Case 1: Kraft Foods Case Study PDF

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Bella Gatto

Case 1: Kraft Foods

July 9, 2021

Introduction, Statement, and Assessment Geoff Herzog, the product manager for coffee development at Kraft Foods Canada, needs to make a rather tough decision about the launch of its coffee pod product. The company must decide between if they want to take a chance and not only launch the coffee pod system in the United States but also in Canada, or if they want to wait on the results from the test market in the United States before launching the pods in Canada. As the coffee development manager, Herzog has to be able to provide his company with a competitive promotional strategy and plan, that also takes into account their budget of $1 million, to help him and the company decide the suitable distribution strategy that will allow the company to enter the coffee pods in the market successfully. They need to set a wholesale and a retail price for the coffee pods. The competitive environment includes brands from Europe and the United States such as One-to-One, Home Cafe, Senseo, and Bunn My Cafe. Each of these companies have done something innovative involving coffee and most plan on releasing or have already released their own pods. If Kraft Food’s plan is done correctly, advantages include being the first to introduce an SSP in the Candian market. In the long run this leads to much higher revenue, cash flow, and growth. However, disadvantages include the fact that Kraft Foods does not know how successful the launch will be, especially with their budget of $1 million. If the company waits too long and does not take the plunge, another competitor might take their place first. The various long term outcomes of making mistakes while trying to launch the pods include loss of revenue, time, and labour for Kraft Foods. Strategic and Situational Analysis

SWOT Analysis Strengths: Kraft Foods is the second largest food and beverage company in the world, and the largest in the North American region. The company’s brand portfolio has 50 brands exceeding $100 million in revenues, and five of the products of the company are exceeding a $1 billion landmark. This is impressive and is a very important strength because it shows that Kraft Foods holds one third of the Canadian market and has a strong distribution network. Weaknesses: Kraft Foods have focussed on a narrow target market, which caters to a limited number of customers in a defined age group and income level. As well, a majority of the consumers prefer the closed system coffee pods, which limits the market even more. The fact that the company has a limited budget is also a weakness since it cuts from the marketing of the pods, which may not allow it to be as successful as it can be. Kraft Foods is newer in the pod market and may experience problems along the way of trying to get to the top. Opportunities: The coffee consumption rate is increasing fast in the Canadian market, which allows large potential growth. There is also an opportunity to attract the youth, and with their lower age segment, this could allow the company to penetrate the market more aggressively. Threats: Among the Canadian market there is a price war for the company, because different competitors have their own expertise in catering to the market. Potential market players are also entering the market in the near future, setting the market and capturing more market share. Another threat includes the differentiation needed for the product, which has become difficult since it is a homogenous product. There is a large cost of launching a different marketing plan in Canada, and it includes a high risk of their brand image being ruined. Financial Analysis The company’s goal is to breakeven by 2006, so a breakeven analysis is prepared. 3.5 million

cups of coffee are consumed in Canada per year, and two thirds of that number are prepared at home, which is 2,333,333. With 18 pods per bag, that translates to 129,629 bags of coffee. If Kraft Foods holds a 45% market share, as they hope to, then they would sell 58,333 bags per year. This number would grow by 4.5% annually, so by 2006, the number of bags sold would be 63,701. The suggested retail price for 18 pods is $4.04 since this price point is similar, if not a little lower, than competitors without negatively contrasting the quality of the product and keeping in line with 35% of the margins to its retailers. In the first year the company will see negative returns, due to the $1 million marketing budget. However, eventually Kraft Foods will be established enough to not need the $1 million because they will have sold enough to be stable in the market. Breakeven volume per year = $200,000 distribution / ($0.15 sale per pod - $0.02 production cost)) / 18 in a bag = 85,470 bags sold per year Evaluation of Alternatives Alternative one is the company waiting until the launch of Kraft coffee pods in the United States is successful before going over to Canada. Pros: This will allow the company to understand the reactions and behaviours of the consumers, and to receive feedback. This can lead the company to create a more effective plan for the Canadian market and to identify the similar customer base that exists in Canada that must be targeted. Cons: If Kraft Foods takes too long to dive into the Canadian market, its competitors will do that first and the company will be behind them. This will cause more and higher costs to squeeze in the market and make profits right away.

Alternative two is the company launching the SSP in the United States and Canadian market simultaneously. Pros: This will save the company costs and allow them to offer the economies of scale in production since they will develop a cost effective operational plan to cater to both markets at the same time. Cons: If the company fails with this product, then it might fail in not only one, but in both markets. The exit barriers are too high for the company, which would make it suffer for longer if it fails in one of the markets. Recommended Action It is recommended that Kraft Foods go with alternative number one, which is waiting until the launch in the United States is successful before launching in Canada. Gathering insights on how customers feel about a product and getting feedback before mass producing it in two different markets is important. This will allow the company to improve their marketing, product development, product positioning strategy, and more before implementing the SSP in Canada. Knowing how the United States market behaved can allow Kraft Foods to be better prepared for Canadian markets and allows them to overcome barriers they may have already faced. If the product does very well, it is likely that Canadians will hear about it and be anxious for the product to finally arrive in Canada. There is a chance that a competitor may enter first, but Kraft Foods will have a stronger plan after already launching their product, which will be very beneficial in the long run....