Business

Key Facts
Company Name Kraft Foods Inc.
Industry 2022  Food Processing
Market New York Stock Exchange (NYSE)
Symbol KFT
Revenue 41.9 Billion

Introduction
Kraft Foods Inc. (Kraft), incorporated in 2000, is engaged in manufacturing and marketing packaged food products, including snacks, beverages, cheese, convenient meals and various packaged grocery products. The company is split into two distinct units, Kraft North America and Kraft International with the former looking into North American (USA and Canada) interests and the latter into operations and a customer base spanning 70 and 150 countries respectively.

The brands of the Company span five consumer sectors snacks, beverages, cheese, grocery and convenient meals. The company competes with international names including Nestle, Kellogg, General Mills and J  J Snack Foods Corporation with the acquisition of Cadbury leading to the setting up of a confectionery segment , thus, pitting it against Mars, the Hershey Company and other confectionery firms.

Fact s, Business  Brand Portfolio  Success of Operations
The companys annual report for the year 2008 gives an overview of the companys strengths and success of operations. Specifically speaking, Kraft is the worlds second largest food company with 42 billion in revenues and operations in 150 countries with a customer base exceeding the 1 Billion mark. The companys expanse in the  United States is so vast that Kraft products are found in 99 percent of households. Interestingly, the company operates as a portfolio of different brands. It markets 9 brands that have individual sales in excess of 1 Billion each including Kraft, Jacobs, Maxwell House, LU, Milka, Nabisco, Oreo, Philadelphia  Oscar Mayer, all renowned household names. Additionally, the firm boasts more than 50 brands that have revenues exceeding 100 Million. There is an element of heritage attached too to the brand portfolio with more than 40 brands that are at least 100 years old pointing to centuries of perfection and customer trust. The company has 168 manufacturing facilities in 70 countries employing 98,000 employees with a wide range of Corporate Social Responsibility Initiatives to its name so much so that it is part of the FTSE 4 Good and other stock market indexes that are built around social responsiveness of the corporation.

Acquisition of Cadbury
The recent acquisition of Cadbury Inc by Kraft makes Kraft the largest food and confectionery company in the world followed by its American competitor in the confectionary business, Mars. Kraft has agreed to pay to shareholders of Cadbury a total of 19.5 billion in cash and stock. The acquisition will give Kraft access to previously unexploited markets, particularly that of India where the presence of Kraft products was very small. Additionally, the addition of Cadburys brand portfolio into Krafts will help in furthering the advantages of  diversification  and revenue stream volatility.

Synthesis
The nature of the products sold by the company represents a natural hedge against cyclical nature of the business environment. People do not ideally cut down on their food intake during times of recession and hence this non cyclical business premise allows the company to effectively survive negative cyclical trends prevailing in the general economy. Quite importantly, the companys broad range of brands and products ensures that it is able to cater to all types of market niches and hence enjoy enormous economies of scale.

This leads us to the most important. As can be inferred, the industry in which Kraft operates in is built around brand power, that is, firms increasingly use branding and other differentiation techniques as a way to differentiate a largely homogeneous product and gain market share. Of course there is an element of differences in taste but these are minute differences. The focus remains on the perception that is created by the characteristics of the product and its presentation to the final consumer.
Hence, the competitive advantage that any company in this industry avail is from the value of the brands they hold. This is evident by the fact that individual brands themselves are billion dollar ventures in their own self with the stated fact that the companys brands combine heritage and are at the same time household names.

This is an important point as this form the link between the company and its customers and is the source of competitive advantage. The customers of the company comprise the common man who has come to place great trust in the companys products with this trust being transferred from generation to generation as a hallmark of quality products. This trust factor is hard to replicate for new entrants and hence this leads to competitive advantages for Kraft. Similarly, economies of scale also seem to be applicable in Krafts case. The long standing trust of the customer base of Kraft enables the company to focus marketing on less cost prohibitive informative exercises as opposed to expensive persuasion advertising.