Business Strategy

Business and Corporate

business strategy analysis of kraft foods

Analysis of Business Level Strategy

Kraft Foods Inc. is the second largest food company in the world and makes annual revenues in excess of $54 billion (Kraft Foods Annual Report, 2012). It operates in a highly competitive consumer foods industry where high volume sales are essential for competitive success. Tapping into new markets and growing one’s brand portfolio are also important for growth and success.

Kraft Foods Inc. pursues a number of business-level strategies to support its corporate level strategies. The business level strategies are determined by answering the question How do we compete? (Ireland, Hoskisson & Hitt, 2008). Kraft Foods Inc. has selected product differentiation and brand development as its primary business level strategy. Product differentiation involves creating and conveying to the consumer a unique feature of the product portfolio that distinguishes the company from the competition and offers something that the consumers value. Kraft Foods Inc. develops brands in a number of product categories including biscuits, confectionery, beverages and convenience meals. Some of the well-known brands of the company are Tang, Cadbury, Kraft, Oreo and Lu. The company has adopted nutritional value as the differentiating feature to market its products in 170 countries around the world (Kraft Foods Annual Report, 2012). In addition to differentiation, the company also pursues low costs through sustainable sourcing, efficient packaging and reduced transportation costs (Kraft Foods Annual Report, 2012). These strategies project the image of a responsible company and keep costs low.

In my opinion, the differentiation strategy is the most effective business level strategy for the company because a diverse brand portfolio enables the company to address the diverse needs and tastes of the consumer segments. Consumers prefer localized products; therefore Kraft Foods Inc. needs to expand its brand portfolio by developing new and differentiated brands that offer taste and nutritional value. This would enable the firms to seek growth in new markets.

Analysis of Corporate Level Strategy

The corporate level strategy of any company reflects how the company perceives its competitive and general environment and how it chooses to respond to it. Corporate level strategies are determined in consideration of the product, geographic reach and level of vertical integration (Furrer, 2011).

Because the market is rapidly expanding along with the competitive activity, Kraft Foods has adopted strategies to pursue growth. To pursue its growth objective, the company has been pursuing a policy of strategic mergers, divestments and acquisitions. However, since 2000, the acquisitions strategy has been the primary corporate level growth strategy of the company. Since 2000, the company has acquired a number of important brands such as the Back to Nature cereal brand in 2003, the Lu biscuit brand in 2007 and Cadbury in 2010. During the same period, the company has divested brands like Post in 2008 and its pizza business in 2010. In 2011, Kraft Foods Inc. announced its most ambitious strategic move by revealing plans to enter the grocery business and the global snacks market by launching two independent spinoff companies by the end of 2012 (Kraft Foods Fact Sheet, 2011).

Kraft Foods has been seen to prune its brand and business portfolio by strategic acquisitions and divestments of brands. Of these strategies, the most effective is the acquisition strategy because it allows the company to respond with flexibility to the changing environment. By the strength of its capital, the company gets access to established brands that can be used to enter new markets. The strategic move to enter the grocery business is an attempt at moving down the value chain by controlling the distribution and retailing activities of the value chain. This does not appear to be an effective strategy since the competitive strength of the company has always been its brand management.

Analysis of Strategies with Competitors

The competitive environment of Kraft Foods is fast-paced with a number of large competitors such as Kellogg, PepsiCo. And others. Like Kraft Foods, these are all food and beverage companies that rely heavily on developing innovative brands and effective marketing. However, the most significant competitor of Kraft Foods Inc. is Nestle which is the largest food and beverage company in the world (Nestle, 2012). Kraft comes second to Nestle but is aiming at narrowing the gap through its rapid acquisition and diversification strategies.

At the business strategy level, Nestle is pursuing a similar strategy as Kraft Foods. It is expanding its product and brand portfolio through innovation and research. One differentiating feature of Nestle’s business level strategy is its premiumisation strategy (Nestle Annual Report, 2011). It is targeting niche markets by developing premium products and services whereas Kraft Foods does not pursue such a policy.

At the corporate strategy level, Nestle pursues geographical growth and expansion through acquisitions worldwide. It also develops subsidiaries through organic growth and investment. In contrast to downstream integration as seen at Kraft Foods, Nestle has integrated up the value chain because it sees value creation through partnerships with stakeholders upstream. In addition, it has also diversified into the health sector by the creation of Nestle Health Science (Nestle Annual Report, 2011), while Kraft Foods has diversified into the grocery segment.

A comparison of the strategies of the two competitors shows that Nestle is better positioned to attain growth over the long-term. It seems that in order to narrow the gap between Nestle and Kraft Foods, Kraft Foods is aggressively pursuing acquisition whereas Nestle is investing heavily in emerging Chinese and Russian markets through acquisitions and joint ventures.

Effect of Business Cycle

The business cycle of the consumer foods industry is very fast-paced. New products are developed and launched rapidly. Product promotion is aggressive targeting all segments of the population. Brands need to be promoted aggressively and product failure is attributed to poor marketing strategies. An important trend in the consumer foods industry is to regularly develop new market segments and to position products and brands accordingly. Recently, market segments demanding nutritional and health content in their snacks has increased. Therefore, companies have started bringing out low salt and low-calorie products.

In fast-cycle markets, companies must be quick to respond to market trends and should possess the research, production and marketing flexibility to respond with dynamism (O’ Grady & Malloch, 2010). Innovative products that cater to market needs should be developed. Competitive response tends to be swift with the result that brand wars are common. Long-term growth can be achieved through investment in research, production and marketing areas along with developing diverse competitive strengths. Nestle is better positioned for a fast-cycle market because it has invested significantly in its research and innovation expertise whereas Kraft Foods focuses more heavily on an acquisition strategy.

In slow-cycle markets, significant time and effort is spent on research and development before a product is marketed to the consumers. Consumer tastes tend to be locked-in to particular companies (Mckern, 2003) and competitive strengths do not change frequently. Companies tend to rely on a few core competencies to maintain their position in the market. Both Kraft Foods and Nestle are not well-positioned to operate successfully in slow-cycle markets because their core competencies lie in rapid innovation and a diverse set of competitive strengths such as research, technology, geographical reach and marketing strengths.

References

Furrer, O. (2011). Corporate level strategy: Theory and applications. (p. 2). Routledge

Ireland, R.D., Hoskisson, R.E., & Hitt, M.A. (2009). Understanding business strategy: Concepts and cases. (p. 88). Cengage Learning

McKern, B. (2003). Managing the global network corporation. (p. 125). Routledge

O’Grady, T.P., & Malloch, K. (2010). Innovation Leadership. (p. 371). Jones & Bartlett Learning.