Last Updated 31 Mar 2023

Kraft Foods’ External Environment: Coping with Health Concerns and Competition

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Kraft foods (Kraft) is a manufacturing company that deals with production, marketing and distribution of beverages and food products. Kraft has its headquarters in Northfield Illinois and operates primarily in the United States. However the company has extended its operations in seventy other countries with its products being used in more than 150 foreign countries. The company has employed about 100,000 workers and registered revenue of USD 42,201 Million in 2008 which was an increase of 16 percent from the previous year. In the same year the company realised a profit of USD 3,817 Million which was a reduction by 3. 8 percent from the previous year 2007.

The net profit of the company in the year 2008 was USD 2,901 Million which was also an increase from the previous year by a margin of 12 percent (Byrne 7). This paper analyses the Kraft’s external operating environment to establish how the company is coping with the health concerns facing the consumers and the stiff competition from the rivals. 2. The Kraft Food’s External Environment Political There is a tremendous pressure from the government authorities to the restaurant and packaged food companies operating in the US to reduce salt levels in their products.

The New York City Health department authorities in particular have intensified nationwide five year campaigns to have the levels of salt reduced by 25% for all foods sold in public places. The initiative is set to bring in all the food industries and restaurant to support and comply with the move that is aimed at combating heart related ailments by reducing levels of sodium element in food. It is approximated that 80% of sodium in the American food is usually added before the sale of the food products with only 11% coming from the saltshakers.

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The health department says that the Americans consumption of salts has increased steadily from 1970’s with most people today taking twice of the required amount. The situation has therefore contributed to more than 800,000 deaths of Americans every year with billions of dollars going into related health care expenses. Kraft foods has supported the move saying that it has always been part of their long term goal (Byrne 6). The initiative is bound to receive mixed reactions from the consumers of the Kraft’s products and it may bring a complex scenario if the consumers are divided.

Some of the consumers feel that they should not be pushed on deciding on the level of salts in their food. The consumer tastes and preferences are also diverse and may affect the initial response that they take towards the implementation of these measures. If these changes were to significantly affect the sales of the food industries then it may spark a great conflict between maintaining large profit margins with high levels of salt and the ethical issues in reducing the levels as requested and having the consumers learn having reduced salts with time.

Economic As the global financial crisis adversely affected many companies with a number of them collapsing, Kraft Foods has continued to register profits in this hand economic times. The trend has been similar with other rival companies including Campbell soup and Anheuser Busch. With the food products being basic commodity to consumers the industries dealing with food and industries experienced very little economic surge from the global economic down turn.

It is in these challenging economic times that Kraft foods unveiled the surprising acquisition bid for Cadbury. The company seeks the acquisition of Cadbury as a move to become a global leader in the distribution of snacks and confectioneries. With the acquisition the company targets revenue rise by over 5% and a sustainable rise of between 9% and 10% in long term. The high long term goals will be accelerated by the economic synergy acquired with the mutual operations as well as from the annual savings on expenses of up to USD 625 Million.

Cadbury line of operation is to complement the Kraft Food’s geographical presence and therefore effectively help in establishing a sustainable rise in net revenue to an approximated 5% margin, that is, from 20% to 25% (Byrne 7). The acquisition of Cadbury is regarded as a great economic synergy booster that is going to open markets for Kraft in the developing countries. However it is not clear whether these benefits justify the high cost in the Cadbury shares at 745 pence per every ordinary share. It is projected that Cadbury must be able to deliver a continued line growth of 10% for 5 years starting 2010 to justify the prices.

Though Kraft on its own can only manage an annual line growth of 4%, some economists argue that it is wise for it to concentrate on improvement of the old operations and increase the shareholding value instead of overpaying for Cadbury acquisition (Byrne 6). Social Consumers and the societies at large develops an attitude of wanting to get actively involved in the operations of companies that are conscious to their general welfare especially on ethical and environmental issues. Gone are the days when companies were driven by the desire to maximize their profit margins at the expense of their client’s health and general welfare.

Kraft food is therefore taking the welfare of the general public very seriously as both a way of challenging the competitors and also as a way of sensitising the public on the need to care for the environment. The company has therefore invested on research that will cater for efficient use of energy and elimination of materials and procedures that are not friendly to the environment. Kraft’s goal strategic goals by 2011 were to; bring down energy usage and carbon emissions by 25%, reduce water intake and industrial wastes by 15% and support agricultural sector on establishing sustainable stability especially in coffee and cocoa (Byrne 5).

The company has already rolled out environmental friendly packaging materials that uses lesser materials and is easily biodegradable. In addition the company has come up with innovative ways of recycling wastes, using less water and reducing the consumption of fuel by reducing the distances of travelling through use of appropriate technology. These social factors have impacted greatly on improving the face of the company in the eyes of the general public. The efforts have generated positive results in the strategies of Kraft in overcoming the competition from the rivals.

The exercise has attracted the environmental conscious consumers, increased the sales and therefore sustained further research on better ways to improve the social image. Technological The global advancement in technological innovations has aligned the consumers’ attitude in the quality of products especially in packaged foods. The consumers today judges the quality of food based on the quality of the package (Byrne 9). This has forced Kraft Food to invest heavily on technology to remain afloat amidst the stiff competition from the rivals in the food industry.

The pressure to deploy high technology in the industry reduces the profit margin in the short term but increases the effectiveness and stability of the company in long term. The stiff global competition in the food industry has forced Kraft Food to establish a specialized global Technology and quality group. This group is responsible in designing new food package styles and food processing methods which are aimed at improving on the existing products. In 2008 the company adopted advanced NetWeaver technology that revolutionized its information and business operations.

The project was aimed at rolling out data repositories with focus on clients in its structural adjustment programs in Northern America. Centralized data is also a significant component in advancing the world wide business operations for the company. In the same year the company was awarded as the year’s most innovative company by the Consumer Goods Technology group. The award was in recognition of the companies efforts to invest heavily in technological innovations that have kept them ahead of their competitors in the food industry (Byrne 2).

Unlike most of its rival companies Kraft Foods has managed to establish a 400,000 square feet modern underground warehouse that is completely fitted with advanced energy saving systems. The facility houses most of the leading company’s products stored at 36 degrees Fahrenheit. The project has proved the company’s effort to embrace technology while taking care of the environment. The project is mainly constructed using recycled materials from limestone quarry that gives the facility long term durability due to the fact that it is never exposed to the dangerous rays from the sun (Byrne 4). Legal

Global businesses are faced by stiff competitions that are sometime faced by complex scenarios of diversity as the legal requirements diver from one country to the other. This challenges can offer great challenges to a company that is not well rooted in the understanding the legal systems (Byrne 4). Kraft Food has used it strong standing in legal matters to overcome some of the challenges in the global markets that are sometime brought by the state of rivalry and market imperfections. The company has an established legal and compliance department that effectively offers legal support to all regional offices.

The team’s primary responsibility is to offer assistance in the management of legal and compliance related risks and advise on similar issues that may have impact on the performance of the business. The team also deals with the issues concerning mergers and acquisitions, management of joint ventures and restructuring of legal entities involving inter company partnerships. This legal team gives the company an advantage in dealing with their competitors some of whom hire costly legal experts to manage their legal affairs.

3. Conclusion Kraft Foods has successfully emerged to build on reputation of its products that remain unrivaled in the market; its long history in the food manufacturing industry has by itself influenced many players including buyers and suppliers to perceive the company as having qualities to succeed (Byrne 2). The manufacturing of varieties has also brought clients with different tastes and preferences and its strong financial base continues to assure its partners long period of quality products and service. 4. Work Cited Byrne, John (2009) "Strategic Planning. " Business Week, 26 August.

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