The American Company Kraft Foods Ltd Marketing Essay

In the current economic situation, companies are putting all their efforts to keep their customers loyal and present market shares. To attain these objectives they are launching new products, implementing new and more interesting marketing campaigns or releasing loyalty programmes. No matter the industry they activate in, all the companies want to build long lasting relationships with their customers, as it is easier and cheaper to keep existing customers rather than acquire new ones.

This paper will focus on the operations of one giant in the food industry, the American company Kraft Foods LTD, and all the attention will be centred on the chocolate confectionery branch of the organisation and on its leading chocolate brand in Europe, Milka. After a thorough analysis of the chocolate confectionery industry in the United Kingdom, the introduction of a new product in the Milka range will be discussed.

Corporate Objectives

Kraft Foods is the world’s second largest food organisation with revenues over $42 billion as they state in their fact sheet published in 2008. It has operations in many subsectors of the food industry such as: snacks, beverages, cheese, convenient meals and groceries (Datamonitor, 2009a). The company’s manufacturing plants are located in 70 countries all around the world and it sells its products in more than 150 countries (Kraft Foods, 2009a).

Being such a big company in the industry, it has set well defined long term objectives to help its growth strategies. Firstly, the company is well aware of the new trends in its sector and is aiming to offer consumers healthy products, as people have become more health conscious. Secondly, the issue of conserving the environment is intensively discussed nowadays therefore Kraft Foods has decided to implement projects for sustainability. Also, the company wishes to expand even more and increase its world coverage (Kraft Foods, 2009b). To satisfy this last objective the company is acquiring different companies which are operating in key markets. One example could be the recent acquisition of the British chocolate manufacturer Cadbury, which offers the company to opportunity to consolidate in the UK chocolate market (Mintel Oxygen, 2010). Kraft Foods also wants to expand to Southeast Asia as the countries here present high growth rates in the food industry (Mintel Oxygen, 2008)

Furthermore, since 2008 the company has decided to implement a restructuring plan designed to lower its cost structure and optimize capacity without affecting the quality of products (Kraft Foods, 2009a).

Market Overview

As stated before, this paper will focus on the chocolate confectionery operations of Kraft Foods in the UK market and therefore an overview of this particular market is necessary.

Datamonitor (2009b) states that the chocolate confectionery industry accounts for almost 67.5% of the total value of the UK confectionery market, which also includes gums, cereal bars and sugar confectionery (Chart 1).

Chart 1: Market segmentation in the UK (Datamonitor,2009b)

The UK chocolate confectionery industry has been in a permanent growth from 2003 until 2008, increasing by 11.1%. (Mintel Oxygen, 2008b). This particular segment is characterised by fierce competition as some of the most well known food giants are competing here. The main players in 2007 were Cadbury, with 35.3% market share, Masterfoods, with 30%, Nestle, with 14%, Ferrero, with 4% and Kraft Foods with 1.8% as it can be seen in Chart 2.

Mintel’s 2008b forecast on market growth states that it will grow by 17% until 2012, if the prices of chocolate would have remained at the 2007 value. In real terms and taking into consideration inflation this growth will be of just 2%.

Chart 2: Manufacturer’s value shares in the UK chocolate market 2003-2007 (Mintel. 2008b)

The report on chocolate confectionery published by Mintel Oygen (2008b) states that current trends in the market highlight the fact that more healthy foods need to be released on the market, forcing in this way companies to produce healthier chocolates. As childhood obesity is an important issue in the UK, there is an absolute need of healthy products and what now is a trend it will later become a way of living. Also, consumers tend to become more educated on chocolate and soon will demand high quality products. Moreover, the same report shows that consumer preferences have started to change and shortly they will ask for new flavoured chocolates.

Marketing Audit: Internal and External

After getting a brief insight on the chocolate confectionery sector in the UK, an internal and external marketing audit needs to be done in order to identify which are current problems of the company.

Firstly, since it has consumer products the overall marketing mix implemented needs to be analysed. Then, the strengths and opportunities must be identified in order to overcome the company’s weaknesses and threats. Also with the help of the PEST model and Porter’s five forces the chocolate confectionery industry will be further analysed.

Marketing Mix

Kraft Foods is doing business in the consumer products domain, therefore its marketing mix is specially tailored for its consumers.

Its main products are food items such as chocolates, biscuits, different beverages, snacks and convenient meals. Some of the company’s products have become leading brands worldwide proving that the company offers qualitative products and also knows what its customers want. The company prefers to buy its raw materials from third parties such as agricultural cooperatives and independent producers to ensure high quality of the final product. (Kraft Foods, 2009a)

The pricing policy of any company has to be elaborated in such a way that it retains current customers and also attracts new ones (Brassington and Pettitt , 2006 pg.431 ). The company charges acceptable and affordable prices for its products. However these prices are affected by raises in raw materials, as was the case in 2008 when the company had to raise prices to dairy, coffee, cocoa, wheat or nut products as a result of price increases for the raw materials (Kraft Foods, 2009a)

When talking about promotion, Kraft Foods invests important amounts of money into well developed marketing campaigns which are meant mainly to attract new customers but also to consolidate its image in the eyes of present consumers. The company uses some of the tools in the promotional mix such as advertising, sales promotions, public relations.

The organisation’s products have a wide distribution, reaching many markets all around the world. The main places where the products can be fund are supermarket chains, wholesalers, convenience stores, retailers, club stores or mass merchandisers (Kraft Foods, 2009a).

SWOT

As it has already been stated, Kraft Foods operates in different sectors of the food industry and in many markets in the world, so for each sector the company faces particular threats and has different strengths and weaknesses. In the case of the chocolate confectionery industry in the UK, the following SWOT analysis can be elaborated based on information provided by Datamonitor (2008).

Strenghts:

Kraft Foods has a strong brand image worldwide

Well developed distribution network

Manages a variety of brands in UK such as Milka Chocolate, Oreo biscuits, Toblerone, Terry’s Chocolate Orange and others; well managed brand portfolio

The raw materials used for production are always of high quality

Weaknesses:

Over the years the company had to recall some products, action which has damaged its image

Its margins have constantly decreased causing problems in the implementation of new growth plans

Opportunities:

The acquisition of the British chocolate manufacturer Cadbury offers access to its expertise, research and information on consumer trends in the UK

Permanent growth in the demand for healthy products

New technologies and developments in the industry

Threats:

Fierce competition in the UK

Governmental laws regarding alimentation

Too much divestment, having a large portfolio of brands worldwide might affect the company’s cash flow

PEST

Kraft Foods is doing business in a constant changing environment and as a result it must always know what is happening in the UK environment. The UK business environment is continuously affected by political/legal, economical, social and technological /environmental factors.

Political factors

The laws in the UK regarding alimentation are quite tough with for companies, but they work in the benefit of the consumer, demanding more usage of healthy products. Any law imposed by the UK government or by the European Union can affect the company’s operations and revenues.

Economical factors

Currently the UK has not entered the Euro Zone and it is still able to have a stronger currency then the Euro Zone. However, in the context of recession, the UK has reported a drop in GDP and in the third quarter of 2009 “the GDP contracted by 0.2%, and remained 5.1% lower than in the same period of 2008” (www.statistics.gov.uk, 2010a). The recession has affected greatly this country and as a result the disposable income has decreased, affecting the population’s buying habits. Consequently, companies had to reduce prices and implement different schemes to maintain their customers and lose a small percent of sales.

Social factors

The UK population is very affected by the recession and many of them have lost their jobs. Unemployment rate has reached 7.8% in November 2009, but however there has been registered a decrease in the number of unemployed people (www.statistics.gov.uk, 2010b). Since unemployment is quite high, not many British people afford to spend money on other things that are not of strict necessity, such as chocolates.

Confectionerynews.com (2009a) states that women are more likely to have chocolate due to the fact that when they reach menopause they become more stressed and need to get relieved.

Technological factors

Technological advances always occur in any industry. Companies in the chocolate confectionery sector have to invest in research and development in order to come up with healthier products as customers demand these intensively. Recently, Kraft Foods and Nestle were accused of using palm oil and indirectly encouraging deforestation in Indonesia (www.confectionerynews.com, 2009b) and as a result both companies had to review operations and decided that from 2010 will use only certified palm oil.

Porter’s 5 Forces Analysis

The UK chocolate confectionery industry can also be assessed by using Porter’s five forces.

Threat of new entrants

The UK industry is quite fragmented with many companies competing within. Since some of the largest companies are present here such as Nestle, Kraft Foods, Cadbury and Mars Inc. it is very difficult for a smaller company to enter this market. However there are also niches, such as premium chocolates which could still welcome new players. This particular threat is considered to be low as it is difficult to enter the UK market.

Competition

It is common knowledge that the UK market presents high levels of competition. The world’s food giants are in a continuous quest for market shares and increased sales volumes. This particular force might seriously affect Kraft Food since it still doesn’t have a high market share, but because of the new acquisition of Cadbury this might change.

This force is considered to be high, as there are important companies battling for supremacy.

Buyer’s bargaining power

Nowadays British people choose to spend money just on the necessary products and have eliminated premium products from their daily shopping. As a result, this force is considered to be quite high and have serious impacts on the companies activating in the industry.

Supplier’s bargaining power

Over the years companies have built lasting relationships with their suppliers, as a result suppliers work jointly with buyers to ensure productivity. Due to these relationships the supplier’s bargaining power is considered to be medium, as raises in raw materials can occur and affect the final products of the company.

Threat of substitutes

Chocolate can have many substitutes such as gums, candy or ice cream. As new consumer trends show that there is a serious shift to healthy products chocolate could be seriously affected, unless producing companies launch healthier versions. Consequently this threat can be considered as being medium to high.

Current year

Competition

Five years time (assumption)

New entrants

Power of buyers

Substitutes

Power of suppliers

Figure 1: Porter’s five forces (current year and five year prediction)

Assumptions

The VAT has increased to 17.5% (www.hmrc.gov.uk), automatically causing increases in the prices of all products. A further increase might endanger future plans for launching new products and present product sales might be affected.

Also, if the UK decides to join the Euro zone serious price changes might occur and people might think they are paying more for a product then when they were using the sterling pound.

It must not be forgotten that consumers are changing their buying patterns and preferences so they might choose to replace chocolate with other sweets.

Marketing Objectives and Strategies for new product

Growth Strategy

As it has been previously presented, Kraft Foods does not have a considerable market share on the UK confectionery industry. It should focus more on its leading European chocolate brand, Milka, and make it a preferred chocolate in the UK too. Milka chocolate is present on the UK market in just six assortments (www.milka.co.uk, 2010) while other chocolate brands have more assortments. The need for a new product has been identified, and the proposed product is “Poppin’ Milka”. This new product will be alpine milk chocolate and in the interior it will have a bounty of popping candy.

Since it is a new product for the Milka brand, Ansoff’s new product – existing market growth strategy will be followed (Dobson and Starkey, 2002).

Marketing objectives

Gain more market share on the UK chocolate market

Build a strong brand name and image for the Milka brand

Attract new customers, while retaining current ones

Identification of Alternative Plans

In the worst case scenario the new product could prove to be a failure, even though prior research would show that it should have success. Since the product has already been launched Kraft Foods could enhance it by adding new flavours such as melon, strawberry or cherries, fruit flavours which make a good combination with popping candy. Confectionerynews.com (2009c) shows that nostalgia has helped boost the UK food market, and since popping candy was very popular few years back, it could make a comeback.

Also, it should be noted that the new product will be targeting children, but their parents are the ones who have to be convinced to buy the product. If the product does not manage to reach forecasted sales for the first months, the marketing plan should be reviewed and changed where it went wrong.

Promotional Programme

Objectives of the campaign: the main objective of the campaign will be to draw attention on the new Milka product and promote it throughout the year. Also, through this campaign it is intended to raise Milka’s brand awareness and help build a stronger brand image.

Target audience: the main target audience is children aged 5-13, but indirect target audience is men and women aged 25-40, who have children aged 5-13, since they are the ones who will buy the products, even though they might not be the users.

Message: since the product is mainly targeted to children, the message has to be appealing and funny. It will stress on the fact that it is fun to have popping candy together with chocolate, a soft and creamy chocolate like Milka.

Budget: the product launch campaign could be quite expensive, but Kraft has to take the risk and invest approximately £2 – 2,5 million, to develop an effective and integrated marketing campaign. Since the company is a world giant it should be able to afford such a campaign especially when aiming to gain market share. The company already has a contract with Ogilvy to make the advertisement for Milka, so it can count on the help of a well known advertising agency. (Mintel Oxygen, 2009)

Promotional mix: prior to the actual launch of the product (two weeks ahead), a guerrilla marketing campaign will be conducted such as to raise interest in the new product. Teaser ads would be placed in supermarkets and short TV ads will be played on kids TV networks. After the launch, samples will be given to customers of selected supermarkets such as Tesco or Sainsbury for a period of one month. Then full length ads will be played on kids TV networks for the next three to four months. In conjunction with TV ads billboards will be posted close to supermarkets and playgrounds to make sure the target audience becomes familiar with the product. At celebration times sales promotions will run to encourage and increase the product sales.

The tagline used in all the ads will be “Poppin’ the magic with Milka” and will feature the Milka symbol, the liliac cow dancing on a popping candy dance floor and in the end the dance floor will explode as fireworks, showing the properties of popping candy.

Time frame: the marketing campaign is designed for a period of twelve months commencing January, 2010.

Measurement, Review and Control

Any marketing campaign has to be evaluated before, during and after implementation (Brassington and Pettitt, 2006). The campaign will be evaluated before implementation through focus groups. During the campaign, sales will be closely followed and on-site interviews will take place. In the end, the campaign will be assessed by evaluating sales volumes and revenues, and check if the marketing objectives have been attained.

Conclusion

Launching a new product in a market where Kraft does not have high market share might be very difficult, but such actions must be done in order to become known on the market. With a well designed product and marketing campaign the new product should be able to reach expectations.

“Poppin’ Milka” should be a success since Milka chocolate is a European leading chocolate brand, and British people are familiar to the brand.