Kraft’s Company Profile

Kraft Foods Inc., together with its subsidiaries, manufactures and markets snacks,
confectionery, and quick meal products worldwide. The company offers snacks, including
cookies, crackers, salted snacks, and chocolate confectionary; beverages, including coffee,
packaged juice drinks, and powdered beverages; cheese, including natural, process, and
cream cheeses; and grocery, including spoonable and pourable dressings, condiments, and
desserts. It also offers convenient meals, including primarily frozen pizza, packaged dinners,
lunch combinations, and processed meats. Kraft Foods markets its products primarily under
various brand names, including Kraft, Oscar Mayer, Philadelphia, Maxwell House, Jacobs,
Nabisco, Oreo, Milka, and LU. The company, through its subsidiary, Cadbury Plc, also offers
chocolate products under the Cadbury Dairy Milk, Flake, Creme Egg, and Green & Black's
brands; gum products under Trident, Dentyne, Hollywood, and Bubbaloo brands; and candy
products under the Halls, Cadbury Eclairs, Bassett's, and The Natural Confectionery Co.
brand names. It sells its products to supermarket chains, wholesalers, super centers, club
stores, mass merchandisers, distributors, convenience stores, gasoline stations, drug stores,
value stores, and other retail food outlets. The company was founded in 2000 and is based in
Northfield, Illinois. Kraft Foods Inc. operates independently of Altria Group Inc. as of March
30, 2007.

Key Statistics:

Valuation Measures

Market Cap (intraday)5: 55.52B

Enterprise Value (Feb 27, 2011)3: 81.77B

Trailing P/E (ttm, intraday): 13.23

Forward P/E (fye Dec 31, 2012)1: 12.63

PEG Ratio (5 yr expected)1: 1.55

Price/Sales (ttm): 1.13

Price/Book (mrq): 1.55

Enterprise Value/Revenue (ttm)3: 1.66

Enterprise Value/EBITDA (ttm)3: 11.02

1
Fiscal Year

Fiscal Year Ends: Dec 31

Most Recent Quarter (mrq): Dec 31, 2010

Profitability

Profit Margin (ttm): 8.36%

Operating Margin (ttm): 12.32%

Management Effectiveness

Return on Assets (ttm): 4.68%

Return on Equity (ttm): 8.06%

Income Statement

Revenue (ttm): 49.21B

Revenue Per Share (ttm): 28.69

Qtrly Revenue Growth (yoy): 24.90%

Gross Profit (ttm): 14.60B

EBITDA (ttm): 7.42B

Net Income Avl to Common (ttm): 2.47B

Diluted EPS (ttm): 2.40

Qtrly Earnings Growth (yoy): -23.90%

2
 Balance Sheet

Total Cash (mrq): 2.48B

Total Cash Per Share (mrq): 1.42

Total Debt (mrq): 28.72B

Total Debt/Equity (mrq): 79.92

Current Ratio (mrq): 1.04

Book Value Per Share (mrq): 20.53

Cash Flow Statement

Operating Cash Flow (ttm): N/A

Levered Free Cash Flow (ttm): N/A

Abbreviation Guide:
K= thousands.
M= Millions.
B=Bllions.
mrq= Most Recent Quarter ( as of Dec 31, 2010).
ttm= Trailing Twelve Months ( as of Dec 31, 2010).
yoy= Year Over Year (as of Dec 31, 2010).
lfy= Last Fical Year (as of Dec 31, 2010).
fye= Fical Year Ending.

3
Kraft’s Food at a Glance

4
Kraft Foods: Restructuring for Growth

5
In January 2006, Kraft Foods Inc., the world's largest branded food and Beverage Company,
announced a major restructuring plan as a cost cutting measure. Starting from the early
2000s, the company's profit margins shrank. Due to escalating costs and consumer focus on
low calorie foods. In order to deal with the situation, Kraft launched a restructuring plan in
2004. While the first plan was underway, the company announced another round of
restructuring in 2006 and proposed to close several plants and cut jobs. It also planned to
reorganize its product portfolio. This led the analysts to wonder whether the company's
restructuring plans would pay off or the company needed to introduce new products.
The case starts with a brief history of Kraft Foods and moves on to the problems faced by the
company. It then discusses both the restructuring plans of the company. The concluding
section poses a question about how successful these plans would be in steering the company
to healthy profits.

Pedagogical Objectives

• To know the problems faced by Kraft food.

• To analyze the restructuring strategies for Kraft Food.
• To understand the importance of customer focus.
• To discuss the changing focus in corporate strategy as turnaround strategy.

Kraft Foods: Restructuring for Growth

"It's never easy to decide to close a plant or to eliminate jobs because of the obvious impact
it has on the people who have worked hard to make this company successful. However
difficult, these actions have been taken with a lot of thought and are in the best interest of
the company as a whole."

- Roger Deromedi, Chief Executive Officer, Kraft Foods.

"Further cost reduction is a necessity in the current environment."

- Jim
Dollive, Chief Financial Officer, Kraft Foods.

6
 Introduction

In January 2006, Kraft Foods Inc. (Kraft), the largest branded food and Beverage Company
in the US and the second largest in the world, announced a restructuring program as a part
of cost-cutting measure. It was the second restructuring plan in two years. Kraft
manufactured more than 70 food and beverage brands [Exhibit 1] and marketed them in
over 150 countries worldwide. The company, known for its innovative products, had some
of the very successful products, which were the leaders in their respective categories.

However, things started getting out of line for Kraft since early2000s. Due to escalating
costs and consumer focus on low calorie foods, the company's profit margins shrank. In
order to combat these problems, the company decided to go for another round of
restructuring, while the first round, initiated in 2004, was still in process. The company
planned to slash 8000 jobs and close several plants. It also planned to reshuffle its product
mix to sustain consumer interest in its products. In addition, it decided to trim its product
lines by 10% and launched 'South Beach Diet', a new healthier line of foods. Yet, analysts
felt that apart from restructuring the product lines the company needed to innovate new
products.

7
 About Kraft Foods

Kraft's history could be traced back to 1909, when a cheese wholesaler, James Lewis Kraft
(James), incorporated a company, J L Kraft & Bros in Chicago, US. By 1914, James had
developed a process of producing cheese which gave it a consistent flavor and longer store
life. In 1924, the company opened a sales office in London, marking its entry into the
European continent and the same year it went public. It also opened a sales office in
Hamburg, Germany, over the years. Kraft introduced new variations of cheese, such as
Velveeta cheese spread and Miracle Whip salad dressing. In 1937, Kraft entered the
convenient meal segment and launched Macaroni and Cheese dinner, followed by processed
cheese slices, Cheez Whiz, Shake 'N' Bake, Light 'N' Lively yogurt, Breyers ice cream and
different jams and jellies. Its Minute Rice was an instant hit as it significantly reduced the time
required to cook rice. Alongside, the company kept expanding its operations in Germany, England
and Canada and entered new countries like China and Korea.

In 1988, Kraft was acquired by Altria Group', which was previously known as Philip Morris
Companies Inc. The Atria Group combined Kraft with General Foods Corporation' to create Kraft
General Foods, the largest food company of the US. Later in 1995, Kraft General Foods was renamed
as Kraft Foods, Inc. In 2000, Kraft purchased Nabisco Holdings, manufacturer of cookies, crackers
and snacks. After the acquisition, Kraft became the second largest food company in the world after
Nestle (Exhibit 2). By 2001, Kraft had a portfolio of over 60 brands and seven of them, namely
Kraft, Nabisco, Oscar Mayer, Philadelphia, Maxwell House, Jacobs and Post, contributed
majority of the revenues.
Thereafter, the company introduced new products and extended successful brands to other product
categories. Kraft sold its products in the US, Canada, Europe, Latin America, Africa, Asia Pacific,
and the Middle East. Its products included snacks, beverages, cheese and dairy, grocery, and
convenient meals [Exhibit 3]. Starting from different variations of cheese, Kraft developed a culture
of new product innovations across various product categories. Between 1997 and 2002, new products
generated more than $4 billion in sales. In 2001 alone, Kraft spent more thanmillion
$350 on
research and development of new products which generated $1.1 billion in sales during the year.
John Ruff, senior vice president of research and development and quality at Kraft, stated, "We focus
upon growth through new product development in three ways. First, we look to reinvent and
reinvigorate our existing products, whether that be through improvements in quality, packaging
innovation or new benefits. Second, we look to introduce line extensions and develop new products,
and third, we look to grow through acquisitions and new brands."

8
 Troubled tim es at Kraft

By early 2000s, Kraft began to face problems. It had acquired Nabisco Holdings for $18.9 billion
(including $4 billion in debt), a bid higher than those of Cadbury Schweppes and Danone. As a
result of the acquisition, the company accumulated huge debt. Later, in June 2001, the parent
company of Kraft, Altria, decided to make 16% of Kraft public and raise $8.7 billion to pay off the
debt it had accumulated. After the sell-off, two of the top executives of the company, Bob Eckert
and Jim Kilts, left Kraft. Both of them were considered to be "champions of new-product
development'" and created a void when they departed. A former Kraft R&D executive commented
that, "Eckert and Kilts used a whole lot more intuition and gut feel rather than [relying on] numbers.
The people who took over just seemed to want to milk aging brands-just like rearranging deck chairs
on the Titanic."
After the two men left, Kraft appointed two CEOs, Roger Deromedi (Deromedi) and Betsy Holden
(Holden). Deromedi was appointed as the co-CEO to handle international operations of the
company, while Holden, who had been with Kraft for 17 years, looked after American
North
operations. As the head of Kraft's pizza business, Holden had successfully launched
DiGiomo pizzabut as CEO she could not repeat the success with new-product launches. Both
of her newly launched products, microwaveable chips Ahoy and Fresh Prepdinner kits, were
disasters. While the company was still trying to digest its Nabisco acquisition and live up to
Wall Street's expectations, it decided not to take risks and instead focused on much safer
line extensions. This resulted in too many variations of the same product in the market. A
retailer commented, ''The problem with Kraft overall is that they're really rehashing a lot of
the things they have already and not coming out with anything really new, and I don't know
when they're going to", while an analyst said, "Innovation at Kraft simply hit a lull."

As a result of the integration of Nabisco operations, Kraft cut its workforce by 7,500 in
2002. Consequently, it had to pay $373 million for severance and other related costs. The
same year, the company along with a few other companies had to pay $9 million to settle a
federal lawsuit for using Bayer's Star Link' com in its products. Kraft was also late in
addressing the issues related to low-carb, healthy foods. Some critics opined that several
companies were quick to offer products that responded to rising concerns about fatty foods.
In September 2002, PepsiCo Inc. began to remove fatty acids from its three popular snack
brands, Doritos, Tostitos,and Cheetos,which had grown 28% by volume in the second
quarter. General Mills Inc. and Kellogg Co. also greatly enhanced their cereal lines with

9
healthy extensions. Meanwhile, some analysts said that Kraft let its Post cereals
wither. According to Jennifer McCaffrey of McCaffrey's, a small grocery chain in
Pennsylvania, US, "Cereal is all about new flavors and new items that are good for health,
and Kraft hasn't kept up."

In early 2003, Kraft raised the prices of its Nabisco products by about 3% due to higher
commodity prices, especially of wheat, cheese, cocoa and milk. This resulted in declining
sales volumes and profit margins. The company also faced a tough competition from private
label" brands as grocery retail chains, such as Wal-Mart and Costco Wholesale, started selling
their own brands at cheaper prices. For example, a pack of American cheese singles from
Kraft sold for $2.99, while retail chain Albertsons sold it for $1.99. Consequently, sales of
Kraft's natural cheese between March and July 2003 rose only 1 % as against 13% growth in
the sales of private label cheese. Cheese, biscuits, cold cuts and coffee, that were Kraft's
flagship businesses, lost market share and volume in the first half of 2003. Dissatisfied with
the company's performance, Daniel Peris, who owned 286,000 Kraftshares, said, "Kraft's
bulletproof reputation as a steady grower was shattered. Everyone suddenly realized that it's
just a regular packaged-food company, not a superior one." In the fourth quarter ended
December 2003, Kraft recorded sales worth $869 million compared to $931 million a year
ago. For the year ended December 2003, operating income was ,$5,860 million on revenues
of $30,498 million compared to $5,961 million on revenues of29,248 million in 2002
[Exhibit 4].

10
 Kraft’s Restructuring strategies

Starting from a core product (cheese), Kraft’s consistently diversified into jams, jellies,
mayonnaise, cookies etc. and in the process it “ended up with a great brand name, but few
winners.” In December 2003, Deromedi was solely appointed as the CEO of the company,
while Holden was made the head of the global marketing with the responsibility of new
product development. In the first week of January 2004, Deromedi announced a three year
restructuring plan to steer the company towards the strong growth. The restructuring
program, called the ‘Sustainable Growth Plan’ had four main initiatives: “to transform its
portfolio, to build superior brand value, to expand global scale and drive out and asset.”

The restructuring plan aimed at cutting 6000 jobs of a worldwide workforce of slightly more
than 1000,000. The company intended to eliminate 1,300 jobs in North America (where it
had about 50,000employees) in the first quarter, while the remaining cuts were to be made by
2007. Deromedi also proposed to close 20 plants, including the ones in Canton, New York,
Farmdale, Ohio, and Central Europe. Apart from that, he decided to increase the Marketing
Budget by$500 to$600 million in 2004. He expected that the restructuring would cost as
much as $1.2 billion over the next three years and generate around $400 million in annual
saving by 2006. As a part of his restructuring plan, Deromedi reorganized his product
portfolio. He began to focus on four core segments, cheese and dairy, coffee, biscuits and
specialty beverages.

In April 2004, Kraft registered volume growth in its Oscar Mayer brand. However, the first
quarter earnings were down 34% to 560 million from $ 848 million in the same period of
2003. Jim Dollive, chief financial officer of Kraft, reasoned, “ As expected, the company’s
first quarter earnings were down versus prior year due to restructuring charges, increased
marketing investment and higher benefit cost.” The company’s sales continued to follow a
downward trend due to relentless pursuit of a healthier lifestyle by US consumers. In second
quarter of 2004, it reported a 26% decline in earnings. An analyst observed, “The
development of novel products with new brand positions has been missing from Kraft for
years. Instead, they are using the trade promotion and pricing to accomplish growth and I
don’t view that as an effective long-term strategy.”As a result, the company found itself
under intense pressure to revamp its product line-up to meet the consumers demand.

At this juncture, Deromedi decided to divest the product lines which contributed less than
5% of the company’s total revenues. He sold off yogurt and ice-cream business (including

11
brands like Breyers, Cream Savers and Altoids and Trolli brands) also. In 2005, he
emphasized to focus on powdered beverages, cracker chips, frozen pizza, health and
wellness, and on demand coffee. Apart from that’ he aimed to drop the line extensions that
failed to differentiate it from its low-priced competitors and launch innovative products.
Among the new products to be launched were microwaveable versions of DiGiorno Rising
Crust pizza, a Honey Maid extension into oatmeal cookies, glass-jars microwaveable cheese
dips and recently acquired Veryfie fruit20 brand. The new launches also included ‘Tassimo’
coffee system to compete with Sara lee’s ‘Senseo’ and Procter & Gamble’s ‘Home Café’.
Experts wondered that no major launches were announced in the cereals category, which was
declining gradually. They felt that the new product launches were not sufficient for long-term
profitability. But, Deromedi believed in driving sales volume, rather than launching new and
innovative products. He asserted that, building new brands is not the true measure of success
within consumer products. Driving incremental volume is.”

In order to address the growing obesity concerns and consumers’ preference for low calorie
foods, Kraft introduced new products across different product categories. Besides, it added
vitamins and minerals and reduced calories per servings in the existing as well as new
products. Also, to promote existing low-cal products, such as Miracle Whips and jell-O light,
it launched a new advertisement campaign, “counting crabs? Count on Kraft”. The company
also started to provide more nutritional information on its small-sized snack and beverage
products. Furthermore, it entered into an agreement with Dr. Arthur Agatston, the creator of
‘South Beach Diet’ to prepare its products as per the diet and use the name ‘South Beach
Diet’ in its packaging. Later, in early 2005. Kraft launched a new line of South Beach Diet
branded products which proved to be successful and contributed $170 million to revenues
that year. The company realized the threat posed by private labels and planned to fight them
by developing new food technologies and innovative products. But since private labels were
quick to imitate the product of large manufacturers. Kraft appointed a number of patent
lawyers to protect its innovations.

In 2005, with all the categories registering healthy growth, Kraft reported revenues worth
$34.1 billion, compared to $32.1 billion year ago. However, net income decreased 1.2% to
$2632 million from $2665 million in the previous. The company partially attributed the
sliding profits to almost flat volumes and spiraling cost of commodities during the year. It
spent $800 million more on commodities in 2005 than in 2004. While the earlier
restructuring program was underway, the company announced yet another restructuring plan

12
in January 2006. According to the new plan, the company would cut about 8% of the
workforce, in addition to the earlier cuts, and shut down 20 more plants. This plan was
expected to the cost an additional $2.5 billion raising the total restructuring costs to $3.7
billion. The management of Kraft hoped to save another $700 million in annual saving apart
from the $450 million it originally targeted in the earlier plan. The company intended to cut
the product line by another 10% in additional to a 20% cut since 2004. According to
Deromedi, sales of new products, including South Beach Diet items, accounted for $1.5
billion of 2005 revenues.

13
 Looking forward

In February 2006, Deromedi announced that the company would focus on innovating new
products in those areas that yielded higher revenues, such as wellness, value-added and on-
the-move products. Besides, the company aimed to improve its product mix by shedding lo-
margin items in favor of more profitable ones and offering healthier products. Keeping with
the consumers’ preferences, the company also had plans to further extend its South Beach
Diet brand. Deromedi was contemplating the idea of entering into European convenient food
sector as a survey revealed that the sector, a market worth 66 billion Euros, was relatively
untapped. Besides, he was thinking of developing an innovative packaging design and
marketing approach to tap rising demand for on-the-go snacks.

Kraft management believed that introduction of new products, increased marketing spending
and a positive product mix would drive the company’s growth in future. Commenting on the
company’s 2006outlook, Deromedi said, “While we expect the challenging environment to
continue in 2006, I believe that our combination of stronger Brand Value propositions and
aggressive cost reduction programs will drive improved results this year and beyond.”
Nevertheless, analysts still wondered if Kraft restructuring plan would pay off and steer the
company to strong growth.

14
 Exhibit 1: KRAFT – SELECT NORTH AMERICAN BRANDS
(as on March 3, 2006)

Product Category Brands

Snacks Back to Nature, Balance, Barnum’s, Better Cheddars, Cheese
Nips, Chips Ahoy!, Dad’s Harvest Crisps, Honey Maid, Lorna
Doone, Mallomars, Nabisco, Newtons, Nilla, Nutter Butter, Oreo,
Peek Freans, Planters, Premium, Ritz, SnackWell’s, Teddy
Grahams, Triscuit, Wheat Thins, etc.
Beverages Capri Sun, Country Time, Crystal Light, Fruit20, General Foods
International, Kool-Aid, Maxwell House, Nabob, Sanka, Seattle’s
Best Coffee, Starbucks, Tang, Tazo, Veryfine, Yuban, etc.

Cheese and Dairy Athenos, Breakstone’s, Cheez Whiz, Churny, Cracker Barrel, Deli
Deluxe, Knudsen, Kraft, Philadelphia, Polly-O, Velveeta, etc.
Grocery A.1., Baker’s, Back to Nature, Bull’s-Eye, Calument, Claussen,
Cool Whip, Cream of Wheat, Dream Whip, Good Seasons, Grey
Poupon, Jell-O, Kraft, Milk-Bone, Miracle Whip, Oven Fry, Post,
Seven Seas, Shake ‘n Bake, South Beach Diet, etc.
Convenient Meals Boca, California Pizza Kitchen, Delissio, DiGiorno, Jack’s, Louis
Rich, Lunchables, Kraft, Minute, Oscar Mayer, Tombstone, South
Beach Diet, Stove Top, etc.

Sources: Kraft Annual Report 2005.

15
 Exhibit 2: The making of Kraft foods

• 1903: J.L. Kraft started a wholesale cheese business in Chicago.

• 1914: J.L. Kraft & Bros. Co. opened their first cheese factory in Stockton, Illinois,
within a year they being producing process cheese in tins. The US government
provided cheese in tins for the armed forces during World War I.

• 1928: Kraft introduced VELVEETA process cheese.

• 1933: Kraft introduced MIRACLE WHIP salad dressing at Chicago’s Century of

Progress World’s Fair.

• 1937: KRAFT Macaroni and Cheese Dinner was introduced with the advertising
slogan of “Make a meal for 4 in 9 minutes.”

• 1949: MINUTE Rice was nationally distributed.

• 1950: KRAFT Deluxe process cheese slices, the first commercially packaged sliced
process cheese was introduced.

• 1952: CHEEZ WHIZ pasteurized process cheese spread was introduced.

• 1954: Kraft introduced CRACKER BARREL brand natural cheese.

• 1957: The General Foods Corporation introduced TANG, breakfast beverage crystals.

• 1965: The company introduced SHAKE’N BAKE coating mix in two versions,
chicken and fish.

• 1966: COOL WHIP nondairy whipped topping was introduced.

• 1972: STOVE TOP stuffing mix was introduced.

• 1973: GENERAL FOODS INTERNATIONAL COFFEES flavored coffees were

introduced.

• 1981: General Foods Corp. bought Oscar Mayer & Co., which was established in
1883 by Oscar F. Mayer and his brothers Gottfried and Max and sold meat products.

16
• 1983: Kraft introduced LIGHT N’ LIVELY low-fat yogurt, the first US yogurt in a
six-pack.

• 1985: General Foods Corporation is bought by Philip Morris Companies Inc.

• 1986: Kraft purchased Tombstone Pizza Corporation of Medford, Wisconsin (est.

1962)

• 1988: Kraft, Inc. was bought by Philip Morris Companies Inc. Oscar Mayer
introduced LUNCHABLES.

• 1989: Philip Morris Companies combined Kraft, Inc. and General Foods Corporation
to form Kraft General Foods, the largest food company in the US.

• 1989: DI GIORNO brand refrigerated pastas and sauces were introduced.

• 1993: Kraft General Foods acquired NABISCO ready-to-eat cold cereals from RJR
Nabisco.

• 1995: Kraft General Foods was renamed Kraft Foods, Inc. DI GIORNO RISING
CRUST pizza was introduced.

• 1997: POST Cranberry Almond Crunch and POST Honey Nut Shredded Wheat
cereal was introduced.

• 1997: Sparkling White Grape flavored JELL-O gelatin was introduced in celebration
of the brand’s 100th anniversary.

• 1998: STOVE TOP OVEN CLASSICS were introduced. The same year KRAFT
introduced EASY MAC macaroni and cheese dinner, a microwavable, single-server
product.

17
 Exhibit 3: Kraft foods inc. – products and markets.

Kraft had brands in five product categories:

• Snacks: primarily cookies, crackers, salted snacks and confectionery.

• Beverages: primarily coffee, aseptic juice drinks and powdered beverages.

• Cheese & Dairy: primarily natural, process and cream cheeses.

• Grocery: primarily ready-to-eat cereals, enhancers and desserts.

• Convenient Meals: primarily frozen pizza, packaged dinners, lunch combinations and
processed meats.The company’s products were sold to:

 Supermarket chains,

 Wholesalers, club stores,

 Mass merchandisers, distributors,

 Convenience stores,

 Gasoline stations,

 Drug stores,

 Value stores, and

 Other retail food outlets.

By December 2004 the company had 192 manufacturing and processing facilities worldwide.
In North America, the Company had 87 facilities, and outside of North America there were
105 facilities located throughout the following territories:

Facilities Number of territory

United States 67
Canada 20
Western Europe 39
Central and Eastern Europe, Middle East and Africa 21
Latin America 28
Asia Pacific 17
Total 192

18
Sources: Kraft Annual Report 2004.

19
 Exhibit 4: KRAFT FOODS INC. – FINANCIAL DATA

(in $ millions)

2005 2004 2003 2002

Net revenues $34,113 $32,168 $30,498 $29,248
Cost of sales 21,845 20,281 18,531 17,463
Gross profit 12,268 11,887 11,967 11,785
Marketing, administration & research costs 6,944 6,658 6,136 5,644
Integration costs and a loss on sale of a _ _ (13) 111
food factory
Asset impairment and exit costs 479 603 6 142
(Gains) / Losses on sales of businesses (108) 3 (31) (80)
Amortization of intangibles 10 11 9 7
Operating income 4,752 4,612 5,860 5,961
Interest and other debt expense, net 636 666 665 847
Earnings from continuing operations before 4,116 3,946 5,195 5,114
income taxes and minority interest
Provision for income taxes 1,209 1,274 1,812 1,813
Earnings from continuing operations before 2,907 2,672 3,383 3,301
minority interest
Minority interest in earnings from 3 3 4 4
continuing operations, net
Earnings from continuing operations $2,904 $2,669 $3,379 $3,297
Earnings from discontinued operations, net 25 65 97 97
of income taxes
Loss on sale of discontinued operations, net (297) (69) _ _
of income taxes.
Net earnings $2,632 $2,665 $3,476 $3,394

Complied by Icfai Business School Research Centre, Kolkata from Kraft Annual Report
2003, 2004 & 2005.

20
 Exhibit 5: New product launches by Kraft

Product Category Brands

Snacks  Cote d’ Or Truffle Orange chocolate tablet
 Club Social red berries flavored crackers
 Wheat Thins Chips cracker chips
 Planters Nutrition Go-Nuts packs.
Beverages  Kenco Sustainable Development coffee
 Maxwell House Maxiccino coffee sticks with Cote d’Or
chocolate
 Kool-Aid Singles soft drink mix
 Jacobs Cappuccino coffee sticks with Milka chocolate.
Cheese & Dairy  Kraft Natural Cheese Crumbles
 Kraft To Go! Cheddar with Ritz snack combinations
 Dairylea Tri-Bites cheese portions
 Philadelphia Splendips cream cheese dipping snacks.
Grocery  Jell-O Sugar Free Ready-to-Eat pudding snacks
 Kraft yogurt salad dressing with fine herbs
 Post Honeycomb cereal
 A.1. seafood marinades
Convenient Meals  South Beach Diet frozen entrees
 DiGiorno Harvest Wheat Rising Crust pizza
 DiGiorno Microwave Thin Crispy Crust pizza
 Miracoli Tagliatelle Tomato & Mozzarella dinner.

Complied by Icfai Business School Research Centre, Kolkata from Kraft Annual Report
2005.

Exhibit 6: Kraft – Category – wise Revenue Distribution

2005
21
Product Category Revenue Percent of Revenue Growth vs 2004
Snacks $9.5 27.9% +5.9%
Beverages $7.2 21.0% +10.2%
Cheese & Dairy $6.5 19.1% +4.95%
Grocery $5.5 16.1% +3.4%
Convenient Meals $5.4 15.9% +5.1%
Total $34.1 100% +6%

Source: Kraft Annual Report 2005

Exhibit 7: The Kraft Restructuring Plan 2004 – At a

glance

In 2004, Kraft launched its first restructuring program which was called the “Sustainable
Growth Plan”. The plan aimed to revamp the product portfolio and reduce the costs.

22
Major achievements of the restructuring plan were:

- Elimination of 6,000 jobs (around 6% of total workforce) globally

- Closure 20 plants worldwide

- Focus on 4 core areas viz. cheese and diary, coffee, biscuits, and specialty beverages

- Sale of yogurt, ice-cream and sugar confectionery businesses

- Focus on segments like health and wellness and on-demand coffee

- Introduction of ‘South Beach Diet’, a new line of healthy products

- Launch of new products, such as:

• Microwaveable DiGiorno Rising Crust pizza

• Honey Maid oatmeal cookies

• Glass-jar microwaveable cheese dips

• Fruit20 natural spring water

• ‘Tassimo’ coffee system

23
 End notes

1. A convenient meal is a pack of ‘ready-to-eat’ or ‘ready-to-heat’ foodstuff wherein at

least some of the means for preparing and consuming (i.e., eating) the foodstuff are
supplied with the foodstuff. Examples of convenience meals comprise combinations
such as pasta and sauce, macaroni and cheese, meat and vegetables and the like,
packaged to allow for easy preparation and consumption.

2. Altria Group, Inc., based in New York City, is one of the world’s largest food,
beverages, and tobacco corporations. It owns the brands Marlboro under its
subsidiary Philip Morris USA and retains 86% stake in Kraft Foods and 36% in
SABMiller, parent company of Miller Brewing.

3. General Foods Corp. was a food company acquired by Altria Group in 1985 for $5.6
billion.

4. Bayer is a chemical and pharmaceutical company which developed genetically

modified StarLink corn which was approved only for animal feed and non-food
industrial uses.

5. Private label brands are products that carry a retailers name as a brand or any other
name owned by the retailer and generally sold at a lower price.

6. Veryfine Products Inc. was a Massachusetts-based beverage manufacturer which

produced Fruit20, fruit-flavored natural spring water. It was acquired by Kraft Foods
Inc. in March 2004.

7. The South Beach Diet, developed by a Miami-based cardiologist Dr. Arthur Agatston,
emphasized the consumption of “good carbs” and “good fats”. Dr. Agatston
developed this diet for his cardiac patients based upon his study of scientific dieting
research which first appeared in a book of the same name.

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