Posted: May 25th, 2022

Model of strategies adopted by Kraft Foods

Strategic Management

Which of the four generic (Porter) strategies does the Kraft Foods Company follow, and how do you know?

From the strategic aspect, Kraft uses a hybrid model of strategies carved out of four generic strategies mentioned in the Porter’s model. The company does not use only one of the four generic (Porter) strategies for conducting business. The compartmentalization of strategies as done by Porter is not strictly followed by companies in the business world. In fact, it is the Bowman’s Clock model (Thomson & Baden-Fuller, 2010) based on porter’s generic strategy model that better enables us to assess the hybrid model of strategies adopted by Kraft Foods. Kraft Foods is a cost focused as it sells its merchandise in bulk to mega retail stores such as Sainsbury’s, Tesco, and ASDA that are mid-range distributors. If Kraft does not keep its costs and prices low and competitive as compared to PepsiCo (PEP), General Mills (GIS), and Nestle SA, it would not be able to sell in hypermarkets successfully. Thus, Kraft Foods has not adopted a differentiated or focused differentiation strategy as the company does not target niche but large and diverse target market. Neither is Kraft a cost leader and its products are relatively priced according to the perceived brand value.

The fact that Kraft uses a hybrid of four generic strategies as mentioned by Porter is also verified by the statement of Kraft CEO Irene Rosenfeld. He stated that the company is pursuing strategy of growth and focused reinvestment while at the same time Kraft is managing input costs by maintaining strong brand equities and pricing. The acquisition of Cadbury’s is also executed by Kraft foods to achieve greater economies of scale and enhanced brand recognition. The company is also aimed at increasing the brand perception through focused differentiation of brand image rather than each product. Thus, it can be stated that Kraft uses a hybrid of four generic (Porter) strategies.

2) Do Kraft Foods Company’s strategic choices align with the firm’s generic strategy? If not, what are the points of disconnect? No company achieves perfect alignment of its strengths, weaknesses, opportunities and threats with its chosen strategy. It is your job to uncover the discrepancies and problems.

A general assessment of Kraft food’s strategic and generic choices seems to be aligned. The company has always established its aim to lead the North American region in terms of sales and revenue as well as market share occupation of food business sector. With $19 billion in annual sales for Kraft Foods Group only (Kraft Foods, 2013), the company in order to achieve this strategic aim, has established a vast and elaborate network of distributorship in the region. Large retail stores have shelf space for complete range of Kraft foods. There are comprehensive agreements with the major retail chain stores such as Sainsbury, Tesco, and ASDA. Wal-Mart was also one of the major retail chains to carry complete range of Kraft products, although it has recently dropped carrying Kraft products. In order to achieve the economies of scale, the company has vast network of sales and distribution along with acquisitions and mergers to support increased production of which Cadbury is a recent example. The company also tries to sustain and enhance its brand image by virtue of comprehensive branding strategy. Vertical and horizontal expansion of companies’ product range is also indicative of Kraft’s sustained strategic expansion. Recently the company split into Mondel-z International, Inc. And Kraft Foods Group, North America.

The potential discrepancies in the strategic and business level strategies of the company are based in the functional capacity of the firm. There have been issues related to internal control of the company being not stringent enough to ensure integrity of financial reporting and for this purpose; the company also adopted an audit committee charter. Aim was to improve the functional management in relation to finance and operations.

3) How can the Kraft Foods Company leverage its strengths and shore up its weaknesses by altering its strategic choices? How can the company take advantage of environmental opportunities and minimize environmental threats by altering its strategic choices? Be very specific!

Sustainable sourcing: With popular Chocolate brands such as Dairy Milk, Creme Egg, Flake, and Green & Black’s and the strategic decision to acquire Cadbury’s has increased the market share of Kraft in global confectionary market. The company can adopt sustainable and ethical sourcing strategies on the foot prints of Starbucks and Wal-Mart that have increased their brand perception and value through such strategic tactics. This will increase brand value of Kraft and deliver marketing related benefits as well (Bhaskaran, Polonsky, Cary & Fernandez, 2006).

Increment of Fair-trade Certified raw materials: In order to leverage upon the strategy of sustainable sourcing, Kraft foods shall buy fair-trade certified raw materials only (Low & Davenport, 2005). This will help the company to attain greater brand strength through partnering with large number of suppliers from marginalized supplier base. The company shall encourage sourcing from poor and small women suppliers based in rural localities.

Expanding to BRICs: In coming years, the business prospects of Brazil, Russia, India, and China are superior as compared to the developed economies such as the U.S. And the Europe. As reported by Goldman Sachs, China will supersede the U.S. economy in 2041. Kraft foods shall expand the business operations in this region of four countries. This will allow the company to become the market leader entering the market at an early stage of industry growth in these countries.

References

Bhaskaran, S., Polonsky, M., Cary, J., & Fernandez, S. (2006). Environmentally sustainable food production and marketing: opportunity or hype-British Food Journal, 108(8), 677-690.

Kraft Foods. (2013). Make a Legacy. Kraft Foods Group. Retrieved from: http://www.kraftfoodsgroup.com/About/index.aspx

Low, W., & Davenport, E. (2005). Has the medium (roast) become the message? The ethics of marketing fair trade in the mainstream. International Marketing Review, 22(5), 494-511.

Thomson, N., & Baden-Fuller, C. (2010). Basic Strategy in Context: European text and cases. Wiley-Blackwell.

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