Porter’s 5 Forces and Pest Analyses of Kraft Foods Essay

ABSTRACT This paper will show the various analyses of Porter’s 5 Forces upon Kraft Foods as well as a PEST analysis of external factors influencing the company. Porter’s 5 Forces are industry environments: 1. The threat of new entrants to the foods industry (low) Online grocery shopping is proving to be a formidable threat. (Food Retailing Industry, 02/2/12) 2. The bargaining power of suppliers (medium to high) Agriculture has been impoverished by the U. S. drought in 2011-12 causing enormous loss of crops and animals. This devastation has resulted in less supply and much higher price demands. (Lempert, P. 12/12) 3. The bargaining power of customers (medium to high) Poor economic conditions, obesity and other health concerns mean customers are demanding healthier foods and snacks (Lempert, P. 12/12 Baby boomers, millennials, and cultural diversity are using smartphones and apps to search for similar products at better prices (Food Retailing 2/2/12). 4. The availability of substitutes (low) Grow your own, buy fresh foods, and eating out would be alternatives to Kraft’s processed foods. (Kraft Annual Report 10K 12/31/11). For most consumers, time and money constraints would preclude these alternatives. 5. The degree of rivalry among competitors (high) Kellogg holds 34.2% of the cereal market. This is a large percentage considering there is a greater demand for cereal nationwide. Other significant competitors are General Mills, Hershey, Nestle, and PepsiCo. (Kraft Foods Annual Report 2011). PEST analyses represent macro-environment: 1. Political In 2011, political upheaval in Egypt forced Kraft to suspend operations there (Just Food 2/11). Of the 300 workers, 250 joined to form a Union. In 2012, the new government instituted a social allowance which Kraft refused to pay resulting in a 3-day sit-in. Kraft fired five board members hoping to eliminate the union (IUF, May, 2012). This has caused much negative public relations. The Cadbury debacle (Chellel, 5/23/11) also tarnished Kraft’s reputation. 2. Economic Drought has caused raw products prices to rise. Unemployment has caused America’s middle class to shrink from 61% in 1971 to 51% in 2011 (Lempert, P 12/12) 3. Sociocultural The demand for healthier foods and snacks will cause Kraft to examine methods to provide these. The change of packaging and marketing will be necessary (Lempert, P. 12/12). 4. Technical The impact of social networks such as Facebook and Twitter can have devastating effects on Kraft’s reputation (Lempert, P. 12/12). Customers have access to apps that direct them to online grocery shopping and availability of similar products at lower prices. Porter’s 5 forces and PEST analyses of Kraft Foods In this paper, I will examine the effect of Porter’s 5 forces upon Kraft Foods Industry. I will present sources to validate those effects and explain how those sources are relevant. I will also present a PEST analysis using the information gleaned from the previous sources. The references will be critiqued. Porter’s 5 forces Threat of New Entrants (low) Food Retailing Industry: Market Research Reports, Statistics and Analysis http://www.reportlinker.com/ci02212/Food-Retailing.html. This site reports new trends in the retail food industry. It brings the information down to the customer in the grocery store who may now be using a smartphone to find a better price of a comparable product. The consumer’s limited time and demand for quality may be a driving force for online grocery purchases. Since Kraft sells mainly to large resellers, online suppliers may not offer their products. The strength of this article is that it concerns how the end consumer may be willing to change to private label or store brands to save time and money. It is useful in conducting an external evaluation because it focuses on how the consumer is changing grocery shopping and brand allegiances. Its weakness is that it concerns only the retail food industry. It does not address new manufacturing entrants to the food industry. The bargaining power of suppliers (medium to high) Lempert, P. Top Ten Food Trends December 21, 2012 http://www.factsfiguresfuture.com/issues/december-2012/top-ten-food-trends-2013.html. Phil Lempert, the supermarket guru, talks about the devastation that the United States drought in 2012 has caused in the food industry. There were enormous losses of both crops and animals. Because of this situation, suppliers have less supply and demand higher prices. Higher prices of groceries has forced the consumer to take note of how much food is being wasted and investing those grocery dollars in good snacks and healthy meals The author of this article, Phil Lembert, is an author, speaker, and food expert. His consumer panel of more than 100,000 opt-in participants contributes to his website. The strengths lie in the reliability of the author and his work. He addresses many different food trends for this New Year that will impact food manufacturers. However, Lempert only writes from the customer’s point of view, not the manufacturer. This is an especially helpful site to find several factors needed to do a PEST analysis for Kraft, including bargaining power of suppliers. The bargaining power of customers (medium to high) Lempert, P. Top Ten Food Trends (December 21, 2012) http://www.factsfiguresfuture.com/issues/december-2012/top-ten-food-trends-2013.html. Once again, Phil Lempert cites the bargaining power of customers in his article. Poor economic conditions have necessitated smarter use of grocery dollars. The grocery shopper wants quality products for a reasonable price. Pre-packaged whole meals have given way to more home cooking. Food Retailing Industry: Market Research Reports, Statistics and Analysis (February, 2012) http://www.reportlinker.com/ci02212/Food-Retailing.html. Improved technology is adding to the clout that customers have. Baby boomers and millennials are using apps to search out similar products at better prices.