Kraft-Heinz Business Analysis
Shannon McKinney, Orion Drow, Erick Baker, Maab Aljumaili
Managerial Accounting, Business 121
October 6th, 2018
2. Company Introduction
The Kraft Heinz Company, now the fifth-largest food and beverage company worldwide, is the result of decades of takeovers and ingenious business strategy that shows no signs of letting up (1). The merging of both successful Kraft and Heinz companies actually occurred very recently in 2015, despite the roots of both companies going back much further than that.
Heinz was based out of Pittsburgh and dates back to 1869 and was formed by Henry John Heinz. Heinz's company first started as a business to prepare and market horseradish, although it didn't survive the business panic in 1875 and as a result, Heinz reorganized his company in 1876 and by 1905, it was the largest producer of pickles, vinegar, and ketchup in the United States (2). The company continued to expand through great marketing of its products and in 1978, the corporation acquired Weight Watchers International, Inc. (2). This acquisition set in motion a rapid period of global expansion into different markets for the Heinz company that continues into the 21st century. Heinz established food-processing companies and subsidiaries in China, Africa, central and eastern Europe, and the Pacific Rim (2). Currently, Heinz has expanded its core products to include Ketchup, various other condiments and sauces, full meals, snacks, and baby food, all of which bring substantial profits to the Kraft Heinz Company.
Kraft Foods, the other half of the Kraft Heinz Company, also has a long history. It was established in 1903 in Chicago by James L. Kraft (3). He and his brother Charles started by processing cheese for distribution to area retailers (3). Two of their other brothers joined the firm and in 1909, their firm was incorporated as J.L. Kraft Bros. & Company. Their claim to fame was their patented spoil-resistant processed cheese, which they then sold in large amounts to the U.S. Army during World War I (3). The company was then acquired by National Dairy Products Corporation in 1930, under whom their name was changed multiple times, eventually settling on Kraft, Inc. in 1976. After being purchased by National Dairy Products Corporation, Kraft, Inc. changed leadership constantly, from merging with Dart Industries, Inc. in 1980, to being acquired by tobacco giant Philip Morris Companies in 1988. Philip Morris Companies also purchased General Foods in 1984 and Nabisco Holdings in 2000. Kraft's, General Foods', and Nabisco's businesses all merged to create the giant Kraft General Foods, Inc. By 2007, after Philip Morris had begun to sell its stake in Kraft, Kraft Foods Inc. became the fully independent, publicly traded corporation that we know it as today, before it was merged with Heinz in 2015. Kraft's division within the conglomerate is very successful and creates products like Kraft cheese, Milka and Toblerone chocolates, Philadelphia cream cheese, Planters nuts, Jell-O desserts, Kool-Aid powdered beverages, Jacobs and Maxwell House coffees, Lu biscuits, Nabisco cookies and crackers, Oscar Mayer meats, and Cadbury Creme Egg and Cadbury Dairy Milk chocolates (3).
Company's Standing in the Industry
Kraft Heinz Company is currently ranked by industryweek.com to be the 6th largest food and beverage manufacturer in the United States (4). Industryweek.com ranked them to be the 43rd largest U.S. company in 2018. In 2017, they pulled in a revenue of $26.232 billion and had a net income of $10.999 billion (4). However, the revenue they earned in 2017 was .96% lower than the previous year. Because the Kraft Heinz Company was only created in August of 2015, there are only 39 months of data to look at rather than 5 years' worth. When the company went public, their stock price started at $72.96 per share (5). Their company's stock peaked at $96.65 in February of 2017, but since its conception, the price of their stock consistently hung between $70 and $90 until it began to drop rapidly in February of 2018 (5). Since then, their stock has fallen slowly but steadily to the point where it is at today, a price of $55.89 per share. The most likely cause for the fall in stock pricing is probably a result of the general public moving towards becoming more aware of our diets and trying to eat more organic foods rather than processed foods for health reasons. Because Kraft Heinz specializes in processed foods, it is likely that this movement has affected the company's performance.
3. Industry Overview
The food and drink industry in 2018 is constantly evolving to keep up with the trends of super-food, fad diets, instant meals, cleanses, and food apps/programs where food comes to you. With the consumer changing, the industry must adapt as well or risk failing to the newer competition. 20 years ago food was eaten at the table, after preparing the ingredients and cooking a meal. Nowadays more food is served in bowls or cups and eaten in front of the tv/tablet/computer or on the go. Sometimes we don't even cook the food ourselves, we just order it and it's delivered. There are programs that bring you a meal ready to eat and all you have to do is cook it. The only thing is, the ingredients are picked out for you so there are no options. If you are brand loyal you don't get the option to pick that brand, you get whatever products the program has partnered with, eliminating competition.
Another thing about the industry is how the consumers tastes are constantly changing. The more we explore other countries' cultures and food, the more options we add/remove from the shelves. Spices and flavors are always rotating in and out of style and as the seasons change, so does the food. For instance, fall is here, so naturally Pumpkin Spice is the flavor of the moment. In the winter it will become peppermint. New Years will be the start of diets and cleansing and so on. The food manufacturers have to keep up with the changes or risk falling behind. Some will gamble and try to get the next flavor out early, but if the consumer isn't ready, it could have a negative reaction. Cleanliness and safety are also important and we have not had a year go by since 2000 where there wasn't a recall due to some food contamination. These instances are also something the customer looks at and pays attention to when it comes to buying food. They may think to themselves, “How many times has COMPANY X had to recall a product due to contamination?” They may also think, “How many times did they not recall food, just to save money?”
With Instant food service, you can get your groceries online and delivered without even getting out of bed. Grocery deliveries are not a new thing, but it is more streamlined and mainstream then it was previously. Customers used to go to the store and pick out the items that were appealing to the touch, smelled good, and looked fresh. Now, someone picks out the item for you. You get what they like or what they think you will like, or worse, what's more cost effective for them, the business, rather than you, the customer.
We use social media too, as a way of sharing our positive or negative experiences with this product/company. If there is a grievance, a following or group of like-minded individuals can band together to boycott or protest a business.We also have mergers and separations, where a larger company buys a smaller company and takes its product, with all its R&D and re-brands/packages it without the expense of R&D. On the opposite side, a product may do so well that a company will branch off to try and capitalize on the markets demands, i.e. healthy organic sugar free products that differ from the main brand.
There are various emerging challenges that face the food and beverage industry. These challenges have affected how the industry operates as well as the law. The following are some of the challenges that are faced by the food and beverages industry. The challenges include:
The Food Safety Modernization Act. - This new law that was introduced in 2011 has brought a lot of changes, since there are new regulations and rules that are applied. The new requirements have changed how things operate. The most significant changes that have been brought by the law includes the improvements to product tracing. Product tracing involves documentation of the product and the distribution chain of the product.
Reducing waste and increasing efficiency in the supply chain. - It is imperative for the organizations to employ this so as to be able to avoid closures (Henderson, 2013). This is as a way of the United States controlling the global economy.
Greener business practices - This is a way of ensuring that the United States conserve the environment and its sustainability. Organizations have to show their dedication towards promoting a green environment, which will show its sustainability. Most of the players in the industry have decided to go for green energy, so as to ensure they show commitment towards energy sustainability.
Increasing cash flow and improving the bottom line - Many players in the industry want to ensure that their businesses is healthy and thriving. This has therefore seen the use of modern technologies and strategies to enable the business remain relevant and profitable. The various strategies that have seen changes include use of invoice. The use of invoice is to ensure that there is accurate and evidence of product delivery.
Henderson, J. (2013). Top 5 Challenges Facing the food and beverage industry. ExtenData: Mobile Conductor.
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