Bryon K. Langenfeld & Rebecca J. Morris (faculty supervisor) University of Nebraska at Omaha
Case Objectives and Use
This case permits students to examine the forces of change that were reshaping the business environment for companies in the food manufacturing industry in the twenty-first century. The case also illustrates the pressures that powerful customers (such as Wal-Mart) can have on industry profitability and the strategic choices of industry firms. Students are also challenged to recognize the limits of cost-cutting strategies in turning around underperforming companies. With a focus on corporate level strategies, the case enables students to develop and evaluate turnaround strategies for Kraft. This case was developed for use in undergraduate and graduate strategic management courses. The case may also be utilized in graduate marketing policies courses to discuss marketing strategies of product line extensions versus development of new product lines.
Kraft Foods was the second largest food and beverage manufacturer in the world in 2004, but growth had stalled. In October 2004, Kraft posted a fifth consecutive quarterly profit decline. Kraft CEO Deromedi launched a restructuring program to trim 6,000 jobs and close 20 plants over three years, however, it was not enough. As Kraft built their large brand portfolio through acquisitions and mergers, they had accumulated many B and C category brands and products. Large customers, such as Wal-Mart gave preferential treatment to manufacturers of the top seller of a given category. Kraft was re-evaluating their non-category killers in an attempt to turn the declining profit trend around. Kraft’s problems were further compounded by an empty pantry of new products. Kraft’s last significant new product launch had been in 1995. The firm seemed content to explore less risky product line extensions rather than to develop new...