing packaged

foods more often now and are taking environmental factors in to consideration that affects their

purchasing decision. However, using Kraft’s customer loyalty to increase their market share in the

restaurant industry is the strategy that would be most attractive for exploiting the opportunity in food

manufactures experiencing an increase in sales due to more people going out to eat.

Kraft Foods Case Report Page 47

Page 48: Kraft Final Document Paper - Print This One!

A major threat in Kraft’s industry is the increasing obesity rates in North America. The strategy

that is most attractive to avoiding this threat is to create new organic products to add to the product

line. By redesigning current products to be more organic and healthy, Kraft can avoid the accusation of

contributing to these growing obesity rates. Implementing this strategy can also avoid the threat of

North American competition primarily focusing on the food industry. With competition putting more

emphasis on food, it is important that Kraft stays ahead of them by continually developing the latest and

trendiest products. Organic and healthy foods are a current and growing trend.

One of Kraft’s internal strengths that can be capitalized on by creating new organic products is

the company’s diverse range of brands and products. An organic line of the pre-existing products as

well as new products would be a great way to diversify their brands and products even further. Another

one of Kraft’s internal strengths that is relevant to this strategy is the 2.3% increase of organic revenue

in the first quarter of 2009. This shows that people are taking a higher interest in Kraft’s organic foods.

Creating new organic products to add to the product line would be the best strategy to implement to

improve on Kraft’s internal weaknesses. One of the company’s weaknesses includes their difficulty of

launching new brands. It would be easier for Kraft to market a new brand if it was healthy and organic

because of an increase of health conscious consumers. We summed the strategies Total Attractiveness

Scores to determine the best strategy that Kraft should execute. Out of the two strategic alternatives,

creating new organic products to add to the product line received a higher Total Attractiveness Score of

3.68. This product development strategy would be the best choice for Kraft to implement and we agree

with this decision.

Kraft Foods Case Report Page 48

Page 49: Kraft Final Document Paper - Print This One!

Recommendations

As noted earlier in the external factor evaluation matrix, one of the opportunities was U.S sales

of organic food and beverages have increased from $1 billion (1990) to $26.7 billion (2009). We believe

that Kraft should focus on this portion of the industry and develop products that cater to the organic

market. Taking out all of the preservatives, taking down the high salt levels and saturated fat would be

ideal for their company’s sales as well as their consumers hearts. Another recommendation that we felt

dealt with the same thing, but felt the way that the organic line is introduced is key. Kraft has many

brands that stand alone. Before conducting this case, we weren’t, as knowledgeable to how many

brands were actually owned by Kraft, so a recommendation would be to introduce the organic line of

foods actually under the Kraft name. Another recommendation would be to decrease salt levels in the

food. “Salt and sodium are not the same. Often, we use the terms interchangeably, but only 40% of salt

is made up of sodium. The other 60% is chloride. Salt (sodium chloride) is the major contributor of

sodium in our diets” (Kraft.com). Sodium is essential for good health and life itself. We need to eat a

small amount of sodium because the body cannot manufacture this mineral.

Kraft Foods Case Report Page 49

Page 50: Kraft Final Document Paper - Print This One!

Epilogue

Community Involvement

An ongoing commitment of Kraft’s is to fight hunger and encourage a healthy lifestyle. Volunteers from

56 different countries came together for a week in October of 2010 called “Delicious Difference Week”

to plant gardens in the communities, build playgrounds, serve meals to the hungry and help at the local

food banks. In June 2011, in partnership with Feeding America, Kraft Food Foundation pledged 180

million dollars over three years to get more food- and better nutrition to children and families through

the Kraft Foods Mobile Pantry. This is a fleet of 25 refrigerated trucks they call “farmers market on

wheels” that brings dairy products, fresh produce like lettuce and greens. They also provided their world

famous Kraft Macaroni and Cheese and Oscar Meyer meats. Fifty million pounds of food will be

delivered in the three years.

Sustainability

Sustainability is about conducting business in a way that is environmentally, socially and economically

responsible. The world’s population is putting a strain on the population. Starting in 2010 as a 5 year

plan, Kraft Foods is revising its environmental management system to consistent standards in all its

facilities. They are also working with farmers that are certified, producing sustainably grown

ingredients. Certification addresses’ the social, economic and environmental standards that farmers

must meet. Examples include reductions in water pollution, soil erosion and excessive pesticide use. In

finding ways to meet the need to use less water, carbon and land, Kraft Foods is partnering with World

Wildlife Fund, US and other peers.

Kraft Foods Case Report Page 50

Page 51: Kraft Final Document Paper - Print This One!

Acquisitions

In January 2010 Kraft acquired the British chocolate making company Cadbury for $19 billion. Cadbury

at first did not want a takeover from anyone because of its 186 year old history as a British company.

The thought of an American multinational company wasn’t received well by the people in Britain. The

good news for Kraft in this deal was Cadbury has such a good brand name they could now further their

reach in the gum and candy markets. Irene Rosenfeld, Kraft’s CEO said “It transforms the portfolio,

accelerates long-term growth and delivers highly attractive returns” (www.nytimes.com). While Kraft

was thinking that it had a good deal going forward, a British newspaper ran a campaign to keep Cadbury

a British company. The idea that Cadbury was going to be taken over by an American company still

wasn’t sticking too well in Britain. Kraft said they were going to keep a strong presence in Britain to

keep the company affiliation within the country. Although Kraft did end up spending around $19 billion

on this acquisition they would end up paying 500 pence cash and offer 1874 new Kraft shares to existing

Cadbury shareholders, which amounts to approximately $13.80 for each Cadbury share.

On October 20, 2011, Kraft CEO Irene Rosenfeld was at a ribbon cutting ceremony in Saclay, France for

the opening of Kraft’s new European Biscuit Research and Development Centre. This is a year after Kraft

had acquired the British company Cadbury. Kraft’s Biscuit Research and Development Centre will

develop products such as LU, belVita, Oreo, Mikado, Prince, Saiwa, and TUC. In Europe a biscuit is what

Americans would call a cookie or cracker. This new R&D center represents the final movement of a two

year project that is worth $20 million. This investment in Biscuit Research and Development shows that

Kraft is looking at snack related innovations towards a healthier lifestyle for people around the world.

Kraft Foods Case Report Page 51

Page 52: Kraft Final Document Paper - Print This One!

Citations

Food Tech. "IFT." IFT.org. Institute of Food Technologists, 19 July 2008. Web. 07 Dec. 2011.

<http://www.ift.org/food-technology/daily-news/2011/october/24/kraft-foods-opens-new->.

Merced, Michael J. "NY Times Advertisement." The New York Times - Breaking News, World News &

Multimedia. Chris V. Ncholson, 19 Jan. 2010. Web. 07 Dec. 2011.

<http://www.nytimes.com/2010/01/20/business/global/20kraft.html>.

Kraft Foods Inc. "Delicious World." Welcome. Kraft Foods Inc., 01 Jan. 2008. Web. 01 Dec. 2011.

<http://www.kraftfoodscompany.com/DeliciousWorld/index.aspx>.

Kraft Foods Inc. "Corporate Information." Welcome. Kraft Foods Inc., 25 July 2011. Web. 07 Dec.

2011. <http://www.kraftfoodscompany.com/welcome.aspx>.

Nestle Corp. "2009 Annual Statement." Home | Nestlé Global. Nestle Corp., 31 Dec. 2009. Web. 07 Dec. 2011. <http://www.nestle.com/Pages/Nestle.aspx>.

David, Fred R. Strategic Management: Concepts. Upper Saddle River, NJ: Pearson Prentice Hall, 2007. Print.

Kraft Foods Case Report Page 52