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KRAFT FOODS BY: AHMOAD WARE

Table Of Contents External Environment Analysis.........................................................1 Industry Description..........................................................................1-2 Key Success Factors..........................................................................2-3 Economic Conditions........................................................................3-4 Competitive Environment/Rivals......................................................4-5 Five Forces/Attractiveness..................................................................5-8 Driving Force....................................................................................8-12 References.........................................................................................13 Appendix............................................................................................14-21

External Environment Analysis

KRAFT FOODS BY: AHMOAD WARE

Kraft Foods Inc is a food processing/global snacks behemoth with a high consumer friendly portfolio of products reaching approximately 170 countries boasting about $49.2 billion in total revenues. Despite their astounding numbers, Kraft has components within its external environment that are considered strategically relevant factors. The principal component that has heavily influenced Kraft Foods as well as most of the food processing industry have been social forces dealing with lifestyle changes, nutrition and fitness, as well eating habits. Industry Description Food processing is the set of methods and techniques used to transform raw ingredients into food or to transform food into other forms for consumption by humans or animals either in the home or by the food processing industry. Food processing typically takes clean, harvested crops or butchered animal products and uses these to produce attractive, marketable and often long shelf-life food products. In western Europe and North America, the second half of the 20th century witnessed a rise in the pursuit of convenience. Food processing companies marketed their products especially towards middle-class working wives and mothers. Frozen foods (often credited to Clarence Birdseye) found their success in sales of juice concentrates and "TV dinners". Processors utilized the perceived value of time to appeal to the postwar population, and this same appeal contributes to the success of convenience foods today.

Key Success Factors

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Kraft Inc has set their sights on becoming a global snacks powerhouse and unrivaled portfolio of brands people love. The complementary nature of their portfolio is at the heart of the three strategies that will drive their growth:
Delight global snacks consumers. Consumers around the world are pressed for

time and are looking for on-the-go options. Theyre also looking for simple indulgences and healthier options. And theres nothing better than a delicious snack, like LU biscuits, Planters nuts, Trident gums, and Cadbury or Milka chocolates to satisfy those desires.

Unleash the power of our iconic heritage brands. Our iconic heritage brands are

loved by consumers worldwide. Roughly 80 percent of these heritage brands hold number one or number two positions in their respective categories and are household names.

Whether its regional brands, like Philadelphia cream cheese in Europe and Tang powdered beverages in Asia Pacific; or local favorites like, A-1 sauces in

KRAFT FOODS BY: AHMOAD WARE

the US and Vegemite spread in Australia, we make delicious products for billions of consumers every day.

Create a performance-driven, values-led organization. To win in the market, we

need to win with our customers and consumers, and with our colleagues, communities and suppliers. Well do this by living our values: 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.

Economic Conditions Although the general economic condition is one that is within a weakened state, consumers have relished in Kraft products and other processed foods during these financially binding times due to convenience and affordable pricing. Although unemployment has increased during the past several years the net revenues for Kraft has continued to increase ranging from $40.5 billion in 2008 to $49.2 billion in 2010. These numbers make it unequivocally clear that amidst a financial turmoil, that consumer purchases in the processed foods industry have increased.

Competitive Environment/Key Competitors Kraft [NYSE: KFT] has a number of competitors within the food processing industry. Kraft spans across 170 countries which breaks down as 49% USA, 23% Europe,

KRAFT FOODS BY: AHMOAD WARE

and 28% within developing markets. With reach of that nature, competition is for certain. The direct competitors of Kraft are: Nestle, and Tyson Foods. Nestle is one of the world's leading Nutrition, Health and Wellness companies. Their mission of "Good Food, Good Life" is to provide consumers with the best tasting, most nutritious choices in a wide range of food and beverage categories and eating occasions, from morning to night. In 2010, Nestle boasted $10.4 billion in sales with more than 25,000 employees nationwide with 25 manufacturing facilities, 46 distribution centers, and 15 sales offices across the country. Tyson Foods, Inc. [NYSE: TSN], founded in 1935 with headquarters in Springdale, Arkansas, is the world's largest processor and marketer of chicken, beef, and pork, the second-largest food company in the Fortune 500 and a member of the S&P 500. The company produces a wide variety of protein-based and prepared food products and are the recognized market leader in the retail and foodservice markets we serve. Tyson provides products and services to customers throughout the United States and more than 100 countries. Other competitors include, General Mills, ConAgra, Dean Foods, Pepsico Inc., Kellogg Co., Coca-Cola Co., and Anheuser-Busch InBev to name a few. Below you will find other top food processing companies that rival Kraft Foods Inc within the table to the left.

Five Forces Analysis

KRAFT FOODS BY: AHMOAD WARE

In the food processing industry there is high competitive pressures coming from other firms within the industry. Most of the rivals have diversified the products that they offer, which puts them all on the same playing field product wise. Due to having more informed customers, many food companies are diligently working on and offering improved healthier products, with competitors such as Nestle, Tyson, and ConAgra to name a few. Most of the competitors are equal if not in size then in competitive strength, and it also seems that a majority of these companies are also looking to improve consumer health with improved products and also expressing the importance of health/fitness. There are entry barriers within the food processing business. There are high capital requirements necessary in order to start a food processing business. The amount of capital will be determined by the size etc that they are looking for. With behemoths such as Kraft, and Nestle there is high brand loyalty as well as name recognition, since they have been dominant in this realm for quite some time. With that being said a new entrant would need the resources/funding to spend on advertising as well as sales promotion to attempt to overcome the brand loyalty of established companies and build their own customer base. A new entrant would also have to deal with difficulties of building and maintaining a network of distributors as well as the issue of securing space on grocery store shelves due to the once again already established companies. There are a few substitutes that food processing companies such as Kraft must endure. Food processing provides consumers with meals within a small preparation window, which is very convenient for the consumer on the go. However, companies must
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deal with organic foods/home prepared meals as well as restaurants. However, with the huge health trend that most are on now days not only do these companies have to be informed about consumer substitutes, but these companies must also race to meet and satisfy the needs and wants of the general public. With these options in mind it is imperative for a company such as Kraft to invest in improving and making their products more consumer/health friendly. Another vital competitive force which is relevant to the food processing industry is supplier power. Suppliers with potent bargaining power can strip industry profitability away by charging higher prices, and passing costs on to them, as well as limiting their chances to locate better deals. Due to the success that Kraft has been having as well as the high customer satisfaction level, it wouldnt be in their best interest to change suppliers/ingredients since customers have come to love the taste as well as other traits within a particular product. Although changing suppliers wouldnt be an issue for a large company such as Kraft, it wouldnt make sense to do so since they already have a supplier (ingredients) that their consumer base has become used to. Since Kraft has established themselves as one of the brand leaders in the food processing industry, the risk associated with changing food and ingredient suppliers would be extremely high. Customers have been utilizing Kraft products for years and have come to know and love the quality, and the taste that they may have experienced the last time they indulged with some Kraft Foods products. I am a firm believer that if it isnt broke, there isnt a need to fix it. In other words the formula that Kraft has set in place is working well so there isnt a need or want that I can see to change suppliers.
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Looking at the buyers/consumers power they gained leverage due to a wealth of information resources. The more info that buyers have available to them the better they can compare pricing as well as products via the internet. This plethora of consumer information alone is part of the reason that most food processors are migrating toward the production of healthier products in addition to the promotion of healthier lifestyles. Industry Attractiveness After looking at the five forces and how they relate to Kraft (food processors) it is clear of the following: The state of competition in the food processing industry is very strong with a wide variety of companies/rivals in the mix. Although competition is deep, companies can obtain good profitability just as Kraft has done (appendix). In regards to entrance, due to high capital that is needed the entry barriers are somewhat high, which wont allow for new rivals to gain market share. The food processing industry is one that is ideal as far as the competitive environment, the suppliers, and buyers have some say but are considered weak. Overall, the food processing industry when collectively analyzed with the five forces are slightly strong which have allowed for well run companies both larger and smaller to earn moderate profits. Key Driving Force The food processing industry is impacted heavily by lifestyle changes, eating habits, and overall health and nutrition concerns. In this realm it is vital to listen to your consumers/buyers wants and needs, and if you are wise you will provide them with it or another company will.
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KRAFT FOODS BY: AHMOAD WARE

Products: Making the foods people love even better Around the world, people eat and drink about 900 million servings of Kraft foods products every day. that gives us an enormous opportunity to have a positive impact on consumers health and well-being. so our focus is on making our products more nutritious and more wholesome, while still delivering the same delicious taste people have come to expect. Based on what our consumers tell us (Kraft) they want, we focus our efforts on three areas: -foods with less fat, sodium, sugar and calories. -foods with more beneficial ingredients, such as whole grains, fiber, healthier oils and micronutrients. -foods that are simpler: easier-to- understand ingredient lines and fewer artificial ingredients. since 2005, weve reformulated or launched more than 5,500 products that meet one or more of these focus areas. Our goal is to continually grow the number of options in our portfolio that give consumers better choices for healthier and more wholesome foods. its good for consumers and its good for business. Reducing what consumers dont want Much of the worlds population is consuming too much sodium. While sodium reduction isnt new for Kraft foods, in 2010 we began to accelerate our efforts to further reduce it in our products, without compromising taste or safety. this is a tough challenge for the entire food industry, but we feel good about our progress:
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KRAFT FOODS BY: AHMOAD WARE

-in the u.s. and Canada, our largest and most diverse portfolios, we announced plans to cut sodium by an average of 10 percent by 2012 across the portfolio. in 2010 alone, we removed nearly 3 million kilograms (6.5 million pounds) of salt from 340 products. and we plan to reduce sodium in hundreds more products. Kraft has also taken what their consumers have said a step further in regards to health recommendations and labeling of products. Product labeling since 2007, Kraft has provided nutrition labeling on products worldwide. By following the recommendations of the Codex Alimentarius, a set of globally recognized, widely used food standards, Kraft labels provide information on calories plus seven key nutrients where space permits: protein, carbohydrates, sugar, fat, saturated fat, fiber and sodium. On very small packages and others with limited space, we list calories, protein, carbohydrates and total fat, per Codex recommendations. Kraft labels list the amount of each nutrient in a given portion of the product and/or per 100 grams or milliliters, depending on local regulations. in most cases, our labels also include the percentage that each nutrient provides of the recommended daily value (dv), daily intake (DI) or guideline daily amounts (GDAS)or the local equivalent where available.

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Kraft is also pursuing front-of-pack labeling that delivers meaningful information at a glance, and are increasing our front-of-pack labeling around the world. in australia and the Eu, we provide front-of-pack information on calories, based on the percentage of DI and percentage of GDA, respectively. in the u.s., Kraft supports nutrition Keys a frontof-pack program, developed by the Grocery Manufacturers Association and Food Marketing Institute. and in asia Pacific, we are currently exploring front-of-pack options with the broader food industry. Kraft also provides nutrition information online and via toll-free consumer call centers. Our healthy living websites in several countries offer lifestyle tips and recipes and in the u.s., our Good eating, Good living website provides information for people living with diabetes. In closing, Kraft has a strong hold within the industry, and the loyalty of its consumers. Not only are consumers looking for the great taste, but now with todays society being health conscious, it is imperative for Kraft to react accordingly to sustain as well as gain market share within their industry. With Revenues in the billions and most importantly the number #1 global position it is very clear that Kraft Foods Inc, is not only listening to their consumers, but they are putting what they say to use and improving their products as well as the way of life of its consumers (health factors). It is clear that the key driving force in the food processing industry, during todays time is dealing with health and nutrition. The food processing industry is one with high entry barriers, and high rivalry. This industry is an attractive one if you have the capital to start, as you will see in the
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appendix, many companies along with Kraft have made decent profits within this difficult but lucrative realm.

References

Thompson, A., Peteraf, M., Gamble, J., & Strickland III, A. (2012), Crafting & Executing Strategy 18e. McGraw-Hill/Irwin. New York, NY Tyson Foods (2012) Tyson Foods Inc, Retrieved January, 30, 2012 from www.tysonfoods.com
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Nestle (2012) Nestle Inc. Retrieved February, 4, 2012 from www.nestleusa.com Kraft Foods (2012) Kraft Foods Inc, Retrieved February 4, 2012 from www.kraftfoodscompany.com Kraft Foods (2012) Kraft Foods Facebook, Retrieved February 8, 2012 from www.facebook.com/kraftfoodscorporate Kraft Foods (2012) Kraft Responsibility Report, Retrieved February 7, 2012 from www.kraftfoodscompany.com/SiteCollectionDocuments/pdf/kraftfoods_responsibility_re port.pdf Food Processing (2012) Planning for Split, Retrieved February 9, 2012 from www.foodprocessing.com Food Processing Top 100 (2012) Top 100, Retrieved February 11, 2012 from www.foodprocessing.com/top100/index.html Appendix

Kraft Strategies for Growth

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We understand that actions speak louder than words, so at Kraft Foods, we: Inspire trust Act like owners Keep it simple Are open and inclusive Tell it like it is Lead from the head and the heart Discuss, decide, deliver

Create a Performae-Driven, Values-Led Organization


Kraft Foods at a Glance/2010 Consumer Sector Data

Net Revenues in Billions

13.7 confectionery
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10.8 biscuits $ 8.8 beverages $ 7.0 cheese $ 5.0 convenient


$ $

4.0 grocery
Company 2010 Food Sales 35,600 29,600 29,524 2009 Food Sales 22,000 28,000 23,666 2010 Total Company Sales 57,838 105,000 49,207 2010 Net Income* (loss) 6,338 35,000 4,139 2009 Net Income* (Loss) 5,979 10,751 3,028

Percentage of Net Revenues Total $49.2 (Billion) (www.kraftfoodscompany.com)

This Last Year Year 1 2 3 4 1 3

Pepsico Inc. Nestle (U.S. & Canada) Kraft Foods Inc.

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4 5 6 7 8 9 10

2 5 7 6 7 9 10

Tyson Foods 27,293 Inc. (9/27/08) AnheuserBusch InBev JBS USA 15,296 13,342

25,903 15,380 11,000 11,951 11,000 10,000 9,326

28,430 36,297 32,959 14,880 12,123 30,000 12,203

765 5,762 117 1,798 83 NA-Private 521

-551 5,877 65 1,535 228 NA-Private -101

General Mills 12,005 Inc. (5/31/09) Dean Foods Co. Mars Inc. Smithfield Foods Inc. (5/11/11) MillerCoors Kellogg Co. Coca-Cola Co. ConAgra Foods Inc. (5/29/11) Hormel Foods Corp. Cargill Inc. (5/31/11) Dole Food Co. Inc. Pilgrim's Pride Corp. Sara Lee Corp. (7/3/10) Unilever North America Saputo Inc. (3/31/11) Campbell Soup Co. (9/29/10) 11,758 10,500 10,264

11 12 13 14

11 12 13 14

8,818 8,402 8,273 8,002

8,852 8,510 8,191 7,940

8,818 12,397 35,119 12,303

1,057 1,247 11,809 819

859 1,208 6,824 723

15 16 17 18 19

19 20 17 15 16

7,221 7,000 6,893 6,882 6,819

6,534 6,000 6,779 7,088 7,059

7,221 108,000 6,893 6,882 10,793

396 2,600 -30 87 527

343 3,334 84 -152 380

20

18

6,688

6,540

59,311

6,161

5,243

21 22

21 22

6,025 5,675

5,695 5,630

6,025 7,676

451 844

376 736

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23 24

24 23

Hershey Co. Dr Pepper Snapple Group Maple Leaf Foods

5,671 5,636

5,299 5,531

5,671 5,636

510 528

436 555

25 26

25 27

4,968

5,222 4,605

4,968 4,826

26 479

52 494

J.M. 4,826 Smucker Co. (4/3/11) H.J. Heinz 4,679 Co. (4/27/11) Ralcorp Holdings Perdue Farms (3/31/11) 4,049 3,900

27 28 29

26 29 28

4,622 3,892 3,900

10,707 4,049 4,600

1,006 209 NA-Private

882 290 NA-rivate

30 31

30 31

Grupo Bimbo 3,864 Del Monte Foods (5/1/11) Land OLakes Inc. (B2) BrownForman Corp. Agropur Cooperative (10/30/10) Chiquita Procter & Gamble Co. Fortune Brands Inc. Flowers Foods Inc. McCain Foods (6/30/10) 3,666

3,823 3,740

7,197 3,666

341 661

457 244

32

34

3,455

3,208

11,146

178

209

33

33

3,404

3,226

3,404

572

449

34

36

3,345

2,954

3,345

40

33

35 36 37 38 39

32 35 39 38 49

3,22 7 3,135 2,666 2,574 2,555

3,470 3,068 2,470 2,601 1,998

3,227 78,938 7,142 2,574 6,000

57 326 (food only) 488 137 NA-Private

90 269 (food only) 243 130 NA- Private

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40 41 42 43 44 45

37 55 47 50 40 42

Hostess Brands Pinnacle Foods

2,500 2,437

2,700 1,643 2,100 1,887 2,300 2,200

2,500 2,437 2,400 2,382 6,400 2,950

NA-Private 22 NA NA NA-Private NA-Private

NA-Private 303 NA NA NA- Private NA- Private

Borden Dairy 2,400 (3) Parmalat Canada Keystone Foods Rich Products Corp. 2,382 2,300 2,250

46 47 48

42 42 41

Foster Farms 2,200 H.P. Hood Inc. 2,200

2,200 2,200 2,001

2,200 2,200 3,332

NA- Private NA-Private 58

NA-Private NA- Private 99

Constellation 2,088 Brands (2/28/11) Molson Coors Co. (Canada only) (12/25/10) Sanderson Farms TreeHouse Foods Inc. Great Lakes Cheese Co. Schreiber Foods Inc. Schwan Food Co. California Dairies Inc. Associated Milk Producers 1,938

49

54

1,732

3,254

668

723

50 51 52 53 54 55 56

54 63 42 51 53 48 60

1,925 1,817 1,800 1,800 1,750 1,710 1,700

1,790 1,512 2,200 1,800 1,750 2,060 1,400

1,925 1,817 1,800 4,000 3,000 3,000 1,700

135 91 NA- Private NA-Private NA-Private NA NA

82 81 NA-Private NA- Private NA-Private NA NA

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57 58 59 60

57 56 66 72

Weston Foods Canada Bread Co. Seaboard Corp. Prairie Farms Dairy Inc.(9/30/10) The Dannon Co. Inc. Cott Corp. Michael Foods Darigold (3/31/11)

1,624 1,588 1,584 1,504

1,602 1,726 1,208 1,345

32,008 1,588 4,386 1,504

278 (food only) 61 284 NA

117 (food only) 73 92 NA

61 62 63 64 65

67 71 58 61

1,360 1,357 1,300 1,300 1,300

1,200 1,174 1,543 1,300 600

1,360 1,803 1,500 1,300 1,300

NA 58 NA-Private NA NA-Private

NA 82 69 NA NA

New Advance Pierre Foods LLC 59

66

McCormick & 1,223 Co. Inc. (11/30/10) American Crystal Sugar Co. 1,204

1,186

3,337

370

300

67

67

1,200

1,204

526

536

68

67

American 1,200 Foods Group LLC (9/30/10) J. R. Simplot 1,200 Co. (8/31/10) Seneca Foods Inc. (3/31/11) Leprino Foods Co. McKee Foods Corp. OSI Group 1,195

1,200

2,100

NA-Private

NA- Private

69 70

67 62

1,200 1,280

4,500 1,195

NA-Private 18

NA- Private 48

71 72 73

65 74 74

1,125 1,100 1,100

1,250 1,000 1,000

2,150 1,100 4,500

NA-Private NA-Private NA-Private

NA- Private NA-Private NA-Private

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74

46

ColgatePalmolive Co. Foremost Farms USA Hilmar Cheese Riceland Foods Wells Enteprises Inc. Snyder'sLance Inc. Dairy Farmers of America (2) Imperial Sugar Co. (9/30/10)

1,025

1,071

15,564

2,203

2,291

75 76 77 78

73 74 63 74

1,000 1,000 1,000 1,000

900 1,100 1,000 1,000

1,372 1,300 1,300 1,000

25 NA NA NA-Private

22 NA NA NA-Private

79 80

79 86

980 927

918 705

980 9,800

3 44

36 66

81

96

908

523

908

137

-24

82

80

Lancaster 893 Colony Corp. (6/30/10) Sunkist Growers (10/31/10) Gilster-Mary Lee Corp. Lactalis USA Inc./Sorrento Agri-Mark The Hain Celestial Group Inc. Sargento Foods Inc. (6/30/10) Reser's Fine Foods 874

910

1,057

115

89

83

85

729

1,013

789

659

84 85 86 87

82 84 90 81

850 800 781 724

875 660 655 898

850 800 781 917

NA-Private NA 11 27

NA-Private NA 15 -25

88

84

700

750

900

NA-Private

NA-Private

89

86

700

700

700

NA-Private

NA-Private

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90

91

J&J Snack Foods Corp. (9/25/10)

697

653

697

48

41

91 92

88 89

Malt-O- Meal 690 National Grape Cooperative 659

697 673

690 659

NA-Private 27

NA-Private 81

93 94

New Diamond Foods Inc. 97 CROPP Cooperative/ Organic Valley John B. Sanfilippo & Son Inc. (6/24/10)

642 619

536 520

680 619

26 NA

24 NA

95

93

562

554

562

14

96 97 98 99 100

94 94

Golden State 560 Foods Gorton's Inc. 560 525 513 505

550 550 500 501 505

4,000 560 525 513 1,300

NA-Private NA NA-Private 32 NA-Private

NA-Private NA NA-Private 17 NA-Private

New Ruiz Foods 100 99 B & G Foods Inc. Goya Foods Inc.

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