Kraft Foods Group
“Market Cap $33.46 B As of May 2014
At a Glance
- Industry: Food Processing
- Founded: 2011
- Country: United States
- CEO: William Vernon
- Employees: 22,500
- Sales: $18.27 B
- Headquarters: Northfield, Illinois
#347 Global 2000
- #509 in Sales
- #235 in Profit
- #924 in Assets
- #314 in Market value
#55 World’s Most Valuable Brands
Kraft Foods Group, Inc. manufactures and markets food and beverage products, including convenient meals, refreshment beverages and coffee, cheese and other grocery products. The company operates its business through five segments: Beverages, Cheese, Refrigerated Meals, Grocery and International & Foodservice. The Beverages segment includes Maxwell House, Gevalia, and Yuban coffees; Tassimo hot beverage system; Capri Sun and Kool-Aid packaged juice drinks; Crystal Light, Kool-Aid, and Country Time powdered beverages; and MiO liquid concentrate. The Cheese segment includes Kraft and Cracker Barrel natural cheeses; Philadelphia cream cheese; Kraft and Deli Deluxe processed cheese slices; Velveeta and Cheez Whiz processed cheeses; Kraft grated cheeses; Polly-O and Athenos cheese; and Breakstone’s and Knudsen cottage cheese and sour cream. The Refrigerated Meals segment includes Oscar Mayer cold cuts, hot dogs, and bacon; Lunchables lunch combinations; Claussen pickles; and Boca soy-based meat alternatives. The Grocery segment includes Planters nuts, peanut butter, and trail mixes; Kraft and Kraft Deluxe macaroni and cheese dinners; Kraft and Miracle Whip spoonable dressings; Kraft and Good Seasons salad dressings; Velveeta shells and cheese dinners; Jell-O dry packaged desserts; Jell-O refrigerated gelatin and pudding snacks; Cool Whip whipped topping; A.1. steak sauce; Kraft and Bull’s-Eye barbecue sauces; Stove Top stuffing mix; Jet-Puffed marshmallows; Velveeta Cheesy Skillets and Taco Bell Home Originals meal kits; Shake ‘N Bake coatings; Baker’s chocolate and baking ingredients; and Grey Poupon premium mustards. The International & Foodservice segment includes Kraft peanut butter and Nabob coffee, as well as a range of products bearing brand names similar to those marketed in the U.S. The Foodservice business sells primarily branded products, including Maxwell House coffee, A.1. steak sauce, and a broad array of Kraft sauces, dressings and cheeses. Kraft Foods Group was founded in 1980 and is headquartered in Northfield, IL.“
“Kraft Foods Group History
Origin of the firm
The company has its origin as National Dairy Products Corporation (National Dairy), formed on December 10, 1923, by Thomas H. McInnerney. The firm was initially set up to execute on a rollup strategy in the then fragmented United States ice cream industry. Through acquisitions it expanded into a full range of dairy products. By 1930 it was the largest dairy company in the United States and the world, exceeding Borden.
McInnerney operated the Hydrox Corporation, an ice cream company located in Chicago, Illinois. In 1923 he went to Wall Street to convince investment bankers there to finance his scheme for consolidating the United States ice cream industry. He initially found “hard sledding” with one banker saying the dairy industry “lacked dignity.” He persevered and convinced a consortium including Goldman Sachs and Lehman Brothers to finance a rollup strategy.
As a result of his efforts, National Dairy Products Corporation was formed in 1923 in a merger of McInnerney’s Hydrox with Rieck McJunkin Dairy Co of Pittsburgh, Pennsylvania. The resulting firm was then listed on the New York Stock Exchange with the offer of 125,000 shares having been oversubscribed.
Beginnings for Kraft
Born in Stevensville, Ontario, Canada in 1874, James L. Kraft immigrated to the United States in 1903 and started a wholesale door-to-door cheese business in Chicago; its first year of operations was “dismal”, losing $3,000 and a horse. However, the business took hold and Kraft was joined by his four brothers to form J.L. Kraft and Bros. Company in 1909. As early as 1911, circulars and advertisements were in use by the company.
In 1912, the company established its New York City, New York, headquarters to prepare for its international expansion. By 1914, thirty-one varieties of cheeses were being sold around the U.S. because of heavy product development, expansion by marketing, and opening awholly owned cheese factory in Illinois.
In 1915, the company had invented pasteurized processed cheese that did not need refrigeration, thus giving a longer shelf life than conventional cheese. The process was patented in 1916 and about six million pounds of the product were sold to the U.S. Army for military rations during World War I.
In 1916, the company began national advertising and had made its first acquisition—a Canadian cheese company.
In 1924, the company changed its name to Kraft Cheese Company and listed on the Chicago Stock Exchange. In 1926, it was listed on the NYSE. The firm then began to consolidate the United States dairy industry through acquisition, in competition with National Dairy and Borden.
Later, in 1927, it established its London, United Kingdom, and Hamburg, Germany, sales offices—its first forays outside North America. Sales for 1927 were $60.4 million.
In 1928, it acquired Phenix Cheese Company, the maker of a cream cheese branded as Philadelphia cream cheese, and the company changed its name to Kraft-Phenix Cheese Company.
In 1929, The New York Times reported that Kraft Phenix, The Hershey Company and Colgate were looking at merging.In the same year, it was reported that National Dairy, Borden and Standard Brands (a firm that is now part of Kraft Foods) were all looking at acquiring the firm.
By 1930, it had captured forty percent of the cheese market in the U.S. and was the third largest dairy company in the United States after National Dairy and Borden. In 1930, the company also began operating in Australia following a merger with Fred Walker & Co.
After National Dairy acquisition of Kraft-Phenix
At the time of the acquisition in 1930, National Dairy had sales of $315 million compared with $85 million for Kraft Phenix. National Dairy management ran the combined business. Following the Kraft-Phenix acquisition, the firm continued to be called National Dairy until 1969 when it changed its name to Kraftco.
Historically, all of the firm’s sales came from dairy products. However, the firm’s product lines began to diversify away from dairy products to caramel candies, macaroni and cheese dinners and margarines. From the 1950s onward, the firm began to move away from low value added commodity dairy products, such as fluid milk. This trend would continue for the firm, through neglect and divestiture, until the primary remaining dairy product produced by the firm would be cheese. As a result, the modern history of the firm emphasizes the cheese history.
In 1933, the company began marketing by radio sponsorship. In 1935, the Sealtest brand of ice cream was launched as a unified national brand to replace the firm’s numerous regional brands.
During World War II, the company sent four million pounds of cheese to Britain weekly.
Product development and advertising helped the company to grow during the postwar years, launching sliced process cheese and Cheez Whiz, a brand of process cheese sauce, in the 1950s.
During these years, Thomas McInnerney, National Dairy’s founder, and James L. Kraft, Kraft’s founder, died, and at the end of the decade, the divisions became less autonomous and even diversified to the glass-packaging business with the acquisition of Metro Glass in 1956.
In 1947, the company tested the marketing power of the emerging medium of television by producing an hour-long drama/anthology series, the Kraft Television Theatre. The product advertised on the program, MacLaren’s Imperial Cheese, was selected because “… [it had] not only had no advertising appropriation whatsoever, but had not even been distributed for several years.” As described by internal documents of J. Walter Thompson—the advertising firm which conceived of the marketing test—the result was “although there was no other advertising support for it whatsoever, still grocery stores could not keep up with the demand.”
In the 1960s, product development became intense, launching fruit jellies, fruit preserves, marshmallows, barbecue sauces and Kraft Singles, a brand of individually wrapped cheese slices. During this decade, the company also expanded in many markets worldwide.
In 1961, the firm acquired Dominion Dairies of Canada, marking the first effort by the firm to expand into fluid milk and ice cream outside the United States. In the same year it also acquired The Southern Oil Company in Manchester, England.
National Dairy becomes Kraft
In 1969, the firm changed its name from National Dairy to Kraftco Corporation. The reason for the name change was given at the time: “Expansion and innovation have taken us far afield from the regional milk and ice cream business we started with in 1923. Dollar sales of these original products have remained relatively static over the past ten years and, in 1969 accounted for approximately 25% of our sales.” At the same time, the firm transferred to Glenview, Illinois, in 1972. In 1976, its name changed to Kraft, Inc. to emphasize the trademark the company had been known for and as a result of the fact that dairy, other than cheese, was now only a minor part of the company’s sales. Reorganization also occurred after the name change.
In 1980, Kraft merged with Dart Industries—makers of the Duracell brand of batteries, Tupperware brand of plastic containers, West Bend brand of home appliances, Wilsonartbrand of plastics and Thatcher glass—to form Dart & Kraft.
During the 1980s, Dart & Kraft offered mixed results to its shareholders, as new acquisitions in the food business—such as Churny premium cheeses, Lender’s Bagels, Frusen Gladje ice cream and Celestial Seasonings tea—slightly offset the lagging nonfood business—Tupperware’s decrease in sales and KitchenAid’s (acquired soon after the merger) slide in market share—leading Dart & Kraft to spin off its nonfood business (except Duracell batteries) into a new entity (Premark International, Inc.) while changing its name back to Kraft, Inc. Premark was bought by Illinois Tool Works in 1999. In 1988, Kraft sold Duracell to private equity firm Kohlberg Kravis Roberts, who then put it into an initial public offering in 1989. Gillette bought Duracell in 1996, and itself was acquired by Procter and Gamble in 2005.
Philip Morris acquisition and merger with General Foods
At the end of 1988, Philip Morris Companies purchased Kraft for $12.9 billion. In 1989, Kraft merged with Philip Morris’s General Foods unit—makers of Oscar Mayer meats, Maxwell House coffee, Jell-O gelatin, Budget Gourmet frozen dinners, Entenmann’s baked goods, Kool-Aid, Crystal Light and Tang powdered beverage mixes, Post Cereals, Shake ‘n Bake flavored coatings and numerous other packaged foods—as Kraft General Foods. Its aggressive product development was reversed after the merger, as it became slow in addressing issues on its product lines due to its size, and also company politics.
In 1990, the company acquired Jacobs Suchard (a European coffee and confectionery giant) and Freia Marabou (a Scandinavian confectionery maker) to expand overseas as its business was heavily dependent on the U.S. In 1993, it acquired RJR Nabisco’s cold cereal business (mainly Shredded Wheat and Shreddies cereals) while selling its Breyers ice-cream division to Unilever and its Birds Eye unit toDean Foods. In 1994, it sold its frozen dinners unit to H.J. Heinz and in 1995, it sold its foodservice unit.
In 1995, it changed its name to Kraft Foods Inc. The same year, it sold its bakery division (except Lender’s Bagels, which was sold in 1996 to CPC International), its candy division and its tablespreads division. Log Cabin syrup was sold in 1997.
Kraft began a major restructuring process in January 2004, following a year of declining sales (blamed largely on the rising health consciousness of Americans) and the sacking of co-CEO Betsy Holden. The company announced closures of 19 production facilities worldwide and the reduction of 5,500 jobs, as well as the sale of 10% of its branded products.
As of 2007, Philip Morris (now Altria Inc.) had sold its stake in Kraft foods and the two companies are no longer affiliated.
In 2000, Philip Morris (renamed Altria in 2003) acquired Nabisco Holdings for $18.9 billion and merged the company with Kraft Foods the same year. In 2001, Philip Morris sold 280 million Kraft shares via the third-largest IPO of all time, retaining an 88.1% stake in the company.
In 2004, it sold its sugar confectionery division to Wrigley, while doing minor divestitures—including its hot cereals division (Cream of Wheat) in 2007, its pet snacks division (Milk-Bone) in 2006, juice drinks and Fruit2o in 2007 and some grocery brands in 2006.
Investor Nelson Peltz bought a three-percent stake at Kraft Foods and was talking with the executives on revitalizing the business, with options such as buying Wendy’s fast food chain or selling off Post cereals and Maxwell House coffee. On January 31, 2007, after months of speculation, the company announced that its 88.1% stake would be spun off to Altria shareholders at the end of March 2007; each would be given approximately 0.7 shares of Kraft for every Altria share they owned. Kraft became an independent publicly held company.
In July 2007, the company bought Groupe Danone’s biscuit (cookie) and cereal division for $7.2 billion, including iconic French biscuit brand Lefèvre-Utile. While two years earlier firestorms of protest had arisen over plans for American PepsiCo’s hostile takeover of the French company, Kraft’s announcement was not met with the same protests, in part because Kraft agreed not to close French factories and keep the new merged divisions headquarters near Paris for at least three years.
In November 2007, Kraft agreed to sell its cereal unit to Ralcorp Holdings, a major private-label food maker, for $2.6 billion in a form of a spin-off merger. This would add 50% to Ralcorp’s sales, to $3.3 billion, and will be used for Kraft’s debt payment, which was at $13.4 billion, in danger of a downgrade by Standard and Poor’s.
In February 2008, Berkshire Hathaway run by billionaire investor Warren E. Buffett announced that it had acquired an 8% stake in Kraft then worth over $4 billion. Buffett’s business partner Charles Munger had also invested over $300 million in Kraft. Berkshire Hathaway owned 5.6% of the outstanding stock of Kraft Foods, as reported in the holding company’s 2010 annual report.
On September 22, 2008, the company replaced the troubled insurance company, American International Group in the Dow Jones Industrial Average.
On September 10, 2010, a disgruntled employee angered over a recent suspension, Yvonne Hiller, opened fire inside the Philadelphia Factory where she had worked for 15 years. Armed with a .357, Hiller shot 3 co-workers, killing 2 of them. Philadelphia Police responded within minutes of the 911 call. SWAT took Hiller into custody at 8:30 p.m.EDT.
In March 2011, Kraft Foods introduced MiO, a sugar-free, zero calorie liquid flavoring product geared towards the 18-39 age demographic. MiO has no artificial flavors but it does have artificial colors, artificial sweeteners and artificial preservatives, unlike some competing flavoring products, according to USA Today…”
*Information from Forbes.com and Wikipedia.org
**Video published on YouTube by “Kraft Careers“