Kraft Foods

Wu-Tang ClanStrategic Analysis

Jessica BargmanCaitlin CaseyShane Fitzgerald

Bryanna GeisbushPat Jewell

Jerry Wroten

Organizational Chart

Market in almost 160 countriesOwns 70+ brands that earn $100 million annuallyCore Business:

Beverage, cheese & dairy, snack foods, confectionary, convenience foods & cereal.

Marketed in more than 26 Countries

MexicoBrazilFranceIrelandRussiaUkraineArgentinaBrazilColombiaDominican RepublicEcuadorParaguayPeru

UruguayVenezuela BelgiumCanadaGermanyItalyMiddle EastNetherlandsUnited KingdomUnited StatesDenmarkFinlandSweden

Weaknesses(W)

Opportunities(O)

Threats(T)

1. Hard to grow-slow2. Poor monopolistic image3. Reaction time is very slow4. Current and slope with

revenuea. Low stock prices last

few quarters5. Cadbury’s poor financial

situation6. Cadbury States that Kraft

has internal management weaknesses

1. Expand more internationally

2. New food categoriesa. Organic/Health

3. Acquiring competitors4. Online marketing5. Vertical integration

1. Competitors 2. DEAN-more dairy3. GM-food conglomerate4. Health Trends-non

organic company5. Economy6. US $ vs. other

currencies

Strengths(S)

Strengths to Weaknesses Strategies (S/W)

Strengths to Opportunities Strategies (S/O)

Strengths to Threats Strategies (S/T)

1. Diverse Product Portfolio

2. Acquisitions of other companies

3. Brand Power4. International

Influence5. Marketing Power6. Social Responsibility7. Financial Freedom8. Diverse Market

Segments

1. Brand Power vs. Hard to Grow

2. International Influence vs. Bad image with Cadbury

3. Social responsibility

1. Using marketing and brand power to acquire competitors for company success

2. Using brand power and diverse market segments to develop new E-Marketing for a competitive advantage

1. Wide variety of product helps with new healthy trends

2. Competitors (Dean& GM)

a. Merger with companies

b. Brand power c. Social

responsibility 3. International influence

w/ US currency

Kraft TOWS Analysis

Strategic Actions

StrengthDiverse Product Portfolio, awareness of social responsibility, room for financial spending and Brand Power.Success in past merged companies and room for financial spending.Marketing Power, room for financial spending, international relations and brand recognition.

StrategyPurchase a farm in order to expand vertically and create a more sustainable companyBuying out Folgers coffee companyIncrease and improve current E-Marketing

Financial Information

Kraft is in the process of acquiring Cadbury

$19 billion deal

Information based off of 2008/2009 yearly financial statementsAll the strategic actions are based off this information

Kraft Foods Inc.Income Statement        Sales        

$42,201,000 Net Profit After Taxes Net Profit Margin    Cost of Goods Sold $1,817,000 4.31%   

$28,186,000    Return on Total Assets  Operating Expenses     2.88% 

$10,198,000       Interest Expense   Total Asset Turn Over    

$1,272,000   0.67  Return on EquityTaxes       8.18%

$728,000                Balance Sheet        Current Assets        

$11,366,000       Net Fixed Assets Total Assets      

$51,712,000 $63,078,000     

Current Liabilities     Financial Leverage Multiplier  $11,044,000 Total Liabilities   2.84 

Long Term Debt        $18,589,000 $29,633,000     

Total Stockholder Equity        $22,200,000      *$ numbers in 1000's*

DuPont

  Kraft Foods Inc.

Net Profit Margin    

4.31%   

  Return on Total Assets  

  2.88% 

     

Total Asset Turn Over    

0.67  Return on Equity

    8.18%

 Financial Leverage Multiplier 

  2.84 

DuPont  General Mills Inc.Net Profit Margin    

8.25%   

  Return on Total Assets  

  6.78% 

Total Asset Turn Over    

0.82  Return on Equity

    23.43%

  Financial Leverage Multiplier

  3.45 

  Dean Foods Co.Net Profit Margin    

1.49%     Return on Total Assets    2.64%      Total Asset Turn Over    

1.77  Return on Equity    33.28%  Financial Leverage Multiplier    12.61 

General Mills has high Return on Total AssetsDean Foods has high Financial Leverage MultiplierKraft is a lot higher is sales than both companies

Pro Forma AnalysisKraft Pro Forma Analysis

DATA 2008   Next YearSales $ 42,201,000   $ 40,511,183 Net profit 1,817,000   1,744,243        Balance sheet   % of sales  Assets:       Current assets 11,366,000 27% 10,910,881 Net fixed assets       Equipment 9,917,000   9,917,000 Goodwill 27,581,000 65% 26,476,599 Intangible Assets 12,926,000 31% 12,408,416 Other Assets 1,288,000 3% 1,236,426 Total Assets 63,078,000   60,949,321        Liabilities:      

Total Current Liabilities 11,044,000 26% 10,601,775

Total Long Term Liabilities 29,834,000   29,834,000 Total liabilities 40,878,000   40,435,775        Owner's Equity:       Treasury Stock (8,714,000)   (8,714,000) Capital Surplus 23,563,000   23,563,000 Retained Earnings 13,345,000 4% 15,089,243

Other Stockholder Equity (5,994,000)   (5,994,000)Total Owner's Equity 22,200,000   23,944,243 Total L & OE 63,078,000   64,380,018        Financing Needs =     (3,430,697)       

      *numbers in 1000's

Sustainability Perceptions Perceived Actual

Brand Perceived Actual8 Stonyfield Farm 44 81

12 Unilever 32 795 The Coca-Cola Co. 64 66

11 Group Danone 33 644 Nestle 71 637 PepsiCo 55 623 Kraft Foods 79 589 Anheuser-Busch InBev 37 541 General Mills 82 49

13 Molson Coors Brewing 24 4414 SABMiller 14 44

2 Kellogg 81 426 Sara Lee 59 33

10 ConAgra Foods 36 31

Brand Perceived Actual1 General Mills 82 492 Kellogg 81 423 Kraft Foods 79 584 Nestle 71 635 The Coca-Cola Co. 64 666 Sara Lee 59 337 PepsiCo 55 628 Stonyfield Farm 44 819 Anheuser-Busch InBev 37 54

10 ConAgra Foods 36 3111 Group Danone 33 6412 Unilever 32 7913 Molson Coors Brewing 24 4414 SABMiller 14 44

Strategy 1: Vertical Integration Strength: Diverse Product Portfolio, awareness of social responsibility, room for financial spending and Brand Power. Opportunity: Sustainable agriculture, real-estate Spending plan: approximately $5 Billion Purchase dairy farms in United States

Preferably in Wisconsin, but any available farms to be purchased Idaho, California

Purchasing Dairies 2007 Kraft purchased $3.5 Billion

worth of raw milk Purchase of dairies would allow Kraft

to control entire product supply from creation to distribution

Organic/Natural, control of milk quality

Milk market is very fluctuating Dairy farm prices change with milk

price

USDA Averages Average Farm Size 418 acres Average Farm Price approx $2050 Approx Farm cost: $856,900 Will be more miscellaneous expense depending

on barns, parlors, equipment 2008 Wisconsin Cattle production cow/per year

19,546lbs 1.25 Million Cows

Threats

Availability of dairy farmsStaff

Requires high amount of experience

Fluctuating Market

Return

Money spent on one year of raw milk could purchase enough farms and cattle to supply their demand.Min. 1000+ Cow FarmProvide alternative power sources

Methane

Dairies would be self-sustaining

Strategy 2: Acquisition of Folgers

Strength: brand power and marketing power Threat: outside competitors Kraft currently owns 8 coffee brands

Ex. Maxwell House

U.S. main competitor Folgers is currently owned by Smuckers

Folgers Background

Similar brand qualities as Maxwell HousePurchased by Smuckers in 2008 for $2.65 billionCurrent success with SmuckersOur bid would have to more then the worth

Location of Coffee Sales

Home brewed coffee sales increasingRecession creates potential sales numbers

70%

18%

4%

7% 1%

Sales

HomeWorkEating PlaceTravelingOther

Competitive U.S. Companies

Folgers leading the wayPotential for market majority Trend of sales

Ex. Pepsi and Coke30%

19%11

%9%

8%

7%

6% 6

%4%

Sales

Folgers Maxwell House

Eight O' Clock Coffee

Gevalia

Kona Chock Full O' Nuts

Green Mountain

Jamaican Bule Mountain

Other

Can we afford it?

$3.4 billion spending planWould Smuckers sell?

Overpayment possibility

Possible failureKraft past acquisition success

Ex. Nabisco: oreo

Strengths: Brand Power and diverse market segments Opportunities: Newer online marketing available, and new competitive advantages being developed

Pull MarketingInitiative rests with the online shoppers who request informationEx: advertising and e-coupons

Push Marketing Promotes product/service information to online shoppers or web browsers that do not ask for information

Strategy 3: Increase E-Marketing

Online Coupons Create manufacturer coupons directly posted on Kraft website all the time

Kraftfoods.com alone achieves 1.3 M unique visitors per month

Online searches for coupons and offers have increased by 58% over the past yearProperly executed e-mail campaigns can be an effective way of disbursing coupons to the right people

Creating an account, joining a mailing list, etc

Online Commercials Companies sell commercial space for ads to accompany the airing of a TV show or Movie With online commercials typically there are only 1-2 commercials so viewers don’t feel the need to click away It is easy to target markets specifically by the genres of the online videos

Social Media Sites

• Time spent online by people ages 18-25– ~30% entertainment– ~30% Social Media

• Create ads/banners on social media sites

• Develop promotional contests directed towards our demographic (18-25)

Recap

Main strengths focusOur strategies

Vertical ExpansionAcquisition of FolgersIncrease E-Marketing

EFNFinancial situation in correlation with strategies

Qualitative Data

Compare and contrastFeasibility of eachPost potential negative analysis resultsRating

Increase E-MarketingVertical IntegrationAcquisition of Folgers

Strategic Actions

StrengthDiverse Product Portfolio, awareness of social responsibility, room for financial spending and Brand Power.Success in past merged companies and room for financial spending.Marketing Power, room for financial spending, international relations and brand recognition.

StrategyPurchase a farm in order to expand vertically and create a more sustainable companyBuying out Folgers coffee companyIncrease and improve current E-Marketing

Questions?