Kraft Foods Inc. (NYSE:KFT)
(http://www.kraftfoods.com Corporate Site: http://kraft.com)
Background
$37.2 Bil Net Revenue (07; up 8.4% from 06)
$2.59 Bil Net income (07; down 15.4% from 06)
Net Revenue over 5 years (billions):
2003= 30.5
2004= 32.2
2005= 34.1
2006= 34.4
2007= 37.2
Net Earnings over 5 years (billions):
2003= 3,476
2004= 2,665
2005= 2,632
2006= 3,060
2007= 2,590
103,000 Employees Worldwide
Operations in 70+ countries
180 Manufacturing and Processing Facilities
Products in 150 Countries
11 R&D Centers
Over 60 brands in North America
Most recognized / Largest Brands:
Cheez Whiz
Cool Whip
Honey Maid
Jell-O
Kraft
Maxwell House
Nabisco
Oreo
Oscar Mayer
Philadelphia
Planters
Ritz
Toblerone
Triscuit
Velveeta
Wheat Thins
General Information
Described as one of the largest food and beverage companies in the world, Kraft Foods is the manufacturer and marketer of a broad range of food products. With over 60 well-known brands, 9 of the Kraft brands bring in over $1 Billion in revenue. Kraft divides products into 5 major categories: snacks & cereals, beverages, cheese, convenient meals, and grocery. The company is also branching out to an international market, including Europe, South America and Asia. These business units are broken out into Kraft North America and Kraft International. The company also has strategic partnerships with Starbucks, South Beach Living and California Kitchen in addition to several other partnerships. Kraft sells these brands in grocery stores under a licenses agreement with the parent company.
The company spun off from the Altria Group, the parent company of Philip Morris, on March 30, 2007. In June 2008, Kraft sold Post Cereals brand thus eliminating the slow growing brand from their business. As an independent company, Kraft has launched a three-year growth strategy under the direction of CEO Irene Rosenfeld. In their growth phase, the company is trying to cut costs and increase their profit margin. High commodity and input costs are currently affecting the food industry including Kraft. Kraft is focusing on getting the right team on board for this growth phase, connecting with consumer trends, leveraging their sales expertise, and reducing costs without negotiating quality.
Kraft is watching consumer trends closely. Consumer initiatives include a new Sensible Solutions product label, 100-calorie pack products, and new products based on established brands (ex: Oreo Cakester). The company has seen Double Digit growth in new product revenue. The Kraft Foods website caters to customers, offering recipes and meal planning assistance, a healthy living section, and kid friendly recipes and nutrition information. In addition, Kraft recently made an announcement that they would not use cloned meat based on consumer concern over the issue. Overall, Kraft’s product offer is providing convenience, quality and affordability in their product lines. During the current economic downturn, some consumers are sacrificing convenience for more affordable options, including generic brands. As a response, Kraft is increasing their marketing to reach consumers and maintain their brand loyalty.
On the sustainability front, Kraft views sustainability as a business strategy and claims it is factored into every business decision they make. The company maintains a good reputation externally on their sustainability initiatives as well. The company feels that implementing sustainability initiatives will have the following internal and external impacts: better manage costs, deliver operational savings, drive growth, reduce environmental impact, reduce utilization of natural resources, and enhance the communities Kraft sources commodities from and does business in. The company is achieving these goals by focusing on six key areas: agricultural commodities, packaging, energy, water, waste and transportation & distribution. In addition, the company is tracking and measuring Environmental Performance Indicators including water use, energy use, energy-related carbon dioxide emissions, solid waste generation and recycling rates. The company is measuring its progress and has a third party consulting firm review their results and performance. The company seems to be on the right track and covering the basic areas related to sustainability. As they continue through their growth phase it will be interesting to see if they continue to develop their sustainability plan more fully.
Summary:
Kraft seems to have a real commitment to sustainability. I think they are off to a good start at looking at their systems and their business from a sustainability perspective. From a health perspective however, Kraft is still in the processed food industry. Although health seems to be a growing concern for Kraft, due to consumer demand, the company does not seem to be looking at the true meaning of health and healthy foods. The predicament that Kraft will face with health claims is that the healthiest foods don’t have labels or marketing departments. With Americans spending less of their income on food than any other nation (~10%), Kraft has developed a market for affordable, convenience food products.
I applaud the company’s commitment to discontinue advertising to children under the age of 12 and to revisit current brands and increase quality and nutrition (ex: Salad Dressing, removal of preservatives). They are also leading in the area of coffee bean procurement and their partnership with the Rainforest Alliance. The company has the opportunity to learn from that partnership and look at their sourcing for all of their ingredients and products.
On the international level, Kraft appears to be taking a “Bottom of the Pyramid” approach. By marketing their products in smaller, more affordable sizes, they are tapping into lower income markets. My concern stems from a cultural level and exporting our Western diet around the world. Kraft’s marketing and entry into the developing world can be viewed as anti-cultural and may help to cause a shift or displace cultural ways of eating. The Western diet has proven to be an unhealthy model, contributing to obesity and diseases like diabetes. The idea that Kraft embodies the American food brand unfortunately says something about their role in helping to establish the US as one of the most obese in the world.
Although Kraft seems to have a commitment to sustainability, the company needs to look at sustainability from both a systemic perspective and at the detail level.
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