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SCOPE OF THE REPORT

Scope

 This profile on Kraft Foods Inc covers the company‟s packaged food operations, focusing on its growth prospects for the 2011-2016 period.

Packaged Food - 2011

US$2,119 billion rps

Disclaimer

Much of the information in this briefing is of a statistical nature and, while every attempt has been made to ensure accuracy and reliability, Euromonitor International cannot be held responsible for omissions or errors.

Figures in tables and analyses are calculated from unrounded data and may not sum. Analyses found in the briefings may not totally reflect the companies‟ opinions, reader discretion is advised.

The Cadbury acquisition has transformed Kraft Foods’s operations, created more balanced market coverage between developed and developing regions and shifted the portfolio to higher margin categories, such as confectionery and snacks. However, the restructuring continues. Kraft’s announcement to split its operations into two publicly traded companies outlines a plan to create two different trading entities with distinct priorities and strengths, which are analysed in this report.

Kraft restructuring continues

Kraft has been the second largest global packaged food player over 2006-2010, and with the acquisition of Cadbury, the distance from topranked Nestlé shrank to 0.1 percentage points.

The company is active in a wide range of packaged food categories, but its main focus is concentrated more and more on biscuits, chocolate confectionery and cream cheese.

The restructuring is ongoing, Kraft‟s announcement in August 2011 to split its operations into two publicly traded companies outlines a plan to create two different trading entities with distinct priorities and strengths. One will encompass its global snacks operations and the other will be its North American grocery business.

Kraft enjoys a global profile, but its packaged food operations remain North America biased, with some 40% of its 2010 retail value sales in the region. The Cadbury acquisition has resulted in a more balanced geographic presence between developed and developing markets, but the company still has market gaps to fill in, especially emerging regions.

Confectionery

Bakery

Dairy

Chilled Processed Food

Sauces, Dressings and Condiments

Dried Processed Food

Sweet and Savoury Snacks

Other

Kraft's Global Snacks Business: Kraft Foods Europe, Developing Markets and North American snacks and confectionery

North American grocery business - Packaged foods*

Note: * Data show Krafts’s North American packaged food retail value sales less bakery, confectionery and sweet and savoury snacks

STRATEGIC EVALUATION

Financial assessment: Q3 2011

Kraft Foods: Q3 2011 vs 2010 Financial results

Restructured portfolio enables stronger pricing

 On a global level, the strongest contributing component in revenue growth was pricing, some 7 percentage points out of the over 8% organic net revenue growth.

Positive revenue and profit growth

Despite the 14% rise in costs of sales during its third quarter 2011 operations, Kraft has reported a 22% rise in net earnings.

Net revenues grew across all geographies, exceeding 20% in developing markets and even in recession-hit North America, the group posted over 4% growth.

In Europe, revenues also increased, by 16%; however, operating income remained essentially flat due to the negative impact of ongoing integration costs.

implement strong pricing actions to recover higher input costs and maintain operating margin at 13% for Q3 2011.

Investments in further portfolio development

Kraft has also invested substantially in portfolio development through marketing and product innovation.

Grocery innovations added US$350 million to its revenues for the first nine months in 2011. New innovations include the launch of „triple double‟

Oreo biscuits in the US or its Greek yogurt line in five different flavours and in dual compartments.

Creation of two independent Kraft entities with distinct priorities and strengths

The company‟s medium to long term key objectives include the optimisation of opportunities created by separation of its operations.

Positioning its North American grocery business to deliver high operational margins in the albeit mature but still affluent market will be key to its success. The global snacks business aimed to deliver dynamic growth rates benefitting from its high emerging markets‟ exposure.

Fluctuating commodity prices

Efficiency in improving margins is an integral part of the company‟s growth strategy. Over the recent recessionary quarters, Kraft‟s, and many of its competitors‟, financial results were affected by fluctuating raw material and commodity prices.

Packaged food companies‟ operational margins are sensitive to trends in agricultural prices, which are currently impacted by various economic and political factors, driving food inflation.

Drive strong growth through the iconic heritage brands

 One of the key strengths of both future Kraft entities are the big portfolios of well-established, high-equity brands. However, the company will have to keep investing actively in new product developments under these labels in order to remain competitive and relevant to consumers in the fast-changing market environments. Kraft has increased it focus and investments in R&D and rolled out a number of new products aligned with driving trends, such as wellness or convenience.

Uncertain economic climate

The global economic recovery is uneven and growth performance will vary across regions.

In addition, mounting budget deficits and debt levels in developed economies can lead to financial spillovers and create uncertainty in international financial markets.

The operating environment for Kraft in many markets is likely to remain challenging over the short to medium term.