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KRAFT HEINZ BUSINESS STRATEGY REPORT 1
Kraft Heinz Business Strategy Report
Summary of findings
The report aims to illustrate about the Kraft Heinz merger effect over the world market and
relative strength, weaknesses of company. Along with these, it analyses the opportunities and
threats for company as well. It is found that merger has made a formidable company in the
food industry because the data reveals that Kraft Heinz has number fifth company in the
world. Swot analysis reveals strengths such as strong brands, customers’ loyalty, strong
distribution network and innovative products. Weaknesses are inability to control the
regulations and price fluctuations as well as high prices of raw materials. Opportunities are
selling Kraft food products in the Heinz market and Heinz products in to the North America.
The threats for company are different regulatory requirements, changing buying habits of
customers and competition.
Porter five forces analysis reveals that company has low threat of new entry into the market
because new companies have to establish their names and reputation that may take long time.
Threats of substitute products are also low because of loyal customer base of company that
allows company to promote new innovative products for them. Company is catering the
needs of customers in well defined way. The competition intensity is found to be low to
medium and this is due to strategic position earned by company in the market. The bargaining
power of supplier is also low because company purchase in bulk and dependency of suppliers
over the company is more. Customer bargaining power was before the merger high but
currently big retailers are not able to compete well with the Kraft Heinz. It will provide
company more shelf space in retail stores.
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PESTEL analysis reveals that company generally work in stable political environment and
therefore the continuous policy changes by government do not take place. Legal environment
for company is challenging and company has to pass the legal hurdles in many countries for
selling food products. Natural environment analysis reveals that company has challenges such
as rising cost of raw material that may decline the profitability of company. Along with the
extra cost is incurred for maintenance of ecological system. Technological environment
presents challenges and opportunities both for company as Kraft Heinz may adopt latest
technology that promotes cost efficiency in production of products. Economic environment
analysis reveals about current slowdown of China that is a major market for company but in
other parts of the world good growth in economy is predicted. The scan step analysis and
VRIOS as well as SCOT analysis show that company has many strengths as well as
weaknesses. Strengths are high efficiency in distribution, competent work force, well brand
recognition and weaknesses are inability to cope with the external threats such as price
fluctuation and regulations imposed.
After the analysis of Kraft Heinz recommendations are offered to the company. The
recommendations are illustrated in brief here. Company has been suggested to promote bench
marking practices to identify the gaps of performance between it and best companies in the
world therefore to devise better strategies to remove those shortcomings. Company is
recommended to promote four pricing strategies; rapid skimming pricing strategy, slow
skimming pricing strategy, rapid penetration pricing strategy and slow penetration pricing
strategy according to the product and brands strengths and weaknesses. Company has been
suggested to promote promotional activities according to the reputations of the brands.
Therefore products of Heinz and Kraft that are well known in the market are suggested to
practice high skimming pricing strategy that considers low promotion of products through the
integrated marketing communication. Similarly high promotion is suggested for those
KRAFT HEINZ BUSINESS STRATEGY REPORT 3
products that are weak in the market by adopting the rapid penetration pricing strategy.
Company is recommended to promote the local talent to run the business activities in the
world level. It is suggested on the basis of decision making flexibility and agility because
local people are better versed with the local needs and preferences. Along with this,
empowerment and delegation of power with participative management approach are
suggested for company to practice. It is reveals that empowerment creates a sense of
accountability in the staffs and they feel more committed to achieve the organizational
objectives. Company has been suggested to follow the glocalization strategy. This strategy
considers the local needs and requirements to provide a customized solution for the
customers. This strategy is suggested because it promotes geocentric approach and
polycentric approach that are essential for diversity management and talent retention. Kraft
Heinz Company has been asked to improve the leadership practice by adopting walk the talk
practice by top leaders.
Strategic Analysis
1.0 Introduction
Kraft Heinz is merged with two big names of the food industry Kraft and Heinz. Both
companies are well recognized and have good standing in market. Kraft Company has been
known for its products mainly in North America while Heinz has a global presence. In this
report, Kraft Heinz SWOT analysis is conducted. Along with this PESTLE analysis is
conducted. Porter Five forces analysis is also a relevant strategic tool to know the relative
position of Kraft Heinz in the market therefore this analysis is also conducted. Bench
marking approach has been used to identify the true strengths of Kraft Heinz. Along with
these, McKenzie seven frameworks are also taken into consideration. The report concludes
with findings and recommendations.
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2.0 strategic analyses
2.1 Impact of Kraft Heinz merger
The deal provides Heinz 51 percent stake in the company and the shareholders include the
Berkshire Hathaway and 3G capital. The cost of this deal is to be borne by Berkshire
Hathaway and 3G Capital. This new company Kraft Heinz is the fifth largest food company
in the world and third largest company in the USA. The cost synergies are expected to higher
economies of scale in USA particularly. The beneficial impact of merger is well understood
by this fact. By having more volume of sale, Kraft Heinz will be able to gain needed
bargaining power against the retail stores. Both companies before the merging had low
bargaining power against the big retailers but now they can devise better strategies against
big retailers’ monopoly. This ability will improve the operating margins and company can
have more shelf space in retail stores. The cost saving may come from the combined
company ability to refinance the high yielding debt of Heinz. Kraft has a better rating, and
combined entity may assist company to replace debts. Heinz stocks may be replaced with
such debts. All these factors work for the benefits of company. This will assist company to
reduce the total cost of capital requirements for business functioning. It is also found that
operating strategies chances may also contribute to cost saving. These can be by closing the
less efficient manufacturing units, targeting the reducing head counts, and adopting zero-
based budgeting. Zero based budgeting assists company to enforce stringent form of cost
control and realize the cost savings. The chairman and CEO team are proposed to be same
that implements the drastic cost cutting measures, and reduction in work force, closes many
factories and grounding the corporate jets it is concluded that operation strategy of company
is successfully implemented (Trefis Team, 2015).
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2.2 SWOT Analysis
Strong brand recognition and awareness among the target customers
Kraft Heinz manufactures a wide array of products in food and beverage industry and it has
many iconic brands such as Kraft, Planters, Velvettta, Maxwell House, Oscar Mayer, Heinz,
and Philadelphia etc. Company has been successfully offering products for all occasions and
it has a reputation of biggest branded food company in the US.
Strong financial performance and healthy growth
Kraft Heinz net sales was 18.333 million dollars in 2016. The increase in net sales was 67.8
percent and it was 18.3 billion dollars in 2013. The operating income was increased by 68.3
percent and it reached to $2.6 billion in 2016. These positive effects reveal the beneficial
impact of merging of both companies.
Strong distribution channels
It is important to know that in FMCG market or in fast moving consumer goods market,
distribution holds a key to success. This is due to this fact that reveals that FMCG products
are characterized by low involvement of customers in purchasing. Normally these products
do not take much time of customers and customers are also not much brand conscious. They
may be great experimenters and due to this fact, a company has to have very strong
distribution network therefore strong distribution network plays a significant role in growth
of company. Further Kraft Heinz has presence in more than 190 countries. The wide presence
of distribution network in-fact supports both companies to explore new markets with local
brand name. Along with this, Kraft Heinz promotes new technologies for making the
processes innovative and efficient.
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Backing of Buffets
Warren buffet influential role in the market also works as catalyst for the development of
organization. Warren Buffet reputation certainly assists company to overcome from many
issues. His insights about the business will prove very helpful for the company. In merger and
activity, his role is conspicuous to make company active.
Weaknesses
Lack of momentum
The third quarter results are not optimal for company. Profits slipped by 4 percent and this
decrease were due to the softening demands for packaged food by customers. This is due to
the bloated cost structure as well as limited ad spending by company. A business condition in
china where economic slow-down takes place also causes a low sale of company’s products.
Limited shelf life
Food products are not durable products and they have to suffer from limited shelf life. They
are perishable and also sensitive towards temperature. Foods that are not sold in specified
time may become waste for company. Therefore company needs to promote...