Introduction
Kraft Foods Group is an American company based in Northfield, Illinois. It is a grocery manufacturing company, as well as a processing conglomerate. The company deals in a variety of food, snacks and beverages. Kraft Foods Group is a public company that is listed on NASDAQ.
It is one of the largest food companies in America. The purpose of this essay is to carry out an external analysis of the company. This will be done by conducting an analysis of Porter’s Five Forces and then a PEST analysis. A critical analysis of these two will lead to formulation of the company’s threats and opportunities.
Porter’s Five Forces Analysis
Threat of entry of new competitors
The food industry is usually very competitive. Very many companies are involved in this industry across the world. The companies in the industry today have invested heavily in brand building (QuickMBA, 2007).
This makes it difficult for any new company to come in and threaten their existence. As a result, there are very few chances of new entrants in the industry. Therefore, Kraft Foods Group does not face a lot of threat from new entrants or competitors.
Rivalry among existing companies
As mentioned earlier, there is a lot of competition in the food industry. The competition in this industry is international. Therefore, Kraft Foods Group faces competition from many companies from all over the world. One of the sure strategies that the companies execute to win their customers is brand building.
Every company wants to create the impression that their brand is the best. Food companies strive to produce high quality. The competition is even made worse by the fact that customers have a variety of brands to choose from.
Therefore, switching brands does not have any significant effect on customers. This makes it difficult for companies to maintain consumer loyalty (QuickMBA, 2007).
Threat of substitute products
Food and beverages companies offer products that are highly similar. This offers the consumers a wide range of substitutes to choose from. The best way a company can avoid customers from switching to substitute products is by ensuring they produce high quality goods and offer them at a low price (QuickMBA, 2007).
This is an issue that Kraft Foods Group can easily deal with through the help of its innovative ability. The threat of substitutes is real and the company should be ready to deal with it accordingly.
Bargaining power of suppliers
Any organization or individual who does business aims to make maximum earnings. It is not different for suppliers in the food and beverages industry. The suppliers have many companies to whom they can sell their products.
However, the high competition in the industry forces the companies to go for suppliers whose offers are favorable.
This factor makes suppliers less influential in the industry since almost all the companies are looking for fair deals. The threat of suppliers bargaining power to Kraft Foods Group is not too much (QuickMBA, 2007).
Bargaining power of buyers
Buyers are always willing to spend as little as possible and get the highest possible quality for products or services. Buyers will always go to the company or brand that satisfies their needs. Buyers bargaining power, therefore, becomes highly influential in this industry.
They can easily switch to other brands since the costs they will incur are almost insignificant. Kraft Foods Group faces a serious threat from buyer bargaining power.
For Kraft Foods Group to maintain its customers, it needs to offer high quality products, lower its prices, and at the same ensure that it satisfies other customer needs (QuickMBA, 2007).
PEST Analysis
Political environment
The company is affected by the political environment in America, as well as other countries outside America. Kraft Foods has been involved in political activities, some of which involve supporting politicians whose policies are in line with its business interests.
There is a political committee known as Kraftpac that was formed by Kraft Foods Group. The purpose of this committee is to fund the United States Federal candidates, as well as political parties. The committee also funds other political committees. It only raises the funds if it is allowed by the law to do so.
However, Kraft Foods has to follow a certain criteria in determining the candidate to fund.
First, it considers public policies that have a positive impact on Kraft Foods business.
Secondly, it considers the presence of its facilities and/or employees in the state or district where the candidate comes from.
Finally, Kraft Foods considers the leadership position of the candidate (Kraft Foods, 2011).
Economic environment
The world has experienced a period of economic slowdown over the last couple of years. In particular, America which is the home to Kraft Foods Group has been affected by the housing bubbles. This has had a major effect on America’s economic growth.
The poor economic growth has affected all the companies that operate in America, including Kraft Foods Group. However, the company’s earnings have been positive despite the fact that they have dropped. Kraft Foods Group has been highly involved in marketing its brands and products.
It is, therefore, no surprise that it has continued to make profits. The quality of its foods and services has been vital in maintaining its earnings through the period of economic difficulties.
The company has been named on several occasions in the ‘Dow Jones Sustainability World Index’, as well as in the ‘Dow Jones Sustainability North America Index’ (KFSPFS, 2009).
Changes in interest rates have also had an effect on the company’s business. The company is listed in the stock exchange and, therefore, changes in the exchange rates have an effect on its stocks.
Social environment
In the modern world, the involvement of an organization in corporate social responsibility (CSR) gives it a competitive advantage. These activities bring the organization closer to its customers. Customers feel that the organization is caring about their well –being, compelling them to buy the company’s products in the future.
Kraft Foods Group has continuously been involved in CSR activities (Value Based Management.net, 2013). For instance, in the year 2010 the company prepared a CSR report that called for the creation of a world that is more delicious.
In so doing, the company was to engage in production of foods that are safe and healthy for human consumption. It focused on developing policies and partnerships that would realize a healthier nation and ensure the well–being of people.
In addition, the company formed partnerships with farmers, a move that would help them improve their living standards. In the partnership, the company was to buy the farmers’ cocoa and coffee at a better price.
Kraft Foods has also taken initiatives to reduce its emission of greenhouse gases in order to reduce environmental pollution.
Technological environment
Innovation is the key to success in the current economy. Kraft Foods Group embraces all aspects of innovation in order to make improvements in their products and ensure customer satisfaction.
The company has been developing innovative products, as well as offering innovative services in a bid to gain a competitive edge (Value Based Management.net, 2013). Technology is given emphasis in Kraft Foods Group. It is enough to conceive how much technology is embraced at Kraft Foods Group by visiting its website.
The company also has a technology known as SAP Netweaver that ensures enhances information storage and management. Finally, the company has an R&D team that is responsible for all innovations. This team carries out researches that help in innovating services and products.
Overall Impressions Concerning the Company’s Environment (Opportunities and Threats)
Kraft Foods Group operates in an industry that presents a lot of opportunities for its growth, as well as threats that could severely affect its business.
Among the opportunities that are available for Kraft Foods include its ability to produce innovative goods, its involvement in CSR programs, as well as the low bargaining power of suppliers (Marketing Teacher, 2009).
The ability to produce innovative goods and embrace technology will help the company improve on its quality and lower prices. This will give it a competitive advantage. Its involvement in CSR will also help in creating consumer loyalty and a strong brand.
The threats that the company faces include competition and bargaining power of buyers. Competition in this industry is high, and it is easy for a company to lose its customer. This makes the bargaining power of buyers relevant (Zahorsky, 2009).
Conclusion
Kraft Foods Group operates in a highly competitive industry. It should, therefore, take advantage of any opportunity that comes its way.
In addition, the company should try to improve on areas that are likely to expose it to threats and loss of sales. This will help the company to stand strong and make it through in the tough economic times and in this competitive industry.
References
KFSPFS (2009). Kraft Foods Sustainability Progress Fact Sheet. Web.
Kraft Foods (2011). Political involvement. Web.
Marketing Teacher. (2009). SWOT analysis: Lesson. Web.
QuickMBA. (2007). Porter’s five forces: A model for industry analysis. Web.
Value Based Management. (2013). PEST analysis. Web.
Zahorsky, D. (2009). A business owner’s secret weapon: SWOT analysis. Web.