I.

Background of the Study

Kraft Foods, Inc. is the largest food company in the United States. It was founded by
James Kraft in 1903. Kraft was an early user of all communications media, and as early as 1911,
was advertising on a Chicago elevated trains, using outdoor billboards and mailing circulars to
retail grocers. He was among the first to advertise in consumer journals and was also the first to
use colored advertisements in national magazines. In 1933, the company started to use radio on
extensive scale. Krafts commitment to innovation was demonstrated through the variety of
products that were introduced. It has primarily operated as a subsidiary to other larger
corporations. The first of these was the National Dairy Company in 1930, Kraft would later be
purchased by Phillip Morris in 1988 for $12.9 billion. In March 1989, Phillip Morris merged
Kraft and its General Foods unit into one entity called Kraft General Foods, Inc. the company
became the largest food company in the United States and the second largest food company in
the world. The companys revenues increased to $42.2 billion in 2008, while earnings increased
to $2.9 billion. Kraft weathered the 2008 global recession really well from a revenue/earnings
perspective. The company has over $27.5 billion in goodwill, which is not good, and also has
over $18.5 billion in long-term debt, which is also not good.

II. Statement of the Problem

The decrease in operating income from the year 2006 to 2008.

III. Objective

To increase the net income to 26% at the end of 2013.

IV. INDUSTRY ANALYSIS

Nature of Industry

Snack, food, cheese and beverage industry.

A. ANALYSIS OF MACRO-ENVIRONMENT

Political
The company has a long history of involvement in various political and
community initiatives. This includes supporting candidates who
understand and appreciate the public policies that impact their business,
brands and employees.
Economic
Despite the bad economic conditions of the world around, Kraft Foods is
making good earnings from its market involvements via its products and
brands.
Socio-cultural
Kraft Foods committed itself to focus on the products, policies and
partnerships to drive meaningful and lasting change around health and
well-being, sustainability and food safety.

Technological
Kraft Foods ae successfully implementing innovative ideas and processes
that create values to their consumers.

B. FIVE FORCES MODEL

 Threat of New Entrants: LOW

BARRIERS TO ENTRY: HIGH

The existing companies have already

spent so much on their brands, quality
and positioning that it will be difficult
for the new comers to entice switching
among consumers.

Bargaining Power of Supplier: Rivalry among Existing Competitors: Bargaining Power of Buyers:

HIGH HIGH HIGH

The prices offered are usually Consumers in the industry have The buyers preferences changes
competitive to remain in the minimal switching costs and there is no with the passage of time and they
market. guarantee of brand loyalty. are likely to switch to the seller.

Threat of Substitute Products:

LOW

The consumers evaluate the quality of

products and their prices with that of
others to decide which product to buy.

C. TOWS ANALYSIS

Threats
Strong supply chain network.
Brand loyalty and recall.
Opportunities
Health consciousness among people possess a threat to the confectionery market.
Rise in cost of raw material.
Weaknesses
 Instances of product recall have affected the brand image.
Tough competition means brand switching in the segment is quite high.
Strength
Strong supply chain network.
Brand loyalty and recall.

V. Generic Strategy

Kraft uses product differentiation as its generic strategy. Kraft offers a variety of
product segments based on the needs and demands of the customers.

VI. Alternative Courses of Action

Alternative 1: Market Penetration

Due to intense competition Kraft should make great promotional efforts. Have an
advertising campaign to generate greater brand awareness. Associate quality and uniqueness with
the power brands in minds of the consumer by aggressive advertising, sales and marketing
efforts.

Projected Income Statement

For the Year Ended December 31

2009 2010 2011 2012 2013

$51,06
Net sales $46,421 3 $56,170 $61,786 $67,965
$31,07
Cost of sales $29,595 5 $32,629 $34,260 $35,973
$19,98
Gross profit $16,826 8 $23,541 $27,526 $31,992
Marketing, administration and
research costs $9,240 $9,425 $9,613 $9,806 $10,002
Asset impairment and exit
costs $1,034 $1,045 $1,055 $1,066 $1,076
Losses/(gains) on
divestitures, net $93 $94 $95 $96 $97
Amortization of
intangibles $23 $23 $24 $24 $24
Operating
income $6,435 $9,401 $12,754 $16,535 $20,793
 Interest and other
expense,net $1,252 $1,265 $1,278 $1,290 $1,303
Earnings from continuing operations $11,47
before income taxes $5,183 $8,136 6 $15,245 $19,490
Provision for income
taxes $735 $743 $750 $758 $765
Earnings from continuing operations $10,72
before income taxes $4,448 $7,394 6 $14,487 $18,725
Earnings and gain from discontinued
operations, net of $1,063 $1,073 $1,084 $1,095 $1,106
Net earnings $3,385 $6,321 $9,642 $13,393 $17,619

Alternative 2: Market Development

Expand markets to developing countries such as India, China and Europe which
economic opportunities are high.

Projected Income Statement

For the Year Ended December 31

2009 2010 2011 2012 2013

Net
revenues $46,843 $51,996 $57,715 $64,064 $71,111
Cost of sales $30,159 $32,270 $34,529 $36,946 $39,532
Gross profit $16,684 $19,726 $23,186 $27,118 $31,579
Marketing, administration and
research costs $9,331 $9,611 $9,899 $10,196 $10,502
Asset impairment and exit
costs $1,034 $1,045 $1,055 $1,066 $1,076
Losses/(gains) on
divestitures, net $93 $94 $95 $96 $97
Amortization of
intangibles $23 $23 $24 $24 $24
Operating
income $6,203 $8,953 $12,114 $15,737 $19,880
Interest and other
expense,net $1,252 $1,265 $1,278 $1,290 $1,303
Earnings from continuing operations before
income taxes $4,951 $7,688 $10,836 $14,446 $18,577
Provision for income
taxes $735 $743 $750 $758 $765
Earnings from continuing operations before
income taxes $4,215 $6,946 $10,086 $13,689 $17,811
Earnings and gain from discontinued
operations, net of $1,063 $1,073 $1,084 $1,095 $1,106
Net earnings $3,153 $5,872 $9,002 $12,594 $16,706
Comparative Statement of Two Alternative Courses of Action:

ALTERNATIVE 1 ALTERNATIVE 2
SALES $67,965 $71,111
NET INCOME $17,619 $16,706
PROFIT MARGIN 26% 23%

VII. Conclusion and Recommendation

Kraft Company is one of the biggest businesses in the food industry. It has an extremely
wide area of operation and deals with diversified foods and beverages that gives the company the
competitive advantage over its rivals. Although the company is performing well it is unavoidable
to experience economic downturn. So it is important to a company to assess and adapt to the
changes in the environment. It should take proper actions and strategies to maintain its market
position. Therefore we recommend that alternative 1 should be applied for it results to 26% profit
margin.