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V.

Strategy Formulation
A. Input Tools
Key external factors that affect the Kraft Foods Inc. were obtained from the PEST
analysis and Porters Five Forces of competition discussed earlier. The relevant
external factors affecting the Kraft Foods Inc. are:
1. External Factor Evaluation (EFE) Matrix
Table 19: EFE Matrix for Kraft Foods Inc.
Key External Factors

Weight

Rating

Weighted
Score

0.1

0.3

0.1

0.3

0.08
0.08
0.06
0.08

4
3
2
3

0.32
0.24
0.12
0.24

0.07

0.21

Threats
1. Increasing trend in dining out

0.09

0.18

2. Health concerns
3. Increasing obesity rate
4. Inflation (transportation)
5. Unfavorable impact of foreign currency
6. Intense competition from Mars Inc, Nestle SA
Total

0.08
0.1
0.1
0.06
0.14
1.00

2
1
3
1
4

0.16
0.1
0.3
0.06
0.56
3.09

Opportunities
1. Operates in many fast growing categories
2. Growing demand for health and wellness
products
3. Decreased input costs (raw materials)
4. Changing lifestyles
5. Growth in the coffee market overall
6. Growth in global confectionary and snacks
market
7. Cadbury acquisition provides new products

The average total weighted score is 3.1. It means that the company is doing well
in handling its existing opportunities and threats in its industry. It indicates that
the firms strategies are effectively utilize to maximize its opportunities and
minimize the external threats.

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The main opportunities for Kraft Foods are the acquisition of Cadbury, the fast
growing market share in some of its products, and also the value they create in
their products.
The threats show the external factors that directly affects the industry of Kraft
Foods. There are more threats in the industry than there are opportunities. One
of the major threats is its competition to Nestle, SA

2. Competitive Profile Matrix (CPM)


Table 20: CPM Matrix for Kraft Foods Inc.
Competitive Profile Matrix
(CPM)
CRITICAL SUCCESS
FACTORS
1. Advertising
2. Global Expansion
3. Market Share
4. Customer Loyalty
5. Profit Margin
6. Attractiveness as
employer
7. New Product
Development
TOTAL

Kraft Foods
Inc.

Nestle

Congra Foods

Weight Rating Score Rating Score Rating Score


0.15
4
0.60
4
0.60
3
0.45
0.15
3
0.45
4
0.60
3
0.45
0.15
3
0.45
4
0.60
2
0.30
0.15
4
0.60
4
0.60
3
0.45
0.10
3
0.30
3
0.30
3
0.30
0.15
3
0.45
4
0.60
2
0.30
0.15

0.60

1.00

3.45

0.45

3.75

0.45
2.70

Note: 1=major weakness, 2=minor weakness, 3=minor strength, 4=major


strength

The Competitive Profile Matrix shows the relative strength of Kraft Foods
Inc.

compared to its competitors by using the critical success factors in its

industry. By identifying its strengths, we can also identify its relative weaknesses
and address them to formulate effective strategies.
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Kraft Foods Inc. is relatively competitive in its industry, showing 3.45 as its
total score. The company has to improve on global strength, market share and
attractiveness as an employer to improve on brand loyalty and customer
retention. Its profit margin has a rating of 3 just like the other industry because it
is considered as a minor strength for they all want to focus on their brand and
customer satisfaction.

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3. Internal Factor Evaluation (IFE) Matrix


Table 21: IFE Matrix for Kraft Foods Inc.
Key Internal Factors

Weight

Rating

Weighted Score

Strengths
1. Strong R&D
2. Increased organic revenues
3. Availability

0.07
0.05
0.09

4
3
4

0.28
0.15
0.36

4. Innovative advertising methods

0.08

0.32

5. Diverse range of leading brands

0.04

0.16

6. Focus on consumers
7. Strong distribution network
8. Strong brand image
9.
Worlds
second-largest
company

0.05
0.08
0.9
0.09

3
3
4
4

0.15
0.24
0.36
0.36

0.04

0.16

0.03
0.05

1
2

0.03
0.10

3. Strong competition from Nestle,


Hershey, etc.
4. Poor performance of North-American
segment

0.15

0.15

0.07

0.14

Total

1.00

10.

25% of global revenue


emerging markets

food
from

Weaknesses
1. Difficulty in launching new brands
2. Most of growth is dependent on
acquisitions or expanding into new
market.

2.96

The company receives a total of 2.96 weighted score which indicates that it has
strong internal position. The company is able to handle its internal factors. Being
the second largest food company in the world and having a strong brand image
gave Kraft Foods Inc. its strong competitive position.

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B. Matching Tools
1. Strengths-Weaknesses-opportunities-Threats (SWOT) Matrix
The opportunities and threats that Kraft Foods Inc. possesses are now
matched against its strengths and weaknesses by using the SWOT matrix in
order to generate appropriate strategies.
Table 22: SWOT Matrix for Kraft Foods Inc.
Strengths

Weaknesses

1. Strong R&D
2. Increased organic revenues
3. Availability
4. Innovative advertising methods
5. Purchasing power
6. Focus on consumers
7. Strong distribution network
8. Strong brand image
9.worlds second largest food
company
10. 25% of global revenue from
emerging market.

1.

Difficulty in launching new


brands
2. Most of growth is dependent
on acquisition or expanding
into new market Decrease in
sales
3. Strong competition from
Nestle, Hershey Etc
4. Poor performance in NorthAmerican segment

Focus on retailers and restaurants

Look for divestiture in poor

O1,S1

performing segments

Position itself as a healthy food

Sell packaged coffees to cafes

producer O4,S3,S8

W4,O1

Opportunities

1. Operates in many fast growing


categories
2. Growing demand for health and
wellness products
3. Decreased input costs [raw
materials]
4. Changing lifestyles
5. Growth in the coffee market overall
6. Growth in global confectionary and
snacks market
7. Cadbury acquisition provides new
products

Focus on ready to eat products


O4,S6
Promote ready to drink beverages
O4,S5,S8

Threats

1.
2.

Increasing trend in dining out


Health concerns
Increasing obesity rate

Introduce low fat products T3,S6

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Launch a sub-brand (brand


extension) for a healthier range
of products T2, W3

3.
4.

6.

Inflation [transportation]
Unfavorable impact of foreign
currency
Intense competition

Outsource operations to cheaper


logistics partners T4,S7

2. Strategic Position and Action Evaluation (SPACE) Matrix


The SPACE matrix provides an indication of whether Kraft Foods Inc. should
pursue aggressive, conservative, defensive or competitive strategies.
Table 23: SPACE Matrix for Kraft Foods Inc.
Internal Strategic Position

Rating

1. Financial Strength (FS)


High Long term debt (18.5 Billion)
Revenues increased to 42.2 Billion from 36.13 billion
Liquidity increased from 567 million to 1.24 billion
Saved $1.1 billion in 2009 through streamlined
manufacturing
Assets decreased from 67 billion to 63 billion
Inventory decreased from 4 billion to 3.7 billion
Receivables decreased from 5.1 billion to 4.7 billion

1
5
5
5
2
4
4

2. Competitive Advantage (CA)


Strong Brand Name
Largest Food Company in USA
Available in over 150 countries
New products
Decrease in Sales
Innovative advertising
9.8% increase in pricing

-1
-1
-2
-2
-5
-1
-3

External Strategic Position

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Average
Rating
+3.71

-2.14

3. Environmental Stability (ES)


Rising costs of petroleum
Unfavorable impacts of foreign currency
Brand conscious consumers
Global recession

-5
-5
-2
-5

-4.25

4. Industry Strength (IS)


More people are dining out
Development of health products (Obesity Concerns)
Steady Growth in US market for packaged and processed
food

3
1
5

+3.00

FS & ES Total Score= -0.54


CA & IS Total Score = 0.86
Figure 22: SPACE Matrix for Kraft Foods Inc.
FS
Conservative

Aggressive

CA

IS
Kraft Foods Inc.

(0.54,0.86)

Competitive
Defensive
ES

Based on the illustration, the directional vector suggests that Kraft Foods
Inc.hould pursue competitive strategies. Therefore, the company can adopt

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market penetration, market development and product development. This can


also include backward, forward and horizontal integration.
Market penetration is defined as a strategy that seeks to increase market
share for present markets through greater marketing efforts.
Market development involves introducing present products or services into
new geographic areas.
Product development is a strategy that seeks increased sales by improving or
modifying present products.
3. Boston Consulting Group (BCG) Matrix
In the BCG matrix, (Table 24), Kraft Foods Inc. services are presented and
compared with industrys growth rate.
Table 24: BCG Matrix for Kraft Foods Inc.

Food products

Total
Revenue (in
Mio. $)

Profits (in
Mio. $)

%
Market
Share

%
Industry
Growth
Rate

49,207

4,114

18.67

8.44

The percentage market share of Well Fargo was computed as follows:


2010 Kraft Foods net sales X 100%
2010 industry total net sales

= 49,207

X 100%

197, 541
= 24.91%

The percentage industry growth rate was obtained from the annual increase in
revenues.
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Figure 23: BCG Matrix for Kraft Foods Inc.


Industry
% growth rate

+20

High
1.0

Relative % Market Share in the Industry


Medium
0.5

II STARS

Low
0.0

I QUESTION
MARKS
(0,25,8.44)
Kraf
Kraf
tt
Foo
Foo
ds
ds

III CASH COWS

IV - DOGS

-20

Kraft Foods belongs to Question Marks Group seen in Quadrant I, it


remains to be competitive enough although its market share is not that high but
its growth rate in industry is high enough to cover the market. In order to be on
Stars the company must pursue an intensive strategy to strengthen the company
and meet its goals in the industry.

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4. Internal-External (IE) Matrix


Krafts IE matrix is as follows:
Figure 24: IE Matrix for Kraft Foods Inc.
EFE Weighed
Scores
IFE Weighted Scores
Strong

Average

3.0 4.0

4.0

Weak

2.0 2.99
3.0

2.0

1.0 1.99
1.0

III
II

High
Grow and build

3.0

Kraft
Kraft
Food
Food
ss Co.
Co.

IV

(2.96,3.09)

VI

Hold & Maintain

Medium

2.0

VII

VIII

IX
Harvest or Divest

Low

1.0

Kraft Foods Co. is in the Grow and Build position which means that its internal
strengths are on the average and response to the external factors are on the
above average. This means that Kraft can proceed in doing intensive and
integrative strategies as suggested by the IE Matrix.
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Figure 25: GS Matrix for Kraft Foods Inc.


Rapid Market Growth
Quadrant II
Quadrant I
1. Market Development
2. Market Penetration
3. Product Development
4. Forward Integration
5. Backward Integration
6. Horizontal Integration
7. Related Diversification
Kraft
Kraft
Food
Food
ss Inc.
Inc.

Weak
Competitive Quadrant III
Position

Strong
Quadrant IV Competitive
Position

Slow Market Growth


Kraft Foods Inc. falls under Quadrant I which is characterized by rapid market
growth and strong competitive position. For Kraft Foods Inc. it would be best for
them to continue their concentration on their current markets and strategies that
would be best to use are market penetration and market development as
suggested earlier in the other matrixes. If Kraft Foods is too heavily committed to
a single product, then related diversification may reduce the risks associated with
a narrow product line.

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C. The Decision stage


Table 25: QSPM Matrix for Kraft Foods Inc.

Key Factors

Weight

Strategy 1

Strategy 2

AS

AS

TAS

TAS

Opportunities
1. Operates in many fast growing categories

0.05

2. Growing demand for health and wellness products

0.10

0.1

0.2

3. Decreased input costs [raw materials]

0.15

4. Changing lifestyles

0.05

0.3

0.3

5. Growth in the market overall

0.10

6. Growth in global confectionary and snacks market

0.03

0.4

0.2

0.24

0.08

7. Cadbury acquisition provides new products

0.05

1. Increasing trend of dining out

0.05

2. Health concerns

0.10

0.2

0.2

0.3

3. Increasing obesity rates

0.08

0.3

0.16

0.08

0.32

0.32

Threats

4. Inflation [transportation]

0.1

5. Unfavorable impact of foreign currency

0.06

6. Intense competition from Mars Inc, Nestle SA

0.08

Key Factors

Weight

AS

TAS

AS

TAS

Strengths
1. Strong R&D

0.06

0.06

0.24

2. Increased organic revenues

0.07

3. Availability
4. Innovative advertising methods
5. Diverse range in leading brands
6. Focus on consumers

0.05
0.04
0.08
0.06

2
3
3
4

0.1
0.12
0.24
0.24

3
4
4
3

0.15
0.16
0.32
0.18

7. Strong distribution network


8. Strong brand image

0.07
0.10

4
4

0.28
0.4

4
4

0.28
0.4

9. Worlds second largest food company


10. 25% revenue from leading market

0.03

0.06

0.12

Weaknesses
1. Difficulty in launching new brands

0.12
0.10

4
2

0.48
0.2

4
1

0.48
0.1

2. Most of growth is dependent on acquisition or expanding into


new market
3. Strong competition from Nestle, Hershey Etc.

0.08

0.32

0.08

0.06

0.24

4. Poor performance of North-American segment

0.08

0.32

0.08

Total

Strategy 1:
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A new line of low-fat products for the health conscious segment

Strategy 2:
Develop the Maxwell House market by introducing it to cafes.

Result
Strategy 1 Total TAS: 5.00

Strategy 2 Total TAS: 3.95

The recommended strategy for Kraft Foods Inc. would be to introduce a new line
of low-fat products for the health conscious segment.

Position its products as a healthy and organic.

VI. Strategy Implementation

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A. Recommended Revise Vision Statement


After a thorough analysis of Kraft Foods Vision Statement, we come up the a
decision which is not to revise the vision of this company because as we analyze
the statement it shows that the vision encompasses the thought and content on
how the company position their selves in the market. The impact made by the
vision truly captures the sentiments of its consumer and also the vision gives us
a clear understanding that the company is customer-oriented and promotes a
better way of living.
B. Recommended Revise Mission Statement
After a thorough study of Kraft Foods Inc. we can say the its mission statement
contains information in terms of the companys concerns when it comes to its
customer, public image and concern for its employees. Although it has a good
mission statement we think that it would be better if we do some revisions in
order to elaborate more about how the company could fulfill its goals
We hereby revise the mission statement and this would be the recommended
mission for the company:
In providing quality products and services to the public, We, Kraft Foods Inc.
commit ourselves to excellent and satisfying production of products by;
1. Responding to the customer needs and be able to meet their expectation by
providing products that are of high quality and safe from any toxic through the
use of the modern technology and give them quality assurance ;
2. Delivering of product in good condition and securing that the delivery will come
on time to the designated area.
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3. Promoting good relationship between our company and customer and also the
suppliers of our business.
4. Seeing to eat that we have the best employees that could participate in the
decision making and providing them good working facility and quality trainings
5. Participating in community program and helping the community have a stable
progress.

C. Recommended Departmental Objectives


Marketing Objectives

To increase sales by 15% for the next three years

To increase market share by at least 3% for the next 3 years

To maintain customer loyalty by developing more healthy products.

Financial Objectives

To increase net income at least 30% of the sales for the next three years.

To increase asset turnover by at least 5% per year.

Human Resource Objectives

To enhance the training skills of the employees by implementing seminars.

To be able to maintain good working condition and implement reward


strategy.

Research and Development Objectives

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To be able to built a new R&D center for the next 3 years in other
coverage area.

D. Recommended Revise Organizational Structure.


The organizational structure of the company is fully a centralized one. It is only
compose of the top executives of the company. We suggest the that company
develop a line and staff structure wherein the middle and lower level of the
organization is seen and have a direct communication in terms of decision
making and finding solutions to the problems both on top to lower level
management.

E. Recommended Strategies
Upon the using the matrixes presented, the following are the recommended
strategies that Wells Fargo should use.
Market Penetration

Increase advertising expenditures and specifically target the household


population.

Offer extensive sales promotion during peak season and creating bonus
packages.

Decrease the cost of the product if it would be possible so that buyers will
be attracted to patronize it.

Product Development

Develop products containing low fat and calories for those health
conscious individuals.

Develop confectionary products that are sugar free to attract retiring


individuals.
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Package products that are inter-related

Improve technological systems, especially the online shopping center for


mothers at home.

F. Financial Projections
Table 26: Financial Projections for Kraft Foods Inc (2011-2013)
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Benchm
ark
Year
2010

2011

2012

2013

Assumptions

Projected Income Statement (in Mio


$)
Total Revenue

49,207.0

54,127.0

59,539.0

65,492.0

Cost of Revenue

31,305.0

32,870.0

34,513.0

36,238.0

Gross profit

17,902.0

21,257.0

25,026.0

29,254.0

__

105.0

121.0

140.0

12,001.0

13,531.0

14,884.0

16,373.0

211.0

222.0

233.0

244.0

Total operating expenses


Operating income or loss

12,847.0
5,415.0

13,858.0
7,399.0

15,238.0
9,788.0

16,757.0
12,497.0

Income From Continuing Operations


Earning before interest and taxes
Interest Expense

5,415.0
1,790.0

7,399.0
2,165.0

9,788.0
2,381.0

12,497.0
2,619.0

3,642.0
1,147.0

5,234.0
1,831.0

7,407.0
2,592.0

9,878.0
3,457.0

4,114.0

3,403.0

4,815.0

6,421.0

Total Current Assets

16,221.0

21,087.0

27,413.0

35,636.0

Total Non-current Assets

79,068.0

82,230.0

85,519.0

88,934.0

Total Assets

95,289.0

103,317.
0

112,932.
0

124,570.
0

Total Liabilities

59,455.0

53,150.0

42,699.0

26,244.0

Equity

35,834.0

50,167.0

70,233.0

98,326.0

Total liabilities and equity

95,289.0

103,317.
0

112,932.
0

124,570.
0

Operating Expenses
Research development
Selling, General, and Administrative
Depreciation/Amortization

Income before tax


Income Tax expense
Net Income

Assuming that revenue


increases at 10%
Assuming that cost of
revenue increase at 5% of
revenue

Assuming that this is of


revenue used in research and
marketing
Assuming this increases in
proportion to revenue at 25%
Assuming this increase at 5%
per annum

Assuming this increases at


4% of revenue
Assuming the tax rate is 35%

Projected Balance Sheet

VII. Strategy Evaluation


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Increases assumed for buildup of new facilities and


integration of technology

Decrease as equity increases


and revenue

As an evaluation tool, the balanced scorecard shows the various selected key
strategies on aspects of consumer perspective, internal business processes,
financial perspective and learning growth. A set of quantitative measures has
been enumerated for each strategy to enable the company to monitor progress
or strategy attainment on a regular basis and review whether these need to be
changed or revised.

Table 27: Balance Scorecard for Kraft Foods Inc.


Goals

Strategies

Measures

Time
Completion

Customer perspective
Provide quality products for
all customers

Product development

Developing quality products


such as low fat and less
cholesterol products

Immediately
after 2011

Semi-centralization of the
organization

A main branch per area


which controls other
smaller branches

4th quarter
2005 2006

Having a large share in the global


economy

Using effective marketing


and extensive product
development
Cutting cost if possible

3ndquarter
2011

Internal business process


More efficient internal
control.

Financial perspective
Attainment of 2011, 2012, and
2013 revenue target

Learning and growth

89

Increase industry awareness


regarding service in other
country
Development of intensive
training program for human
resource

Intensify marketing promotions


Offering seminars that will
enhance skills in communicating
and decision-making

Use the partner


companys expertise
regarding the
marketability of the
country
Increase of effectiveness
and efficiency of skill
performance

2nd 3rd
quarter 2012
Immediately
after 2011

VIII. Concluding Remarks


Food industry is one of the fast growing industries ever since it started to appear
in the global market. United States is the home where leading food companies
are principally located. Indeed the advance technological adaptation in this
country led the food industry to become innovative and more eager to develop
new products as time goes by. The challenge in this industry is the tough
competition of the various companies belonging in the same industry. On how
they could penetrate the market and what would be their advantage over their
competitor. Kraft Foods is one of the companies belonging in this category. It can
achieve its leadership and growth by doing intensive promotion and management
of its existing clients and venturing other countries to promote business.

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