Category: Analysis

Executive Summary

Kraft Foods Inc. is one of the most successful and recognized companies in the food market. The goal of this paper is to present the results of the internal analysis of Kraft Foods Inc. The paper also includes a brief SWOT analysis of the company and creates a complete picture of the internal and environmental challenges facing the company. The history of Kraft Foods Inc. extends to more than 100 years, but even its numerous achievements do not secure the company from various internal threats. The results of the internal analysis show that the company's chief internal strength is its commitment to product diversity. Innovations and product development greatly contribute to Kraft's competitiveness in the food market. At the same time, the company keeps relying on large buyers, which weaken its strategic position. The company does not have too many growth opportunities in the home market, thus spending excessive resources on marketing and advertising to promote the existing and new brands.

Introduction

Kraft Foods Inc. is one of the biggest and most prosperous companies in the food industry. It is well-known for the growing diversity of its products and a strong commitment to continuous innovations and product development. The company has developed and announced a set of sustainability goals that are to be achieved by 2015. Even the growing intensity of market competition does not keep Kraft Foods from achieving its most ambitious goals. Yet, nothing is perfect, and Kraft Foods Inc. is no exception to this rule. The company cannot always comply with the rapidly changing demands of customers, while the costs of switching to competitors' products remain extremely low. These internal weaknesses greatly contribute to the difficulties faced by the company in its external environment but, even then, Kraft Foods Inc. has enough opportunities for continued development and growth. The goal of this paper is to present the results of the internal analysis of Kraft Foods Inc., followed by a brief SWOT analysis. The paper will create a complete picture of the challenging market environment and guide Kraft Foods Inc. on its way towards sustained competition and growth.

Background Information

The history of Kraft Foods lasts for more than 100 years, and it is not surprising that the company enjoys such a strong competitive position in the food market. The number of the corporate brands constantly grows. Just recently, the company has announced the delivery of the popular Mac & Cheese products that have no colorants or are naturally colored (Kraft, 2013). This is just one of the many examples of Kraft's commitment to product diversity and development. At the same time, the company has announced that its revenues in the first quarter of 2013 grew at least 2.1% (Kraft, 2013). The company enjoys improved cash flow performance and a very favorable cost management mix (Kraft, 2013). All these results create a picture of success that cannot cloud even the most serious problems facing Kraft Foods in the food market.

Internal Analysis

Internal Strengths

At present, the company enjoys numerous internal strengths, which render its strategies and decisions as more competitive and effective. Basically, Kraft Foods Inc. is known for its outstanding commitment to product diversity. The product portfolio of Kraft Foods Inc. can satisfy the most demanding customer, and its established channels of distribution, including large supermarket chains, guarantee strongly high demand for its products. Additionally, Kraft has one of the most recognized brands in the food industry, while its decisiveness to discard the unprofitable manufacturing segments deserves particular attention. Economies of scale add to the internal benefits experienced by the company, while its geographic coverage has always been a matter of competitors' envy. At present, the company is focused on expanding to the emerging markets, which should also be regarded as one of its internal strengths. According to Ahmed (2012), Kraft expects that, very soon, 44 percent of the company's revenues will come from the emerging markets.

Among others, it is the company's strong reliance on innovations and product development that makes it so internally strong. Today, Kraft speaks about the three years spent on innovations and growth and its readiness to pursue a growth strategy in the coming years (Goudreau, 2013). The company has focused on quality again, while low investments predetermined Kraft's strategic and tactical failures (Watrous, 2013). Today, Kraft Foods Inc. is ready to fight to restore its competitive position under the consumer food market's sun. "Innovation will be one of the pillars of the new Kraft; it has gone from one of our biggest weaknesses to one of our biggest strengths" (Watrous, 2013).

Internal Weaknesses

Unfortunately, what seems to be the company's internal strength can readily turn into its greatest weakness. In this sense, the company's excessive reliance on big buyers makes its strategic position rather weak. In the past, Kraft Foods Inc. was quite unsuccessful in its striving to reduce the buying power of Wal-Mart and other large clients. Today, the company's internal weakness in its relationships with these large buyers continues to persist. As the company is striving to satisfy the demand for certain products coming from Wal-Mart, it damages the interests and tastes of other consumers and Kraft itself. "With Wal-Mart and others increasingly interested only in the briskest-selling products, it turns out that suppliers are better off with a clutch of category killers than a cartful of so-so sellers" (Anonymous, 2004). These, however, are not the only internal weaknesses displayed by Kraft Foods Inc.

Due to the growing number of businesses and potential competitors, Kraft Foods, Inc. experiences low opportunities for growth. The growing diversity of food products leads to market saturation, which leaves little room for continued growth other than through innovations. Moreover, in the atmosphere of competitiveness, Kraft Foods Inc. must make regular strategic acquisitions to preserve its strong position in the competitive business. As competitors devise new products, the costs of switching to them become very low. As a result, the company is no longer secured from losing its customer base. Again, it is due to its strategic weaknesses and internal failures that Kraft Foods Inc. must spend more resources on advertising and marketing in order to keep its competitive position. Another major internal weakness is that the company must use considerable resources to launch new brands without any solid guarantee that these brands will eventually work. In the meantime, the product shelves become oversaturated with the numerous variations of the same old products that are no longer interesting to the consumer (Anonymous, 2004).

SWOT Analysis

Zahorsky (2006) writes that the SWOT analysis is one of the best business tools available to business owners. It is through SWOT analysis that businesses can capture the most essential issues before they negatively impact their performance (Zahorsky, 2006). Below there is the SWOT analysis of Kraft Foods Inc.

Strengths

Product development

Product diversification

Innovations

Effective distribution channels

Brand recognition

Size and economies of scale

Expansion to the emerging markets

Weaknesses

Low opportunities for growth in the U.S. market

Low costs of switching to competitors' products

Price pressures

The bargaining power of large buyers, including Wal-Mart

Enormous resources spent on marketing and advertising

Product oversaturation

Opportunities

Emerging markets growth

Split with Mondelez International and subsequent business independence

Innovative healthy products to adjust to the changing customer preferences

The growing brand value

Acquisition of new and established niche companies

Threats

Decrease in consumption of Kraft's products in the home market

Emergence and expansion of new smaller food businesses

The growing costs of advertising and marketing

Changes in consumers’ lifestyle and  preferences

Competition from other large manufacturers

Difficulty penetrating into new markets

Too much reliance on large buyers

The table above shows that Kraft Foods Inc. is facing numerous strategic threats. At the same time, it has wonderful opportunities to pursue further expansion and growth. Its effective distribution channels, reputation and brand recognition, as well as strategic independence from Mondelez International and the growing value of its brand create a good basis for continuous development and increased competitiveness. Still, the company's internal weaknesses greatly contribute to environmental difficulties and threats. For instance, low opportunities for growth in the U.S. market lead to the growing costs of advertising and marketing. The growing bargaining power of large buyers increases the company's reliance on them. Today, the company needs to develop a new strategy to address its internal weaknesses and ensure that its customers are absolutely satisfied.

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Conclusion

This paper creates a complete and compelling picture of the challenging environment facing Kraft Foods Inc. The results of the internal analysis suggest that the company has numerous strengths and considerable weaknesses. Basically, the company is well-positioned with its recognized brand, its strong commitment to product diversity, product development, and innovations. The company has developed a new innovation strategy and is ready to pursue continuous growth in the long run. However, what seems to be the company's strength can readily turn into its major weakness. Kraft Foods Inc. has been largely unsuccessful in its striving to reduce the power of its largest buyers. These internal weaknesses do not allow the company realizing its competitive potential to the full. Consequently, it needs to develop a new strategy to withstand the most pressing environmental threats.

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