Question: Conduct a strategic analysis of Kraft Foods Company, with special emphasis on Value chain and National Diamond

model Solution: Industry Overview Kraft Foods Inc operates in the food and beverages industry. The industry is constituted by those companies that involve in stages of activities from procuring the raw food material after harvest till the retail purchase. The activities involved are the processing of raw food materials, manufacturing, packaging the food products and distributing them. The products may be fresh, prepared foods, packaged foods, alcoholic and nonalcoholic beverages. All the products that are meant for human consumption except the pharmaceutical products belong to this industry. The dairy sector forms the largest part of the food industry. The baked and cereal items and chilled foods are the close second and third. In case of the beverages industry, it is divided into alcoholic and nonalcoholic segment. A vast of the alcoholic market is made up of beer, cider and other flavored alcoholic beverages. On the other hand, soft drinks, coffee, tea, juice and water constitute the nonalcoholic beverage market. The industry is highly competitive and fragmented. Though the competition is among few notable players, no player has a dominant position to dictate the price levels. The players rely largely on advertisements to promote their brand and secure the market position (Food and Beverages Industry Profile, 2009).

Market size: With over 16.5 million people employed, the US food and beverages industry constitutes around 10% of the countrys Gross Domestic Product. The average annual spend of the consumers on food is $1 trillion. The worldwide sales of process foods are found to be US$ 3.2 trillion in 2004. A huge percentage of world population involve in direct farming, and as a result of when they fed themselves. On the other hand the modern food industry relies heavily on modern equipment and technology and which results in food industry that is more global than local (Food Industry Overview, 2009), In recent years the urban population is increasing in the greater extent, as a result the food production and the food buying becomes two different processes. This has paved way for more firms to concentrate on food industry, which is evident from the number of super markets and retail players in the food industry. Kraft Foods is one of such retailers having global presence in the food and beverages industry. Nearly a million times per day, the consumers around 150 countries all over the world reach the Kraft brands. The Kraft Foods markets its product under various brand names, out of which there are nine brands that produce revenue in excess of US$ 1 billion. Also there is more than 50 other brand that generates revenue in excess of US$ 100 million. Out of these revenues, more than half are from the brands which have a market share twice that of the competitor and around 80% of the these revenue are generated by brands that have the number one position in market share. The total revenue of Kraft Foods in 2008 equals US$ 41.9 billion and 38% of which is from its snacks brands, and 20% are from the Beverages brands (Kraft Foods - Fact sheet, 2008).

Industry Trends: The major trends in the food and beverages industry of US that provides growth opportunities to the companies are (U.S. Food and Beverage Industry Growth Predicted, Despite Challenges, 2006): Greater focus on innovations and new product developments. Shift in consumption pattern of the consumers. The consumers are in look out for quality products with a combination of convenience and value. Increased awareness of health and ethnic foods. Growing opportunities in foreign market. With increasing focus on water usage and energy efficiency, sustaining the position in the market amidst the competition has become important. Kraft Company Overview: Kraft Foods Inc is the largest Food and Beverages Company in the United States. The company operates in around 70 countries across the world with around 98000 employees and sells its products in over 150 countries in Europe, Latin America, Asia Pacific, Middle East and Africa through its subsidiaries, Kraft Foods International Inc and Kraft Foods North America Inc (Kraft Foods Global, Inc, 2010). The company manufactures and markets packaged retail food products like cookies, confectionery, coffee, juices, powdered beverages, cheese products, ready-to-cereals, desserts, convenient meals and processed meats. All these products cover major consumer sectors like Snacks, Beverages, Cheese, Grocery and Convenient Meals under the major brands like Kraft, Jacobs, Philadelphia, Maxwell house, Nabisco, Oscar Mayer, Post, Oreo and LU.

The company focuses on providing foods that fit the consumers by concentrating on health and wellness, snacking, quick meals and premium products. The Kraft products are sold through various distribution channels like distribution centers, satellite warehouses, companyoperated and public cold-storage facilities, depots, and other facilities. Porters National Diamond for Kraft: The Four basic forces according to the Michael Porters National Diamond model are, Factor Conditioning: The recent technological advancement in the United States plays a major role in production of agricultural products, also there are huge skilled labors available to operate in modern equipments and the capital required for excess production is easily available. Intensity of the rivalry: The United States Food Industry is highly competitive, there are many big players like the Unilever, Frito-Lay, Cargill, Tyson Foods, ConAgra Foods and Smithfield Foods etc. Local demand condition: The urban population of United States is high and its always increasing which is potential market for food industry, also the partnership with firms like Safeway Store provides additional demand for products of Kraft Foods. Competitiveness of related and supporting industries: The partnership agreements with firms like Rainforest alliance, Metro group, AOL Time Warner, Bally Total Fitness, Stewart-Hass racing, and Allreceipts.com etc. provides good opportunities for Kraft Foods.

The National Diamond for Kraft Foods is pictorially shown below:

Technology: Kraft Foods uses modern technologies and equipments in both production and distribution process. The Kraft has spent around US$ 499 million on R&D in the financial year 2008. The Kraft Food has strong Research and Development team consisting of engineers and scientist who constantly works on deploying innovations in the foods, beverages and packing concepts. They also work on improving the current processes, products and packaging etc. For the information processing and business transformation processes, the Kraft Foods uses the SAP Net Weaver Master Data Management. It helps in combining information from both the SAP and Non SAP inheritance. SAP Net Weaver MDM has developed a data warehouse covering the customers, suppliers, distributors, finished goods and raw materials etc. to help in real- time data mining and retrieval processes. The investments in SAP help the top

management in accessing effectively the real-time master data during the decision making processes (Kraft Foods deploys SAP NetWeaver technology platform , 2008). The Kraft Foods works in association with United States Environmental Protection Agencies for benefiting from the recent development in technologies. The Kraft foods to minimize its truck miles work effectively on its transportation system. They have implemented a no-ideal engine policy at their shipping location and focuses on intermodal transportation system. Kraft Foods uses the Oracles transportation management software to effectively track and minimize the empty mile trips (Kraft Foods Eliminated More Than 50 Million Truck Miles Since 2005 Through Focus on Transportation Sustainability Efforts, 2009). Distribution: Kraft Foods have a strong Distribution system with more than 316 distribution centers and depots all around the world. Out of these 316, the Kraft Foods owns 39 distribution centers and leases 125 distribution centers. Also it owns three depots and leases 149 depots worldwide. Kraft adopts a Multi-category distribution and consumer awareness system. Most of their distribution in the Northern American circle follows warehouse deliver systems. They have two direct stores delivery system to distribute the Pizzas and biscuits. In North America alone the Kraft Food has more than 303 depots and distribution centers. Most of these distribution centers and depots help in direct-store-delivery system. The company also has around 13 distribution centers away from North America in eight different countries. The distribution centers completes the following three functions, Advertisements to consumers through various Medias. Sales Promotions such as incentives to consumers through coupons and contests.

Trade promotions to vendors, and other merchandising functions.

The Kraft Foods current distribution function has two different operations namely, Direct Stores delivery and Warehouse delivery. Customers: Most of Kraft Foods products are sold to corporate customers like Wal-Mart, Safeway Stores etc. Around 29% of the net revenues of the Kraft Foods are through its five top customers and it reaches 40% if its ten top customers are taken into account. The single largest customer of Kraft Foods is Wal-Mart which accounted for almost 15% of its total revenue. The Kraft Foods is largely depends on small number of large corporate for its sales value, this trend can leads to higher bargaining power to customers like Wal-Mart which is a negative factor to be considered. The portfolio of Kraft Foods falls in five customer sectors like Snacks, Beverages, Cheese, Convenient meals and Grocery. Kraft Foods segment their customers into the following four categories, Health and Wellness: These are customers who are health conscious and Kraft Foods are providing these customers with various products. These customers want to eat healthier foods and have various needs like managing their weight, vitamins, calciums etc. Kraft Foods provides products that satisfy all their needs. Quick Meals: These are customers having a fast and busy life, but they dont want to miss the delicious foods. Kraft Foods have various ready to eat and ready to heat products to satisfy their needs.

Snacking: Kraft provides a huge variety of snack products to customers who seek for on the go foods. Oreo wafer sticks, Crystal light ready to drink are few of the largely sold snacking products of Kraft Foods all around the world.

Premium: These are customers who wants high quality restaurant like food in their home. Kraft Foods satisfies their needs with premium foods like DiGiorno Ultimate Pizza, Cote dOr Chocolates etc.

Competitors: The Food Industry is highly competitive in nature. Kraft Foods is the second largest food and Beverages industry worldwide and has competitors in all dimensions thought the world. The main competitors include Nestle, PepsiCo, and General Mills etc. The Various competitors of Kraft Foods based on product are listed below (Competitor by Products Report, 2009). Coffee/ Tea/ Cocoa: The products in this category include Maxwell House, Jacobs and Gevalia. The various competitors are, Alexander and Baldwin inc, Blyth, Coffee Holdings, Farmer Brother Co., Green Mountain coffee roaster, Peets coffee and Tea, PepsiCo inc, Sara Lee Corp, Starbucks, The Hain Celestial Group, The JM Smucker company, P&G, Unilever etc. Juice/ Soft Drinks: The products are Kool-Aid, Country Time, Capri Sum*, Tang and Crystal Light etc. The competitors include Campbell Soup Company, China Nutrifruit Group, Cott Corporation, Dean Foods, Jones Soda Co, National Beverages Corp, PepsiCo, The Coco-Cola Company, The JM Smucker Company, Unilever etc. Snack Foods: The products are Balance, Kraft, Planters, and Nabisco etc. The Various competitors are, Campbell Soup Company, ConAgra Foods, Diamond Foods, General

Mills, J&J Snack Foods, Kelloggs Company, Lance, PepsiCo, The Hain Celestial Group, P&G, Smart Balance inc. Sauces/ Dressings and Oils: The various products are Miracle Whip, Grey Poupon and Kraft. The Competitors are Archer Daniels Midland Company, B&G Foods, Bunge Limited, Campbell Soup Company, ConAgra Foods, General Mills, The Hain Celestial Group, Unilever etc. Dairy Products: The Various products are Cracker Barrel, Hoffmans, Kraft and cool whip etc. The competitor includes American Diaries, Dean food Company, Farmer Brothers Co, General Mills, Groupe Danone SA, Life way foods, Smart Balance, The Hain Celestial Group, The JM Smucker Company, Unilever etc.

Value Chain:

Partnerships: Kraft Foods as a global firm has partnership agreements with various firms all around the world for its functioning and support processes. Few of the most important partners of Kraft are listed below: Kraft Foods has recently announced a partnership agreement with the Rainforest Alliance, one of the recognized international conservation leaders. This partnership was to support Kraft with the production of coffee in Brazil, Mexico and Central America. By this agreement Kraft Foods entrust its support by financing the training and technical assistance to the workers in the coffee farms, by purchasing huge quantities of coffee and by kindle the demand for coffee products. Similarly the Kraft Foods of Europe made a partnership agreement with that of the Metro Group to evaluate Radio Frequency Identifier to identify stock locations. The Kraft had made similar partnership arrangement with many firms which includes AOL Time Warner, Bally

Total Fitness, Stewart-Hass racing, and Allreceipts.com etc (Kraft Foods partners with Rainforest Alliance on sustainable coffee initiative, 2009). Supply Chain: The top management and the supply chain team of the Kraft Foods has developed a strategy which they believed would help them is achieving competitive advantage. The strategy focuses on involving the customers as part of their team in creating value. According to their strategy, the changes required in the supply chain process can be implemented in steps with the help of innovations and collaboration with the customers. In the year 2002, to accomplish their vision, Kraft Foods approached IDEO a global firm in design and innovation. Kraft Foods was one of the earlier clients of the IDEO, with the help of IDEO, Kraft wishes to change their organizational culture that enables them to work together with the customers there by improving their supply chain process. At the start of the process, 120 managers of Kraft Foods from North America participated in a workshop organized by IDEO. The training resulted in superior utilization of some of the IDEOs tools by the managers of the Kraft Foods. But this process dint improves the participation of the customers as expected. So in the year 2003, Kraft Foods and one of its customer Safeway stores developed various opportunities for improvement in the supply chain with the help of IDEO Model. As a result of better collaboration between Safeway stores and Kraft foods, Safeway was able to improve their retail stock position and Kraft has able to improve their sales. In 2005 and 2006, Kraft wishes to take its IDEO Model internationally and did the same internally under the label Joint Value Creation