Business Partner B1+ Unit 4.1.1

Summary

The Kraft Heinz Company, a major player in the food industry, faced multiple challenges, including poor performance, high costs, and over-reliance on the U.S. market. In response, Kraft took risks by acquiring Cadbury and later merging with Heinz, creating the world’s fifth-largest food company. These bold moves aimed to expand internationally, cut costs, and meet changing consumer preferences. While the strategy faced skepticism, the results were positive, demonstrating that calculated risks in mergers and acquisitions can drive business success, though they are never guaranteed.

Takeaways

• 😀 Business leaders often have to take risks to develop strategies and anticipate future challenges.
• 😀 The Kraft Heinz Company, based in the U.S., is a significant player in the food industry with over 90 years of history.
• 😀 In the early 2000s, Kraft faced poor performance, disappointing profits, and a loss of consumer interest, especially among younger generations.
• 😀 Demand for Kraft's processed food products, like Oreos and Dairyly, began to decline, leading to thinner profit margins.
• 😀 Kraft also relied too heavily on the U.S. market and missed opportunities in emerging global markets.
• 😀 High operational costs were another issue that limited Kraft’s profitability and overall business growth.
• 😀 Kraft’s solution to these challenges included a bold plan to acquire the UK-based chocolate maker Cadbury, which had a 200-year history and a strong presence in emerging markets.
• 😀 By acquiring Cadbury, Kraft hoped to cut costs through operational overlap and expand its international footprint.
• 😀 The merger of Kraft with Heinz in 2015 created the world's fifth-largest food company and offered further opportunities to cut costs and innovate.
• 😀 The Kraft Heinz Company successfully improved its cost-saving strategies and saw a 17% rise in share price following the merger.
• 😀 Kraft's strategy involved significant risks, but it ultimately paid off, with Irene Rosenfeld, the CEO, acknowledging that the risk taken with Cadbury was essential for expanding their global presence.

Q & A

What were the primary challenges faced by Kraft in the early 21st century?

Kraft faced poor performance with disappointing profits, a decline in consumer demand for its products, especially among younger generations, over-reliance on the US market, and high operational costs that reduced profit margins.

How did Kraft aim to tackle its declining performance and loss of consumer interest?

Kraft focused on acquiring and merging with other companies to expand its product portfolio, reduce costs, and reach emerging markets. The acquisition of Cadbury was a major step in this direction, allowing Kraft to tap into new markets and strengthen its brand portfolio.

Why did Kraft acquire Cadbury?

Kraft acquired Cadbury to expand its product portfolio, particularly to enhance its presence in emerging markets and benefit from Cadbury's well-established international presence. This was part of Kraft's strategy to grow its footprint and attract a larger international audience.

What was Kraft's key strategic benefit from acquiring Cadbury?

The key strategic benefit was cost reduction. By combining operations, Kraft was able to eliminate redundancies and achieve economies of scale, which helped improve its profit margins.

What role did Heinz play in Kraft's strategy after the acquisition of Cadbury?

The merger with Heinz allowed Kraft to create the world's fifth-largest food company. Heinz's innovative approach to product development and Kraft's ability to cut costs through the merger helped improve the company's competitiveness and financial performance.

What was the immediate impact of the Kraft-Heinz merger on the company’s share price?

The immediate impact was positive, with Kraft Heinz's share price rising by 17% following the news of the merger.

How did the merger with Heinz help solve some of Kraft’s existing problems?

The merger with Heinz enabled Kraft to reduce costs by eliminating overlap between the two companies. Additionally, Heinz's innovative product lines helped Kraft better align with changing consumer preferences.

What risks were involved in Kraft’s strategy of acquiring companies and merging with others?

The risks included the possibility that mergers and acquisitions might not be successful, leading to potential business failures. Such strategies are not always guaranteed to improve performance or solve long-term issues.

How did Irene Rosenfeld, Kraft’s CEO, view the acquisition of Cadbury?

Irene Rosenfeld believed the acquisition of Cadbury was essential for expanding Kraft's portfolio and market presence, particularly in developing markets. She stated that the integration of Cadbury was on track and that it helped Kraft outperform its global competitors.

What can be concluded about Kraft’s approach to solving its corporate problems?

Kraft's approach was to take calculated risks through strategic mergers and acquisitions. While the risks were significant, these actions allowed the company to improve its market position, expand internationally, and cut costs, ultimately leading to a stronger global presence.