Kraft Heinz Swot

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COMPANY PROFILE

The Kraft Heinz Company

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The Kraft Heinz Company TABLE OF CONTENTS

TABLE OF CONTENTS Company Overview..............................................................................................3 Key Facts...............................................................................................................3 SWOT Analysis.....................................................................................................4

The Kraft Heinz Company © MarketLine

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The Kraft Heinz Company Company Overview

COMPANY OVERVIEW The Kraft Heinz Company (Kraft Heinz or 'the company'), formerly known as H. J. Heinz Company, is one of the largest food and beverage companies in the world. The company operates in North America, Europe, Asia Pacific, Latin America, Russia, India, the Middle East, and Africa. It is co-headquartered in Pittsburgh, Pennsylvania, and Chicago, Illinois. *The company recorded revenues of $29,122 million in the financial year ended December 2014 (FY2014). The operating profit of the company was $4,383 million in FY2014. The net profit was $2,318 million in FY2014. *Unaudited revenues.

KEY FACTS Head Office

The Kraft Heinz Company One PPG Place Pittsburgh Pennsylvania 15222 USA

Phone

1 847 561 1246

Fax Web Address

http://www.kraftheinzcompany.com/

Revenue / turnover (USD Mn)

29,122.0

Financial Year End

December

NASDAQ Ticker

KHC


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The Kraft Heinz Company SWOT Analysis

SWOT ANALYSIS Kraft Heinz is one of the largest food and beverage companies in the world.The company's dominant market position not only provides a competitive advantage to it but also enhances its bargaining power. However, intense price as well as product competition could affect Kraft Heinz's business operations and erode its market share. Strengths

Weaknesses

Dominant market position built on strong brand portfolio Diverse geographic portfolio

Product recalls

Opportunities

Threats

Growing foodservice industry in the US Growing demand for health and wellness products Growing baby food and infant formula market Rising immigrant population and the growing purchasing power of the Hispanic population

Intense competition Food safety and other regulations Increasing labor wages

Strengths

Dominant market position built on strong brand portfolio Kraft Heinz is the third-largest food and beverage company in North America and the fifth-largest food and beverage company in the world. It is well-recognized globally for its ketchups and sauces; meals and snacks; and infant/nutrition products. In each of these product categories, the company has established its leadership through some of the world's most valuable brands. Kraft Heinz's product portfolio includes eight brands (Kraft, Heinz, Oscar Mayer, Philadelphia, Planters, Lunchables, Maxwell House, and Velveeta), each of which generates more than $1 billion in annual sales. The company also has five brands (Kool-Aid, Ore-Ida, Capri Sun, Jell-O, and Cracker Barrel) that each generate between $500 million and $1 billion in annual sales. In addition, there are selected brands (such as ABC, Quero, Classico, and A.1.) that each generate between $100 million and $500 million in annual sales. Heinz is the number one ketchup brand in the world. Classico is the number three sauce brand in the US. ABC is the number two soy sauce brand in Indonesia and Master is the number three soy sauce brand in China. Ore Ida is the number one brand in the US frozen food category. Heinz Beanz is the number one baked beans brand in the UK. Quero is the number one


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canned vegetables brand in Brazil. Plasmon is the number one wet baby food brand in Italy. Complan is the number three meal replacement brand in India. Market leadership not only provides a competitive advantage to the company but also enhances its bargaining power. Strong brand portfolio lends better visibility and presence in all distribution channels and enables Kraft Heinz to reach a large customer base thereby increasing its market penetration opportunities. Diverse geographic portfolio The company's focus on sustainable growth was mainly driven by the factors like well-balanced geographic portfolio and strong brands. Kraft Heinz maintains a well-balanced geographic portfolio with accelerating growth in emerging markets as well as a strong foundation in the developed markets. It has presence globally, including North America, Europe, Asia Pacific, Latin America and RIMEA. In FY2014, the company generated 67.4% of the total revenues from the US segment, 10.2% from Europe segment, 9.7% from Canada segment, and 12.7% from rest of world segment. Additionally, the company has multitude of strong brands, which generate most of Kraft Heinz's revenues globally. Such factors enable the company to attain significant sales and operating free cash flow that benefit its shareholders.Therefore, a wide geographic presence enhances the company s reach and enables it to tap opportunities in various markets. ’

Weaknesses

Product recalls Kraft Heinz recalled products in the recent past. In July 2015, the company recalled wrapped American slices due to the possibility that a thin strip of individual packaging film may remain attached to the slice after the wrapper has been removed. This, in turn, may pose a choking hazard if the film sticks to the slice and is not removed. In August 2015, Kraft Heinz recalled 2,068,467 pounds of turkey bacon products due to possible adulteration. In September 2015, the company expanded the voluntary recall of select code dates and manufacturing codes of wrapped American sl ices. Such product recalls affect the customer confidence and could erode the demand for Kraft Heinz products.

Opportunities

Growing foodservice industry in the US The US foodservice industry is expected to continue its steady growth in the next few years. The restaurant industry has witnessed consistent growth in sales in the past few years. According to industry sources, the restaurant-and-foodservice sales are estimated to surpass $700 billion in 2015, registering an increase of nearly 4% over 2014.This growth is attributed to stronger economic growth in the US and the increase in demand from consumers during the year. Kraft Heinz is specialized


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in providing manufactured and packaged food products to foodservice customers. Therefore, the growth in the foodservice market augurs well for the company's foodservice division, as the increased consumer demand would lead to better revenues for the company. Growing demand for health and wellness products Consumers are showing increased preference for fat-free and healthy food products. Food items containing trans-fat are losing market share to low calorie, low fat products as trans-fat is linked to cardiovascular diseases. Keeping this in mind, Kraft Heinz is tapping into people's growing health and wellness concerns by improving the nutritional profile of its portfolio. For instance, the company uses foods including tomatoes, beans and potatoes, in majority of its food products. Kraft Heinz also offers a full range of nutritious food for babies, including infant formula, cereals, and snacks. In addition, the company offers gluten-free products for its health conscious customer base.The BiAglut range of products comprises over 60 gluten-free products, including pasta, breads and bread substitutes, flours, biscuits, snacks and desser ts. Also, the company offers a variety of nutritionally balanced meals for consumers who are weight conscious. These products include Weight Watchers Smart Ones breakfasts, snacks, entrees and desserts. The company is also committed to provide healthy foods that meet special dietary needs such as gluten-free foods, and fortified foods. With its focus on improving its product portfolio, Kraft Heinz is in a strong position to capitalize on the rising demand for healthy food. Growing baby food and infant formula market The baby food and infant formula market is growing rapidly pr imarily due to changing lifestyles and incomes of the people. According to industry sources, global baby food and infant formula market is expected to grow at a compound annual growth rate (CAGR) of nearly 8% during 2014 – 19. Increased awareness of diseases such as Phenylketonuria (PKU) and Lactobacillus rhamnosus GG (LGG) are also forcing the parents to feed their infants with formula foods to treat such diseases. Kraft Heinz offers a range of products for babies, including infant formula, cereals, and snacks under the Plasmon, Heinz, Nurture, and Farex brands, among others. Therefore, the company is well positioned to tap the growing trends in baby food and infant formula market. Rising immigrant population and the growing purchasing power of the Hispanic population The US is one of the most popular destinations for immigrant population. According to the US Census Bureau, Hispanic population is expected to increase from 55 million in 2014 to 119 million in 2060. Hispanic population accounted for 17% of the country's overall population in 2014. The Hispanic population in the US is expected to account for 29% of the country's overall population by 2060. The economic influence of Hispanics is also expected to be profound in the future. Industry sources cite that the US Hispanic purchasing power is estimated to reach nearly $1.7 trillion by 2017. The purchasing power of immigrant population is expected to continue to show increase, as people of African, Hispanic, and Asian heritage are expected to comprise a growing proportion of the US population in future.


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As a result of rising immigrant population in the US and the rising buying power of the Hispanic population, the demand for food products is expected to rise substantially. This will also mean an increase in the demand for the products offered by the company. Therefore, through its offerings, Kraft Heinz can cater to the growing demands of the Hispanic population and, in tur n, enhance its customer base and top line growth.

Threats

Intense competition Kraft Heinz faces significant competition across all its product categories and geographies. Factors influencing its competitiveness include price, product quality and innovation, brand recognition and loyalty, distribution capability, and the ability to identify and satisfy consumer preferences. Some of its competitors like Nestle and ConAgra Foods have substantial financial resources and brand recognition.Through the acquisitions of several private label brands, including Kangaroo and Odom's Tennessee Pride, ConAgra Foods has established itself as one of North America's largest food manufacturers operating in consumer foods and commercial foods segments. On the other hand, Nestle is the largest processed food company in the world and is a formidable competitor in several of the emerging markets. Besides, the company also faces competition from private label brands sold by retailers. Kraft Heinz also competes with PepsiCo, which sells its products in more than 200 countries and territories around the world. Such a competitive landscape may require the company to increase i ts spending on advertising and promotions or reduce prices that may lead to reduced profits and may affect growth. The reduced profitability and revenue growth could then limit the company's growth opportunities. Food safety and other regulations The recent concerns among the public regarding food safety have led to increased regulations. In 2011, the US Food and Drug Administration (FDA) Food Safety Modernization Act was passed to ensure the US food supply is safe by shifting the focus from responding to contamination to preventing it. In 2015, FDA introduced new set of rules for both produced and imported foods. The new rules are part of is Food Safety Modernization Act. In February 2015, FDA announced to request a budget of $4.9 billion for FY2016 to implement the FDA Food Safety Modernization Act and improve the quality and safety of the medical products Americans use. This represents a 9% increase over the enacted budget for FY2015. In addition, the FDA enforces the Public Health Service Act and regulations, which authorize regulatory activity necessary to prevent the introduction, transmission or spread of communicable diseases. The company's operations are also subject to extensive regulation by the US Department of Agriculture, and other state and local authorities that oversee food safety standards and the processing, packaging, storage, distribution, advertising and labeling of the company's products. The company's failure or inability to comply with such requirements could subject it to civil remedies,


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including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, which may impact the business of the company. Such regulations may increase the burden of specific compliances for Kraft Heinz and increase the related expenditure for the company. Increasing labor wages Labor wages have been rising in the US, Europe and Canada. The federal minimum wage rate in the US, which remained at $5.15 per hour since 1998, increased to $5.85 per hour in 2008. It further increased to $6.55 per hour in 2009 and to $7.25 per hour in 2010. Many states and municipalities in the country have minimum wage rates even higher than the federal minimum wage rate due to the higher cost of living. The minimum wage rate has increased in the states of California (from $9 in 2015 to $10 in 2016), Colorado (from $8.23 in 2015 to $8.31 in 2016), Alaska (from $8.75 in 2015 to $9.75 in 2016), and New York (from $8.75 in 2015 to $9 in 2016) in the recent past. Similarly, the labor wages have been rising in Canada and Europe. For instance, the minimum wage in Quebec increased from C$10.35 ($9.03) per hour in May 2014 to C$10.55 ($9.21) per hour in May 2015. The minimum wage in Nova Scotia increased from C$10.4 ($9.16) per hour in April 2014 to C$10.6 ($9.34) in April 2015. Also, the minimum wage in Ontario increased from C$11 ($9.27) per hour in June 2014 to C$11.25 ($9.48) per hour in October 2015. According to Eurostat, the hourly labor costs in the euro area grew by 1.1% and in the EU28 zone by 1.8% in the third quarter of 2015 compared with the same quarter of the previous year. Kraft Heinz has employees in more than 45 countries. The company's cost structure will be negatively impacted by the rising labor wages. It could impact the margin expansion adversely and affect the company's profitability.


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Kraft Heinz Swot

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