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Kraft Foods Financial Analysis

Essay by   •  December 12, 2011  •  Case Study  •  769 Words (4 Pages)  •  2,028 Views

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1. Basic Understanding of Business

Kraft Foods is the world's second largest food company, with revenues of $40.4 billion and earnings from continuing operations before income taxes of $4.3 billion in 2009. Kraft Foods was incorporated in 2000 in the Commonwealth of Virginia. It has approximately 97,000 employees worldwide, and it manufactures and markets packaged food products, including snacks, beverages, cheese, convenient meals and various packaged grocery products. It sells products to consumers in approximately 160 countries. At December 31, 2009, it had operations in more than 70 countries and made our products at 159 manufacturing and processing facilities worldwide.

2. Understanding Industry Economics

The food industry is a complex, global collective of diverse businesses. In this section, we apply Porter's five forces framework to the food industry to understand the industry economics.

* Rivalry among Existing Firm

Currently Kraft Food is the world's second largest food company, while Nestlé is the world's largest food and beverage company. Regarding to the rivalry among existing firm, Kraft Foods faces competitions in all aspects of its business. Competitors include large national and international companies and numerous local and regional companies. Some competitors have different profit objectives and some international competitors are less susceptible to currency exchange rate. It also competes with generic products and retailer brand, wholesalers and cooperatives. It competes primarily on the basis of product quality, brand recognition, brand loyalty, service, marketing, advertising and price. Also, the food market in the United States is mature and intense rivalries have a tendency to reduce profitability. However, large market players dominate the market and have distinct advantages compare with small and middle-size companies. Therefore, we characterize industry rivalry as moderate.

* Threat of New Entrants

The food industry has extremely low barriers to entry. This is the reason that numerous small food companies exist. However, the existing major players in the market have distinct competition power to reduce the threat of new entrants. Large food companies like Kraft Food keep their market share by controlling distribution channel, launching advertisement and promoting brand recognitions. Thus, we characterize threat of new entrants as low.

* Threat of Substitutes

The food industry faces few threats of substitutes since it is essential for people to survive. Large players of food industry diversify their products and brands in most potential fields to occupy the market of substitutes. For example, Kraft Foods has five main segments including biscuits, cheese, coffee, grocery and convenient



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