Capstone (Strategic Management)
Read the following case and answer the questions given at the end of the case.
Case - Kraft Foods
Ever since it was invented in 1937, packaged macaroni and cheese has been the ultimate comfort food for middle-income Americans. But recently, Kraft has been reinventing 'Supermac' with a version made with heart-healthy whole-grain pasta. Kraft believes that many of its iconic products - like Ritz crackers, introduced in 1934, and Jell O instant pudding from 1950 - must be revamped (i.e., redesigned) to take advantage of the "health and wellness" trend that is sweeping the food industry.
Food companies typically charge customers more for "healthy" products. And Kraft needs such customers than most of its rivals. That is because most Kraft products - like 'Supermac' - have long been aimed at the middle-income consumer shopping in the center of the supermarket aisle. Such products are the most vulnerable to private label competition and Kraft has struggled to maintain the right price gap between its brands and the non-branded competition. But Kraft is a bit late in responding to middle-income consume, changing needs and tastes.
Kraft risks being left out as consumers "trade up" to more expensive products - a trend highlighted by, Campbell Soup's success with more expensive soups sold in aseptic cartons and marketed as being of restaurant quality. Can Kraft revamp its portfolio quickly enough?
Concern about Kraft's performance was raised when the company announced the loss of 8,000 jobs and closure of 20 of its 175 plants - the second such restructuring since 2004. Kraft expects to achieve pre-tax saving of $700 million a year by 2008.
Roger Deromedi, Kraft's CEO, admits Kraft could be doing better. In a presentation to analysts assessing Kraft's performance on product quality, price, brand image, and other metrics, most were labeled "watch out" or "significant issue". In no category did he award Kraft a "significant advantage" rating. But Mr. Deromedi says the launch of new products carrying premium prices, such as luxury Carte D'Or chocolate launched last quarter in the UK and Germany, has improved the sales mix.
New product revenues jumped by 50 percent to $1.5 billion between 2003-2005- mostly as a result of new items like DiGiorno microwaveable frozen pizzas. The company has also eliminated slower-selling product lines and reorganized to improve visibility on cost. On private label, Deromedi admits that over the past two years "we are charging too much for the product benefits that were being delivered". This was partly because the energy and raw material prices rose more than Kraft expected.
"The issue as you come into this more challenging environment was you didn't have the strength of the brand propositions that were needed to be. That's what we have focused on in the past two years", Mr. Deromedi says.
Questions:
1. What generic strategy does Kraft Foods appear to be following?
2. How can organization that is "stuck in the middle" achieve a sustainable competitive advantage?
References: APA 2 reference
No. of Page: as needed to answer the questions
No. of Slide: as needed slide.