Kraft Competitive Strategy

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The Sweet Success
of Oreo in India

Word Count: 2989
March 12, 2012

IESE Business School
Avenida Pearson, 21
Barcelona, 08034
(+34) 93 253 42 00
Web: www.iese.edu

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COMPANY OVERVIEW1
Kraft Foods, Inc. is an American multinational confectionary, food and beverage conglomerate. Kraft is the second largest food company in the world with 2011 revenues of $54,365 million. Approximately 60% of Kraft’s revenues are generated from outside of the US, with the developing markets playing an increasingly important role towards the overall growth of the organization. The company sells its products in approximately 170 countries and its product portfolio contains 11 iconic brands that generate $1 billion or more in annual revenue. As of 2010, Kraft’s snacks portfolio contributed about 50% of the company’s total net revenues.2

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KRAFT’S VALUE CHAIN ANALYSIS
To better understand the activities through which Kraft has been developing a competitive advantage and creating shareholder value, it is useful to separate the business into a series of primary value-generating activities:

R&D
This department is responsible for the design of products and processes and has the expertise and the infrastructure to ensure:





Products are safe (self-speaking, un-debated, un-compromised) Quality remains acceptable
Nutritional value is maintained (prime aspect for food)
Commercial stability is assured (package integrity is key for customers)

In 2011, Kraft spent $702 million on R&D. The R&D team, which consists of engineers and scientist, constantly works on improving and deploying innovations in the foods, beverages and packing concepts.

Operations & Distribution
Kraft has operations in more than 80 countries and 220 manufacturing and processing facilities worldwide, including 101 in developing markets and 33 in Asia Pacific specifically. The company distributes its products through 228 distribution centers and depots worldwide, with 55 facilities in Asia Pacific. Kraft has been able to minimize its truck miles by implementing an intermodal transportation system and a no-idle engine policy at its shipping locations. Kraft also uses Oracle transportation management software to effectively track and minimize the empty mile trips. The distribution centers are also responsible for advertisements, sales and promotions, and other merchandising functions.

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Marketing and Sales
Most of Kraft’s products are sold to corporate customers such as Wal-Mart, Safeway Stores etc. Approximately 30% of its net revenues come from its ten largest customers, with WalMart comprising 12%. Since Kraft largely depends on small number of large corporations for its sales, this trend can eventually lead to higher bargaining power for its customers. Kraft has developed a strategy that focuses on involving the customers as part of their team in creating value. This strategy requires that changes in the supply chain be implemented in steps with the help of innovations and collaborations with the customers. The company approached IDEO, a global firm in design and innovation, in order to achieve the goal of working together with the customers and improving their supply chain process.

Services
Kraft’s primary activities are supported by:




Human Resource Management – requirement of local talent, training programs, and complementing policy between local talent and expatriates; Technology Development – six key technology centers with pilot plants and state of the art infrastructure

Procurement – global sourcing and low cost country sourcing sustained by supplier certifications.

EXPANSION STRATEGY – CADBURY ACQUISITION
In an effort to diversify from its stagnant North American and European operations, Kraft acquired UK-based Cadbury PLC in February 2010. This acquisition gave Kraft greater access to the fast growing snacks food segment in developing markets. Subsequently, company management announced a split-up of its...
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