strategic-management

At year-end 2009, the company had saved a total of $1.1 billion through streamlined
manufacturing and a simplified organizational structure. These savings were realized,
in part, to the closing of 36 plants and the elimination of 19,000 positions. The company
plans to see an additional savings of $200 million in 2009.
External Information
Industry Trends and Information
More people are dining out, and food producers are devoting more attention to products
designed for restaurants, vending machines, and other foodservice providers. Thus, companies
are spending more money researching consumers’ eating habits and preferences at
home and at restaurants. This is bad news for grocery retailers, but food makers realize food
eaten away from home is still food they can provide, many times at higher margins.
Another trend in the industry has been the development of health foods, such as
those containing less trans fat or fewer calories, or those containing only organic ingredients.
Bottled water has become well established in the market and enhanced waters containing
vitamins or supplements are gaining popularity.
Related to the development of health foods is the concern of childhood obesity,
which has reached epidemic proportions in the twenty first century with rising rates in both
the developed and developing world. Rates of obesity in Canadian boys increased from 11
percent in the 1980s to over 30 percent in the 1990s; during this same time period rates
increased from 4 to 14 percent in Brazilian children. As with obesity in adults, many different
factors contribute to the rising rates. Changing diet and decreasing physical activity
are believed to be the two most important in causing the recent increase in the rate of obesity.
Activities from self-propelled transport, to school physical education, and organized
sports has been declining in many countries. Treatments used in children are primarily
lifestyle interventions and behavioral techniques.
Rising costs of petroleum cause a twofold increase in cost for companies in the food
industry: Costs have increased at the agriculture end, which increases raw materials costs
for food processors who also deal with increased production and transportation costs at
their end. Because the industry is so competitive, it is difficult for these companies to raise
their prices accordingly, and profit margins have suffered as a result. At the same time,
consumer prices for baked goods increased 10.7 percent in January 2009 compared to
January 2008, despite lower costs for bakeries. Input costs for bakers, included commodities
such as wheat, eggs, and natural gas, have declined recently. Some bakeries may be
passing along the cost of supplies purchased on contracts signed before commodity prices
began to fall in mid-2008. As contracts expire and are renegotiated, some food manufacturing
companies may discover that they have slight advantage for a short time.
The U.S. market for packaged and processed foods has seen large profits in retail sales,
and this number is expected to see steady growth. Worldwide, demand is also on the rise for
this type of food as more people adopt a lifestyle that includes less time for the preparation of
food. The greatest asset of any retail and consumer product company is its reputation and
perceived value among consumers. For this reason, corporate and brand reputations are
expected to become increasingly important as consumers are trying to stretch their dollar
further and competition is increasing. Food safety programs have been adopted recently as
issues of chemical and bacterial contamination and new food-borne pathogens remain a
public health concern.
Workers at one of Kraft’s manufacturers in Illinois turned up a batch of fruits and
nuts that were contaminated with salmonella in December 2007. Another positive sample
appeared again in September 2008. It was only after the company conducted thousands of
tests that it was able to pinpoint the source for the second positive test. This test showed
that the tainted nuts came from a California-based supplier; more specifically from Setton
Pistachio of Terra Bella, Inc. Even though there have not been any reports of pistachiorelated
illnesses, the company voluntarily recalled more than 2 million pounds of nuts and
temporarily shut down its manufacturing plants.
CASE 19 • KRAFT FOODS INC. — 2009 189