Kraft Foods Case Analysis

I. Introduction

A company in a slowing market with high competition often needs to make drastic changes to continue to create value for its shareholders. Kraft Foods Inc. (KFT) was a processed food company that produced big name brands, such as Oreo, Maxwell House, Honey Maid, among others. In 2012, the company was the second largest processed food company in the world based on revenues, after its main competitor Nestlé. However, slow growth in many critical industry segments meant that the company was unable to increase shareholder value throughout 2011. Additionally, sales were stagnating and revenues were only increasing by raising prices.

In order to address these issues, the Board of Directors at KFT announced in 2011 that the company would be restructured to create two new companies by the end of 2012. First, there would be a global snacks business that included all of KFT’s business units in Europe and developing markets, in addition to the United States snack business. This new company would be called Mondelez International (MDLZ) and the Board hoped it would be a high-growth global snacks business. The remaining business units would become Kraft Foods Group (KRFT) and would be a high-margin, slow growth, North American grocery business.

The following report begins with assessing the processed food industry as a whole through a PESTEL and Porter’s Five Forces analysis. Second, a SWOT and financial analysis are used to evaluate MDLZ and KRFT. Lastly, final recommendations are made for each of the new companies.

II. Industry Analysis

The processed foods industry incorporates many different segments, including cheese, snacks and groceries; all of which KFT operated in. The following analysis will consider the environment that the processed foods industry operates within and the industry as a whole with notes if a specific segment within the industry differs.

A. PESTEL Analysis

A PESTEL analysis is useful in determining significant factors in the macro-environment of the processed foods industry. Beginning with political factors, the two main players in the industry, KFT and Nestlé, are massive multi-national corporations that have operations in many different countries. Because they conduct business in so many countries, there are varying government regulations in regards to production, distribution, marketing, etc. They also have to consider the political stability of new countries they may look to enter.

Next, there are many economic factors that influence the processed foods industry. First, inflationary forces will lead to higher prices for commodities, such as coffee, cocoa, oils, nuts, and sugar, which are among the main inputs for processed foods. Furthermore, high inflation and rapid currency devaluations in some developing markets can result in exchange rate loss.