External Environment Analysis Kraft Foods Essay
External Environment Analysis Kraft Foods
In the every changing and expanding food industry it is imperative organizations conduct strategic marketing to remain on top of their industry and make better plans for their future. Strategic marketing drives organizations to their peak of success and draws customer loyalty. The Porter Five Analysis and PEST analysis are two of the tools utilized by strategist to enhance organizational success. The Porter Five model examines the internal workings of the organization as well as the industry letting organizations know about potential threats. The PEST analysis on the other hand examines the macro-environment, looking at potential political and social threats to industry. The utilization of these two models together will better equip organizations to face ever changing industries and see potential threats. Below the author will discuss the different aspect of each model as well as provide useful web links to gather additional information. Porter Five Forces Analysis
The Porter Five Analysis was developed by Michael Porter as a tool utilized by organizations to help identify the structure and competitiveness within an industry (Porter, 2008). It encompasses five different forces that shape the industry; threat of new entrants, threat of substitute products, bargaining power of buyers, bargaining power of suppliers and rivalry among existing competitors (Porter). The ability to analyze and understand trends and threats within an industry is critical for “effective strategic planning” that will render organizational success (Porter). Below is an analysis of Kraft Foods utilizing the Porter Five analysis model. Buyer Power
With so many different varieties of brands available to consumers it is essential that organizations research consumer needs and demands in order to remain successful. As competition increases within the industry, organizations must “create new products that adapt to the changing lifestyles and preferences of consumers, which have shifted to a focus on health and wellness” (Hathaway, Mrak-Blumberg, Wexler-Beron, 2006). Consumers have no loyalty or obligation to stay with one brand and will easily switch as prices and nutritional labels fit their needs. Conducting analysis of competitor’s financial statements will also help paint a picture of consumer trends helping organizations to adjust their products.
Below are several websites that provide different information on the power that consumers hold. 1. This website discusses some very important facts relating to the immense power that consumers possess in the food industry and how the demand for healthy food is increasing the price of raw materials resulting in organizations absorbing the overhead costs to keep prices low. It also provides some information of Kraft Foods biggest competitors. Analysis of competitors can help strategists determine future marketing strategies and how to establish brand loyalty. Monitoring competition allows for change and adaptability permitting one to stay on top of their industry by tailoring products to consumer needs/demands.
2. This website provides information that describes the growing demands of consumers and the growth of the healthy food craze. This website really demonstrates the power that consumers hold in the food industry. Consumers are mandating healthy food choices with no GMO labeling. This has caused organizations to generate new products that are healthy and cater to consumer needs if they are to stay successful. Analyzing consumer trends is extremely important as it will allow a business to better tailor their food products and draw in new consumers and maintain loyalty of old consumers. http://www.inspirationgreen.com/vote-yes-on-37.html
Although there are only ten major suppliers for Kraft Foods they have extreme power over the food industry. Walmart is one of Kraft Foods largest clients with the most revenue generated and with so many competitors on the market Kraft Foods must absorb the additional costs of producing cheap food in order to stay competitive. An individual supplier must “offer something special to stand out from the crowd, such as a lower price, faster delivery time, more flexible credit terms, higher product quality or volume discounts” (Sullivan, n.d.) 1. This article provides a thorough discussion and different view point on supplier power and monopoly in the food industry. It provides a discussion on how big organizations, such as Wal-Mart, exert their power over their suppliers. Different suppliers have monopolies at supermarkets and can pay for primary shelf space and promote their brands. This leads to smaller suppliers struggling in an industry dominated by large supply companies and large retailers. http://documents.foodandwaterwatch.org/doc/RetailConcentration-web.pdf 2.
Pratt provides a good discussion on how to analyze the bargaining power of suppliers. Understanding the questions he poses will enable an organization to potentially avoid competition and build quality relationships with suppliers thus enhancing chances of industry success. http://ezinearticles.com/?Understanding-the-Bargaining-Power-of-Your-Suppliers&id=4251948 3. This informative website provides a list of the Kraft Foods suppliers. Determining the number of suppliers in an industry can help strategist determine the bargaining power of the suppliers. In hard times suppliers can ration their products causing organizations to spend more money upfront and lose revenues. When an organization is able to differentiate their product from competitors it is easier for them to bargain with suppliers for fair pricing. http://www.dailytrader.com/ss-kraft-foods/suppliers.html
Threats of Entrants
When an industry is booming the threat of new entrants is high as everyone wants to make profits. The threat of new organizations creates competition among an industry and influences their ability to maintain profits (Wilkinson, 2013). Firms in this industry preserve market share through brand loyalty, diversification and the barriers placed within the industry to enter the market (Porter, 2008). It is therefore imperative that these brands maintain quality at a competitive price and drive off new competition. 1. The following website points out the current economy/industry sales for Kraft Foods and their top competitors. This is a good website as it will paint a picture for future companies as to the market capital, net income, dividends, operating margin and growth revenue.
All of which are great indicators as to expenses and revenue generated and allows them to determining if starting a business in this industry is worth the overhead, time and effort. It can also help determine how different products by different companies are comparing to each other. http://financials.morningstar.com/competitors/industry-peer.action?t=KRFT®ion=usa&culture=en-US 2. This web page provides a table with Kraft Foods top competitors broken down by categories allowing easy access to different aspects of the business. This also allows potential companies to determine which industry they would have the most impact in to succeed. Additionally it provides revenue, income and market share. http://csimarket.com/stocks/competitionSEG2.php?code=KRFT
3. NASDAQ is a great reference for organizations looking at trends in the food industry as it provides information on the financial, size and growth trends as well as market cap. This information is essential to determine if an organization can compete in certain industries. http://www.nasdaq.com/symbol/krft/competitors
4. This informative document discusses current economic indicators and the growth of the food industry over the last 10 years. It talks about nature of the industry, market overview, demand and annual food spending at home. Additionally it provides a discussion on the issues affecting the industry. This resource will help paint a vivid picture of the economy of the industry and help determine if a new product will succeed. http://trade.gov/td/ocg/report08_processedfoods.pdf
Threat of Substitutes
The growing health trends have led many companies to adapt and change products to fit consumer demands. With a variety of brands available it is imperative organizations cater to consumers in order to avoid losing their loyalty to another company. “Consumers in the industry have minimal switching costs and there is never the guarantee of brand loyalty” (Hathaway, Mrak-Blumberg, Wexler-Beron, 2006). In order to keep loyal consumers organizations in this industry must offer new and innovative products. 1. This document provides valuable information on consumer trends, healthy eating, industry dynamic, emerging products, and success factors.
This valuable information helps organizations determine current trends and how they can adapt to remain successful and ahead of their competition within the industry. http://www.pwc.com/us/en/transaction-services/publications/assets/functional-foods.pdf 2. This is a very informative website that discusses current trends in the food industry while stating growth percentages specifically relating to the healthy snacking options. This is a good site to gain a better understanding and insight to healthy alternatives that competitors may be producing as well as market trends http://www.snackandbakery.com/articles/84475-snack-food-industry-trends 3. Organic Trade Association website provides information on industry statistics and projected growth trends which is can assist organizations in determining their future products based on consumer trends. http://www.ota.com/organic/mt/business.html
Rivalry Among Existing Competitors
In every industry there is rivalry amongst organizations to win over consumers. This can generate new and innovative products, intense sales promotions and pricing wars (Porter, 2008). On the outside this activities may appear to be beneficial but in reality it can lead to increased costs and decreased profits for organizations (Porter). 1. CSI Market online provides a nice graph detailing growth rates of the major competitors in the food industry. This is an extremely useful tool to help determine where you stand financially next to your competition. Utilizing this information may assist in determining if a new product should be launched and if new marketing tactics are needed. http://csimarket.com/stocks/competitionNO3.php?code=KRFT
2. If an organization is to remain successful and on top of their organization they must produce numerous products that cater to consumer demands, i.e healthy food choices. This innovative thinking keeps consumers coming back to the same brands and generates loyalty. http://www.fool.com/investing/general/2013/04/22/these-food-companies-are-the -best-at-inspiring-bra.aspx PEST Analysis
PEST analysis tool was developed by Francis Aguilar to help organization see the macro-environment of their business environment in order to make changes and maximize financial success (Mind Tools, n.d.). The ability to adapt and change business tactics to meet consumer demands can create new and improved products enhancing brand loyalty (Mind Tools). The PEST analysis focuses on political, economic, socio-cultural, and technological changes in the industry, helping organizations to determine different opportunities (Mind Tools). Political
1. This website provides information on regulations of the food industry, agricultural industry and federal regulations. Understanding the political implications and regulations of the food industry will assist with licensing and production of food products. It is imperative to know and understand these regulations in order to become and remain a successful and well respected brand. http://edis.ifas.ufl.edu/fs118
2. Harris provides a great article discussing government regulations for the food industry, to include agencies and their regulation methods. Knowing the correct process and FDA regulations will help bolster an organization while gain respect and trust from consumers. http://smallbusiness.chron.com/government-regulations-food-industry-76884.html 3. With the growing health trends the FDA has started enforcing stricter food labeling. This labeling ensures “stringent guidelines to maintain the integrity of the food label” (Philipson, 2005). Additionally this provides accurate information to consumers and allows them to make healthy educated decisions regarding the food they consume. http://ajcn.nutrition.org/content/82/1/262S.full
1. Yahoo Finance provides data on the economic conditions of the food industry as well as a forecast of the growth prospects. This information is valuable to organizations as it can assist in determining present and future growth trends, revenues and specific growth regions. http://finance.yahoo.com/news/food-beverage-business-confidence-report-130100393.html 2. The FDA addresses the need for government involvement in food safety in order to strengthen consumer confidence thus enhancing food industry growth. It is also a tool that can be utilized to determine how globalization is affecting the economic environment (Mind Tools, n.d.). http://www.fda.gov/Food/GuidanceRegulation/FSMA/ucm326870.htm 3. Organic Trade Association provides a website with information on the economy of the growing organic food trend. The needs and demands of the consumers for healthier food options has driven many food industry organizations to reexamine their line of products and begin producing healthier food options. The demands of the consumers must be met in order for an organization to succeed. It is also important to consider the economic impact these changes can have on our environment and make sure we leave a positive footprint. http://www.ota.com/organic/mt/business.html
1. Over the last several years the food industry has had to adapt to the growing health conscious population and produce more healthy food alternatives. Understanding FDA regulations of labeling and marking and serving sizes on products will gain consumers trust that the products they are consumer are in line with a healthy life style. The social taboo of mislabeled or healthy food could potentially damage an organization. http://www.newsmaxhealth.com/Health-News/food-labels-fda-changes/2014/02/27/id/555199/ 2. Yahoo Finance provides an article discussing the importance of meeting the demands of the consumers in order to generate profits. Consumers are not only looking for healthy alternative in the grocery store but in restaurants too. There is an increased demand for nutritious organic fresh food in restaurants. Organizations must weigh the benefits between producing fresh products and providing affordable foods. http://finance.yahoo.com/news/health-wealth-food-beverage-industry-132935034.html Technological
1. Emerson discusses the evolution of technology in the food industry and how is has helped organizations to produce healthier and fresher food. Utilization of technology can allow organizations to produce large quantities and variety of products thus catering to a larger consumer population and decreasing organizational costs. http://www.insidetechnology360.com/index.php/how-technology-has-affected-the-food-industry-22970/
2. This website discusses the importance of evolving technology to running a successful business. Improved technology and software advances over the years have allowed for food industry organizations to make reordering of food and supplier easier and more convenient. These technologies can monitor refrigeration temperatures, energy usage helping to ensure the best food is available for the consumers. When consumers know that organizations go to extra measures to ensure product quality it generates brand loyalty and increased revenues.
3. Gould presents a very informative article regarding the importance of technology in the food industry. The use of technology assists with “decision making related to consumer insight, brand and product management and pricing” allowing organizations to maximize consumer needs and wants.
4. One new technology in the food industry is the utilization of biotechnology to increase efficiency of production and reduce environmental impact with increase production. This very informative slide show discusses the pros and cons of this innovative technology. In order to meet the growing health requirements by consumers it is beneficial for organizations to understand what technology their competitors are utilizing.
If an organization is to succeed it is imperative a thorough analysis of the industry and environment is conducted. Utilization of the Porter Five Analysis will provide organizations with information on the internal and immediate threats to their organization. The PEST analysis on the other hand provides information on the marco-environment allowing organizations to focus on new opportunities for growth and success and see potential threats to the industry. Although both of these methods have different focuses, when utilized together a significant amount of information in generated that will guide an organization on the path to a successful and profitable future.
Hathaway, J., Mrak-Blumberg, E., Wexler-Beron, E. (2006, April 4). Strategic Report for TheKraft Foods Corporation. Pandora Group Out of the Box Consulting. Retrieved July 23,2014 fromhttp://economicsfiles.pomona.edu/jlikens/SeniorSeminars/pandora/reports/kraft.pdf Mind Tools. (n.d.). PEST Analysis. Retrieved July 24, 2014 fromhttp://www.mindtools.com/pages/article/newTMC_09.htm Philipson, T. (2005). Government Perspective: Food Labeling 1,2,3. The American Journal ofClinical Nutrition, 82. Retrieved July 23, 2014 fromhttp://ajcn.nutrition.org/content/82/1/262S.full
Porter, M. (2008, January). The Five Competitive Forces that Shape Strategy. Harvard BusinessReview. Retrieved July 23, 2014 from http://hbr.org/2008/01/the-five-competitive-forcesthat-shape-strategy/ar/1 Sullivan, D. (n.d.). Food Industry: The Bargaining Power of Suppliers. Chron Small Business.Retrieved July 24, 2014 from http://smallbusiness.chron.com/fast-food-industrybargaining-power-suppliers-78188.html