Kraft Foods, Inc.

Company Profile

Publication Date: 25 Mar 2010

www.datamonitor.com
Europe, Middle East & Africa Americas Asia Pacific
119 Farringdon Road 245 5th Avenue Level 46
London 4th Floor 2 Park Street
EC1R 3DA New York, NY 10016 Sydney, NSW 2000
United Kingdom USA Australia

t: +44 20 7551 9000 t: +1 212 686 7400 t: +61 2 8705 6900

f: +44 20 7551 9090 f: +1 212 686 2626 f: +61 2 8088 7405
e: euroinfo@datamonitor.com e: usinfo@datamonitor.com e: apinfo@datamonitor.com
Kraft Foods, Inc.

ABOUT DATAMONITOR

Datamonitor is a leading business information company specializing in industry analysis.

Through its proprietary databases and wealth of expertise, Datamonitor provides clients with unbiased
expert analysis and in depth forecasts for six industry sectors: Healthcare, Technology, Automotive,
Energy, Consumer Markets, and Financial Services.

The company also advises clients on the impact that new technology and eCommerce will have on
their businesses. Datamonitor maintains its headquarters in London, and regional offices in New
York, Frankfurt, and Hong Kong. The company serves the world's largest 5000 companies.

Datamonitor's premium reports are based on primary research with industry panels and consumers.
We gather information on market segmentation, market growth and pricing, competitors and products.
Our experts then interpret this data to produce detailed forecasts and actionable recommendations,
helping you create new business opportunities and ideas.

Our series of company, industry and country profiles complements our premium products, providing
top-level information on 10,000 companies, 2,500 industries and 50 countries. While they do not
contain the highly detailed breakdowns found in premium reports, profiles give you the most important
qualitative and quantitative summary information you need - including predictions and forecasts.

All Rights Reserved.

No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic,
mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, Datamonitor plc.
The facts of this profile are believed to be correct at the time of publication but cannot be guaranteed. Please note that the
findings, conclusions and recommendations that Datamonitor delivers will be based on information gathered in good faith
from both primary and secondary sources, whose accuracy we are not always in a position to guarantee. As such Datamonitor
can accept no liability whatever for actions taken based on any information that may subsequently prove to be incorrect.

Kraft Foods, Inc. Page 2

© Datamonitor
Kraft Foods, Inc.
TABLE OF CONTENTS

TABLE OF CONTENTS

Company Overview..............................................................................................4
Key Facts...............................................................................................................4
SWOT Analysis.....................................................................................................5

Kraft Foods, Inc. Page 3

© Datamonitor
Kraft Foods, Inc.
Company Overview

COMPANY OVERVIEW

Kraft Foods (Kraft) is engaged in the manufacturing and marketing of packaged food and beverages.
Kraft has manufacturing operations in 70 countries and sells its products in more than 160 countries.
The company primarily operates in the US. It is headquartered in Northfield, Illinois and employs
97,000 people.

The company recorded revenues of $40,386 million during the financial year ended December 2009
(FY2009), a decrease of 3.7% compared to FY2008. This is primarily because of the volume declines
across all its reportable segments, except US Beverages and US Convenient Meals, The operating
profit of the company was $5,524 million during FY2009, an increase of 43.7% over FY2008. The
net profit was $3,021 million in FY2009, an increase of 4.8% over FY2008.

KEY FACTS

Head Office Kraft Foods, Inc.

Three Lakes Drive
Northfield
Illinois 60093
USA
Phone 1 847 646 2000
Fax 1 847 646 6005
Web Address http://www.kraft.com
Revenue / turnover 40,386.0
(USD Mn)
Financial Year End December
Employees 97,000
New York Stock KFT
Exchange Ticker

Kraft Foods, Inc. Page 4

© Datamonitor
Kraft Foods, Inc.
SWOT Analysis

SWOT ANALYSIS

Kraft is a holding company engaged in the business of manufacturing and marketing branded food
and beverages. Kraft is the world's second-largest food and beverage company with operations in
over 160 countries worldwide. Strong brand image gives Kraft's products a powerful brand recall
and enables the company to command a premium for its products. However, increasing competition
fuelled by industry consolidation could adversely affect the company's revenues.

Strengths Weaknesses

Diversified product portfolio with strong Unfunded employee post retirement benefits
brand image Increased debt equity burden
Focus on research and development
Strong distribution network
Strong focus on environmental issues

Opportunities Threats

Acquisition of Cadbury Dampened consumer demand

Growing demand for 'health and wellness' Intense competition
products and services Increasing labor costs
Growing global confectionary and savory
snacks markets

Strengths

Diversified product portfolio with strong brand image

Kraft Foods operates diversified product portfolio. The company operates through five core divisions
and each of them accounts for significant amount of sales. The product categories of the company
include: snacks (37.2% of the total revenues during FY2009), beverages (19.9%), cheese (16.8%),
grocery (10.1%) and convenient meals (16%).

The company also has a strong brand image in both of its domestic and international markets. Its
brands include Kraft, Jacobs, Philadelphia, Maxwell House, Nabisco, Oscar Mayer and Post. The
company has nine key brands with revenues exceeding $1,000 million: Kraft cheeses, dinners and
dressings; Oscar Mayer meats; Philadelphia cream cheese; Maxwell House and Jacobs coffee;
Nabisco cookies and crackers and its Oreo cookie brand; Milka chocolates; and LU biscuits. Kraft
also has more than 50 brands with revenues of at least $100 million. The company's brands enjoy
popularity, which only a few other companies are able to replicate.

Kraft Foods, Inc. Page 5

© Datamonitor
Kraft Foods, Inc.
SWOT Analysis

Additionally, the company's Toblerone brand received a Gold Quill award from the International
Association of Business Communicators and a two Anvil Awards from the Public Relations Society
of the Philippines for the brand's National Thank You Day program in Manila. Its Philadelphia brand
won a Global Effie Award from the American Marketing Association (AMA) for the 'A Little Taste of
Heaven' campaign. Strong brand image gives Kraft's products a powerful brand recall and enables
the company to command a premium for its products.

Focus on research and development

The company has been strongly focusing on research and development (R&D) over the past few
years. The company's research and development expense was $477 million in FY2009, $498 million
in FY2008, and $447 million in FY2007. The company has more than 2,300 food scientists, chemists
and engineers working primarily in six key technology centers: East Hanover, New Jersey; Glenview,
Illinois; Tarrytown, New York; Banbury, the UK; Paris, France; and Munich, Germany. These
technology centers are equipped with pilot plants and state-of-the-art instruments. The company
has a total of 11 R&D centers.

Additionally in November 2009, Kraft Foods announced its plans to invest E15 million ($20 million)
in constructing a new Biscuit Research & Development (R&D) Center in Saclay, France. Further,
the company is also creating a pipeline of new product platforms like Cakesters and Deli Creations
and reinventing iconic brands like Philadelphia, Oreo, Kool-Aid and Oscar Mayer. The company's
focus in R&D facilitates development of new products and enhancements to existing products that
helps in maintaining a strong market position.

Strong distribution network

Kraft's multi-category distribution and consumer awareness are its primary strengths. The distribution
function at Kraft currently encompasses two distinct operations and organized around varying
go-to-market strategies: warehouse delivery and direct store delivery. The company primarily follows
warehouse form of delivery in North America, and distributes its biscuits and frozen pizza products
through two direct-store-delivery systems.

Kraft's distribution facilities consist of 313 distribution centers and depots worldwide. In North America,
the company has 298 distribution centers and depots, more than 75% of which support the direct
store delivery systems. Outside North America, the company has 15 distribution centers in 10
countries. Further, the company supports the selling efforts through three principal activities: consumer
advertising in broadcast, prints, outdoor and on-line media; consumer incentives such as coupons
and contests; and trade promotions to support price features, displays and other merchandising. A
strong distribution network enables the company to manage its inventory in an efficient manner.

Strong focus on environmental issues

Kraft Foods maintains strong focus on environmental related issues. As an indication of its strong
focus on sustainable issues, the company has been named to the Dow Jones Sustainability Index
– last five years in a row on the North America Index and four years running on the World Index.

Kraft Foods, Inc. Page 6

© Datamonitor
Kraft Foods, Inc.
SWOT Analysis

The company has been reducing the environmental impact of its own factories preventing pollution
and promoting the sustainability of the natural resources. For instance, the company is working on
the reduction of CO2 from all its operating sites.

Further, the company sources all its key agricultural raw materials like coffee, cocoa, cashews,
sugar, dairy products, wheat and vegetable oil on a sustainable basis. Through its Sustainable
Program, the company plans to cover criteria such as reducing fertilizer and pesticide use, conserving
water, promoting biodiversity and using less energy.The strong focus on environmental issues would
foster strong relationships with its suppliers and also improves its brand image.

Weaknesses

Unfunded employee post retirement benefits

The company provides pension benefits and other post-retirement health and life insurance benefits
to employees. During FY2009, the group incurred a total of $535 million for the pension and post
retirement benefit expenses. The group also paid a total of $583 million for the pension and post
retirement benefit plans during FY2008.

At the end of December 2009, the company’s projected pension and post-retirement benefit obligations
stood at $10,596 million (58.5% of these are for US plans) as compared to the planned assets of
$8,893 million, resulting in an unfunded status of $1,703 million, representing 56.4% of the group’s
net profit in FY2009. Sizeable unfunded post retirement benefits would force the group to make
periodic cash contributions towards bridging the gap, which would reduce cash available for growth
plans.

Increased debt equity burden

The company’s debt burden has significantly increased because of the Cadbury acquisition. As of
December 31, 2009, the total debt outstanding for the company stood $18,990 million, as compared
to the EBITA of $5,556 million. This represented a debt/EBITDA of 3 times. After the acquisition of
Kraft, the company’s total interest bearing debt increased to around 33 billion, indicating a debt/EBITA
of around 4 times, indicating higher debt leverage. In order to bride the gap, the company has taken
other measures. For instance, the company plans to use the proceeds of $2.5 billion from the
divesture of its frozen pizza business in North America, towards reducing the debt. Though the
company plans to initiate other measures to curtail the amount of debt level, still it will be a concern
for the company’s solvency and liquidity position. A high debt ratio would result in a lowered credit
rating and hamper its additional debt raising capability.

Opportunities

Acquisition of Cadbury

Kraft Foods, Inc. Page 7

© Datamonitor
Kraft Foods, Inc.
SWOT Analysis

Kraft foods acquired Cadbury to expand its snacks and confectionary business. In July 2009, Kraft
Foods made a proposal with Cadbury to combine the two companies. The Board of Cadbury has
rejected this proposal. But in November 2009, Kraft Foods revised its offer to acquire Cadbury and
got competition clearance from US government in the next month. Finally in January 2010, the British
candy maker Cadbury recommended to its shareholders Kraft's improved takeover offer worth $19.4
billion, ending a months-long corporate battle to create the world's largest maker of chocolate and
sweets.

The combined company is targeting a long-term organic net revenue growth of 5%. Further, the
combination of Kraft Foods and Cadbury is expected to provide potential revenue synergies in
distribution, marketing and product development. On a combined basis, Kraft could register a pre-tax
cost savings of around $675 million annually by the end of 2012. Further, Kraft's packaged food
market share in all regions is significantly higher than Cadbury's. While in confectionery business,
Cadbury has a significant lead over Kraft, except in Eastern Europe. With this acquisition, Kraft
would gain a leading position in many core emerging markets in Latin America, the Middle East and
Africa and Asia-Pacific. Thus, the combination of Kraft Foods and Cadbury would create a global
powerhouse in snacks, confectionery and quick meals with a rich portfolio of iconic brands.

Growing demand for 'health and wellness' products and services

Consumers across the US are showing increased preference for fat-free and healthy food products.
Food items containing trans-fat are losing market share to low calorie, low fat products as trans-fat
is linked to cardiovascular diseases. Keeping this in mind, Kraft is tapping into people's growing
health and wellness concerns by improving the nutritional profile of its snacks portfolio. It has reduced
or eliminated trans-fat in most of its products; introduced whole-grain versions of snacks including
100% Whole Grain Fig Newtons cookies and 100% Whole Grain Wheat Thins crackers. Kraft Foods
reformulated fat-free cookies by launching low-fat Oreo; and Nabisco 100 Calorie Packs.

As part of its health and wellness strategies, Kraft is focusing on four key opportunity areas that
meet consumer needs: weight management, nutrient delivery, performance nutrition, and natural
and organic. The company reduced the sodium in many of its products, including Oscar Mayer Oven
Roasted White Turkey, Dairylea, regular Triscuit crackers and Triscuit Hint of Sale. For weight
management health concern the company launched the South Beach Living line in the US. With a
traditionally strong investment in R&D and a new line of low-fat products, the company is in a strong
position to capitalize on the rising demand for healthy food.

Growing global confectionary and savory snacks markets

The confectionary and savory snacks markets are witnessing significant growth in the global market.
The global confectionary market is anticipated at CAGR of 2.9% for the five-year period 2008-2013,
to lead the market to a value of $147.7 billion by the end of 2013. Similarly, the global savory snacks
market is expected to reach a value of $76.3 billion by the end of 2013, at a CAGR of 4.5% over
2008–13. Kraft Foods is one of the leading players in the respective markets. Further, the company
is focusing on growth categories to transform into a leading snack, confectionery and quick meals

Kraft Foods, Inc. Page 8

© Datamonitor
Kraft Foods, Inc.
SWOT Analysis

company. Therefore, the company is likely to benefit from its significant presence in the growing
market conditions for confectionary and savory snacks.

Threats

Dampened consumer demand

Kraft Food’s business is dependent on continuing consumer demand for its products and brands.
The economic downturn adversely impacted its business by reducing the demand for some of its
products. The current economic climate is forcing shoppers to watch their expense and look for
cheaper options of discounted brands or own label merchandise. Branded goods suppliers like Kraft
are facing pressure from the big retail chains like Tesco. These big retailers, for sustaining their
revenue growths and margins, are promoting their own-labels. Further, the economic conditions are
exploiting the price volatility for commodities, which is a significant challenge for the companies like
Kraft. The dent in the disposable income of consumers caused by the global economic slowdown
is making it increasingly difficult for branded product manufacturers like Kraft Foods to maintain their
sales volume and revenue growth.

Intense competition

The food industry is highly competitive. Kraft faces fierce competition in all its segments from large
national and international companies and numerous local and regional companies. The company
faces stiff competition from Nestle and Groupe Danone in its key markets. Nestle is one of the leading
producers of food products in North America and Europe, both key markets for Kraft. The company
also faces competition from other major players such as Campbell Soup Company, ConAgra Foods,
H.J. Heinz, Hershey Foods, Kellogg Company, Sara Lee and Clorox. Further, the products of Kraft
North America Commercial and Kraft International Commercial also compete with generic products
and private-label products of food retailers, wholesalers and cooperatives. Increasing competition
could adversely affect Kraft Food’s market share and margins.

Increasing labor costs

In recent years, the labor costs are rising in the US and the UK. Because of this, the governments
mandated increase in minimum wages resulting in an increase in labor costs. For instance, the
federal minimum wage provisions are contained in the Fair Labor Standards Act (FLSA). The federal
minimum wage rate in the US, which remained at $5.15 per hour since 1997 reached $6.55 per hour
in July 2008, and further increased to $7.25 per hour in July 2009. The minimum wage in the US is
expected to increase further in 2010. Similarly, In the UK, the national minimum wage was increased
to £5.8 (approximately $9.4) in October 2009. In the UK, the minimum wage had gone up by 60%
since the government introduced the minimum wage policy in 1999. The company employs around
97,000 employees worldwide, with majority of them in the US and Europe. The increased labor costs
increase the company's operational costs and affect its profit margins.

Kraft Foods, Inc. Page 9

© Datamonitor
Copyright of Kraft Foods, Inc. SWOT Analysis is the property of Datamonitor Plc and its content may not be
copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written
permission. However, users may print, download, or email articles for individual use.