CASE #4 Changing The Menu How do you spell cheese? K-R-A-F-T. Although that slogan may say...

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CASE #4 Changing The Menu "How do you spell cheese? K-R-A-F-T." Although that slogan may say what many people think Kraft Foods is about, that impression would be wrong. As the world's second-largest food company in revenues behind Switzerland-based Nestlé (it is the number one food company in the United States), Kraft is so much more than cheese. And Kraft's history is a fascinating digest of a company that's used many different aspects of cor- porate strategy. From its beginning in 1903 to today, Kraft has looked for ways to grow its business. It has continually developed new products-Miracle Whip, macaroni and cheese dinners, Parkay margarine, Tang powdered beverages, Velveeta, Oscar Mayer Deli Creations flatbread sandwiches, and most recently its Velveeta Cheesy Skillets. In 1980, Kraft diversified its businesses by merging with Dart Industries, although each business con- tinued to operate separately. This combination lasted six years. In 1988, Kraft was acquired by Philip Morris Companies (the tobacco company), which merged it with another of its units, General Foods, in 1989. This combination created the largest U.S. food maker, Kraft General Foods, although both busi- nesses continued to run independently. During the 1990s, other global competitors became more powerful and Kraft General Foods struggled. To cut costs, the two businesses discontinued almost 300 food items. In 1995, corporate parent Philip Morris integrated both businesses into Kraft Foods. It immediately sold some businesses (Lender's bagels, Log Cabin, the bakery unit, and others) and bought others (Del Monte's pudding business, Taco Bell's grocery line, Boca Burger, and Balance Bar). In 2000, parent company Philip Morris purchased Nabisco Holdings and folded it into Kraft Foods. In 2001, Kraft Foods went public and sold several business divisions. In 2002, a corporate restructuring eliminated several thousand jobs. The company also sold some brands primarily its candy brands-that didn't fit its portfolio. In 2003, the company announced it was reducing the fat and sugar content and portion sizes of its products, a strategy aban- doned a year later after research showed that consumers didn't like it. Also, in 2004, the chairman of corporate parent Altria (Philip Morris Company's new name) announced a complete spin-off of Kraft Foods, which officially happened on March 30, 2007. With Altria's 88.6 percent stake in Kraft distributed to its shareholders, Kraft Foods was now independent, with all the performance expectations associated with being a publicly traded company. As one analyst said, "Altria may have been okay with an underachiever, but outside stockholders generally want to see quick results." At that point, CEO Irene Rosenfeld "crafted" a corporate direction for the company that exploited its competitive advantage in light of the changes taking place in the food industry. After assuming the CEO job at Kraft in June 2006, Rosenfeld "spent months talking to employees and peek- ing inside consumers' kitchens-from suburban Chicago to the capital of China." Her conclusion? Kraft Foods "had lost sight of how its offerings fit into consumers' lives. Deep cost cutting had affected product quality, eroding the strength of some brands and causing the company to lose market share. Workers were afraid to speak up when they saw problems." Her solution: at strategy to reignite growth by expanding into developing coun- tries, cutting costs without hurting quality, and empowering local managers to make decisions. She took the company's great portfolio in a direction that was more consistent with the reality of consumers' lives today. The challenge was leveraging those assets to accelerate growth. Despite these actions, company rev- enues dropped from 2008 to 2009. However, revenues bounced back strongly in 2010 and again in 2011. Now, Kraft Foods's corporate menu is about to change again. In mid-2011, the company said it was spinning off its North American business from its global snacks group. The snacks busi- ness, to be headed by Rosenfeld, will focus on "fast-growing developing markets and in instant consumption channels." The North American grocery business, to be headed by Anthony Vernon (Kraft's executive VP and president of Kraft North America), will focus on "continuing to develop the brands dis- tributed through more traditional grocers." The two executives are "sorting out the fates of several brands, structuring their sales forces, and making a number of personnel decisions" so the breakup plan can be filed with the Securities and Exchange Commission sometime in the second quarter of 2012. Discussion Questions 1. What examples of corporate strategies do you see in this situation? Explain. 2. What strategic challenges is the company likely to face now? 3. When an organization frequently changes its strategic direction, what problems can arise? (Think in terms of its functional and competitive strategies.) 4. What corporate strategy evaluation measures might you suggest that the split companies use? Explain your choices. 5. Update the information on the two companies-Kraft Foods (North American grocery) and the global snacks company (not yet named): revenues, profits, and strategic initiatives. CASE #4 Changing The Menu "How do you spell cheese? K-R-A-F-T." Although that slogan may say what many people think Kraft Foods is about, that impression would be wrong. As the world's second-largest food company in revenues behind Switzerland-based Nestlé (it is the number one food company in the United States), Kraft is so much more than cheese. And Kraft's history is a fascinating digest of a company that's used many different aspects of cor- porate strategy. From its beginning in 1903 to today, Kraft has looked for ways to grow its business. It has continually developed new products-Miracle Whip, macaroni and cheese dinners, Parkay margarine, Tang powdered beverages, Velveeta, Oscar Mayer Deli Creations flatbread sandwiches, and most recently its Velveeta Cheesy Skillets. In 1980, Kraft diversified its businesses by merging with Dart Industries, although each business con- tinued to operate separately. This combination lasted six years. In 1988, Kraft was acquired by Philip Morris Companies (the tobacco company), which merged it with another of its units, General Foods, in 1989. This combination created the largest U.S. food maker, Kraft General Foods, although both busi- nesses continued to run independently. During the 1990s, other global competitors became more powerful and Kraft General Foods struggled. To cut costs, the two businesses discontinued almost 300 food items. In 1995, corporate parent Philip Morris integrated both businesses into Kraft Foods. It immediately sold some businesses (Lender's bagels, Log Cabin, the bakery unit, and others) and bought others (Del Monte's pudding business, Taco Bell's grocery line, Boca Burger, and Balance Bar). In 2000, parent company Philip Morris purchased Nabisco Holdings and folded it into Kraft Foods. In 2001, Kraft Foods went public and sold several business divisions. In 2002, a corporate restructuring eliminated several thousand jobs. The company also sold some brands primarily its candy brands-that didn't fit its portfolio. In 2003, the company announced it was reducing the fat and sugar content and portion sizes of its products, a strategy aban- doned a year later after research showed that consumers didn't like it. Also, in 2004, the chairman of corporate parent Altria (Philip Morris Company's new name) announced a complete spin-off of Kraft Foods, which officially happened on March 30, 2007. With Altria's 88.6 percent stake in Kraft distributed to its shareholders, Kraft Foods was now independent, with all the performance expectations associated with being a publicly traded company. As one analyst said, "Altria may have been okay with an underachiever, but outside stockholders generally want to see quick results." At that point, CEO Irene Rosenfeld "crafted" a corporate direction for the company that exploited its competitive advantage in light of the changes taking place in the food industry. After assuming the CEO job at Kraft in June 2006, Rosenfeld "spent months talking to employees and peek- ing inside consumers' kitchens-from suburban Chicago to the capital of China." Her conclusion? Kraft Foods "had lost sight of how its offerings fit into consumers' lives. Deep cost cutting had affected product quality, eroding the strength of some brands and causing the company to lose market share. Workers were afraid to speak up when they saw problems." Her solution: at strategy to reignite growth by expanding into developing coun- tries, cutting costs without hurting quality, and empowering local managers to make decisions. She took the company's great portfolio in a direction that was more consistent with the reality of consumers' lives today. The challenge was leveraging those assets to accelerate growth. Despite these actions, company rev- enues dropped from 2008 to 2009. However, revenues bounced back strongly in 2010 and again in 2011. Now, Kraft Foods's corporate menu is about to change again. In mid-2011, the company said it was spinning off its North American business from its global snacks group. The snacks busi- ness, to be headed by Rosenfeld, will focus on "fast-growing developing markets and in instant consumption channels." The North American grocery business, to be headed by Anthony Vernon (Kraft's executive VP and president of Kraft North America), will focus on "continuing to develop the brands dis- tributed through more traditional grocers." The two executives are "sorting out the fates of several brands, structuring their sales forces, and making a number of personnel decisions" so the breakup plan can be filed with the Securities and Exchange Commission sometime in the second quarter of 2012. Discussion Questions 1. What examples of corporate strategies do you see in this situation? Explain. 2. What strategic challenges is the company likely to face now? 3. When an organization frequently changes its strategic direction, what problems can arise? (Think in terms of its functional and competitive strategies.) 4. What corporate strategy evaluation measures might you suggest that the split companies use? Explain your choices. 5. Update the information on the two companies-Kraft Foods (North American grocery) and the global snacks company (not yet named): revenues, profits, and strategic initiatives.

Answer rating: 100% (QA)

Examples of corporate strategies seen in this situation include product development diversification ... View the full answer