Kraft Foods - Report Example

Table of Contents: Executive Summary ……………………………………………… 3 Introduction……………………………………………………… 4 Main Body …………………………………………………………. 4 Conclusion ………………………………………………………… 7 Bibliography …………………………………………………………8 Executive Summary: Kraft Foods is an American company that specializes in the manufacture of grocery items and it is a processing conglomerate. Siegert (2013) explains that Kraft Foods mostly sales its products to supermarkets, and retailing organizations such as ASDA, Sainsbury and Tesco. This is an indication that Kraft Foods sales its products to mid range distributors, and it is therefore not targeting a particular niche market. This is because the products it produces are sold to very large supermarkets, and hence, attracting a wide base of consumers. Kraft Foods also has a good brand name, and is highly respected and recognized. Customers therefore perceive its products to be of high value, and relatively priced. This is therefore an indication that Kraft Foods pursues a hybrid strategy. This is a combination of cost leadership strategy, and differentiation strategies. These are two of the four generic strategies identified by Porter that can help an organization to achieve a competitive advantage (Siegert, 2013). Despite the adoption of this strategy by Kraft Foods, there are arguments on whether it is possible to sustain, the cost leadership strategy, and the differentiation strategies. Introduction: This paper provides a report of the strategies used by Kraft Foods, for purposes of maintaining a competitive advantage over its rivals. The first section of this paper is an executive summary, which contains a brief introduction of thee topic, and the major points contained in the paper. The second section is the introduction, and it introduces the paper, and contains the thesis statement. The main body of this paper contains the augments, on the strategies used by Kraft Foods for purposes of maintaining its competitive advantage over rivals. The conclusion is a summary of the major points, and a recommendation on how Kraft Food should improve on its business strategies. This paper takes a stand that Kraft Foods uses a hybrid strategy, which is a combination of differentiation and cost leadership, for purposes of achieving a competitive advantage over its rivals. Main Body: Kraft Foods Group is amongst the largest beverage and food manufacturing company in North America. The company has an annual turnover of approximately 18 billion US dollars. The mission and vision of the company is to be the best beverage and food Company in North America (Siegert, 2013). The company has a long term strategy where it expects to experience a steady and reliable growth, in terms of revenues and market share. Furthermore, another vision of the company is to provide a highly competitive dividend to its shareholders, and re-invest in innovation for purposes of coming up with high quality products. This is with the intention of building the brand image of the company. The company produces a variety of beverage and food brands, that are very popular to people, and this includes refrigerated meals, cheese, and grocery items. The products of the organization can be found in almost every house hold, of people in Canada, and United States. In fact, the popularity of the products of Kraft Foods is seen when the sales of Wal-Mart declined, because it ceased to sale some of the products of Kraft Foods. Henry (2008) explains that the success of Kraft Foods in building its brand image is based on the fact that it uses a hybrid system, of Porters generic strategies. It is important to understand that Porter identifies cost leadership, focus, differentiation, and pre-emptive move. However, Kraft Foods focuses on the use of differentiation and cost leadership strategies for purposes of achieving its aims and objectives. Differentiation strategy adopted by Kraft Food is based on its insistence to be an innovative company that constantly improves on the quality of its products (Henry, 2008). A good example is on how Kraft Foods was able to turn the Oreo brand into an international or global brand. In the 1990s, Oreo was the most dominant cookie in the US market, and because of this dominance, Kraft Foods decided to invest in the international market, particularly China. However, Oreo was unable to penetrate the Chinese market, forcing the company to introduce innovative solutions to it’s the brand, in the year 2005. The company modified the recipe that was used for making Oreo, and this is by giving it a more chocolate taste, with less cream (Henry, 2008). The company also introduced smaller packers, for the Oreo brand, and this was based on the Chinese buying behavior. These smaller products were sold at 29 cents, and their intention was to target to target the low end consumers in the Chinese market. These strategies worked out for Kraft Foods, and this is mainly because it was able to increase its sales, in the highly competitive Chinese market (Siegert, 2013). After the success of this concept of differentiation, and cost leadership, the company was able to transfer this strategy to its North American and American markets. The success of differentiating the value of its products is further depicted in the decline in the sales of Wal-Mart products (Watson, n.d. 2015). This is an indication that the customers of Kraft Foods went to other distributors, just for purposes of finding the products of the organization. Therefore, Kraft Foods is successful in differentiating the value of its products, from recognized low cost brands, like Wal-Mart. Therefore, the major profits of Kraft Foods emanates from its mid-range distributors. Furthermore, the acquisition of Cadbury by Kraft Foods plays a significant role in enhancing the economies of scale advantages that are enjoyed by Kraft Foods. This is because the company would benefit from a reduction in the costs of manufacturing its products. This is evidenced on the discounts that the organization receives while purchasing its supplies in bulk. Wal-Mart is a company that has benefited from reduced costs, because of its size. Wal-Mart has managed to sustain its cost leadership strategies mainly because it is able to get supplies at a cheaper and discounted price, because of the large orders that it normally makes (Siegert, 2013). Suppliers would therefore sale their products at a discounted price, for purposes of maintaining a relationship with Wal-Mart. This is the kind of advantage that Kraft Food enjoys, and this is mainly because of its large size, which is made possible by acquisitions and re-investment of profits. Conclusion: In conclusion, the strategy adopted by Kraft Foods can be considered a hybrid strategy. This is because it involves a combination of the differentiation strategy, with that of cost leadership strategy. Kraft Foods began using this strategy, when it achieved success when it applied it in the Chinese market, in regard to its Oreo brand. The acquisition of Cadbury further made the company to enjoy the benefits associated with economies of scale. This is because the company was able to become one of the largest grocery and food manufacturing companies in the world. This made it to be able to easily acquire capital, and get products at a discounted price. Differentiation is always a very expensive initiative. This means that companies pursuing this strategy will have to sale their products at a high cost to make profits. Therefore, Kraft Foods has to develop initiatives and measures aimed at making it have the capability of sustaining this hybrid strategy that they are using. One such strategy is saving a percentage of their profits, so that they could be used to finance innovation and research. This would play a role in helping the company to come up with highly effective strategies aimed at sustaining its hybrid strategies. Innovation is very important for any company wishing to succeed (Iansiti & Levien, n.d, 2015). References: Henry, A. (2008). Understanding strategic management. Oxford: Oxford University Press. Iansiti, M., & Levien, R. (n.d.). Harvard Business School. Retrieved March 14, 2015, from http://hbswk.hbs.edu/item/4331.html Siegert, L. (2013). Sustainable development approaches in the food and beverage industry: A comparison between nestle. S.l.: Anchor Academic Publishing Watson, E. (n.d.). Analyst: Expect more destocking of Kraft Foods and Smucker products at Wal-Martthis year. Retrieved March 14, 2015, from http://www.foodnavigator- usa.com/Manufacturers/Analyst-Expect-more-destocking-of-Kraft-Foods-and-Smucker- products-at-Wal-Mart-this-year. Read More