The Kraft Heinz Company was formed by the merger of Kraft Foods and Heinz in 2015. The company has headquarters in Pittsburg, Pennsylvania. The company manufactures a variety of beverages, dairy, snacks, and convenience foods. It is the third-largest in North America and the fifth-largest food and beverage company in the world (Feeney, 2015). In addition to Kraft and Heinz, the company owns a diverse portfolio of other brands as well. In 2018, the company earned a revenue of $26.26 billion and had more than 38000 employees (KHC, 2019). In 2018, the company was ranked at No. 114 on the Fortune 500 list for United State corporations.
Following is a detailed Porter Five Forces Model Analysis of The Kraft Heinz Company:
Competitive Rivalry – High
The Kraft Heinz Company faces competition from various competitors such as Mondelez, The Hain Celestial Group, and Keurig Green Mountain. It is a multi-billion industry where almost all competitors sell products across the globe. The industry is not growing at a rapid pace. Establishing a business selling the variety Kraft Heinz sells takes a significant amount of investment. Also, establishing plants all over the globe to provide products for all regions further increases the costs. The products of each brand are differentiated in terms of taste, ingredients, packaging size, labeling, and so on. The cost incurred by customers in switching from one brand to another is low. The product labels have all the information the customers need. Also, various competitors hold a similar market share. All of these factors add up to provide Kraft Heinz with intense competitive rivalry.
The Threat of New Entrants – Moderate
Kraft Heinz and other existing firms have developed performance efficiency and cost advantages through economies of scale. Also, the formulas used in making these products are proprietary. It has also established itself as a brand that has a significant market share and loyalty from customers along with brand reputation. The cost of establishing a production unit to deliver a variety similar to Kraft Heinz also requires huge capital. Establishing distribution channels also takes time. Experienced firms have gained a performance-based competitive advantage. At the same time, there are no strict licenses required. A new entrant can start small with only a few products and in a particular region and then expand. Existing players also do not offer nay retaliation. This makes the threat of new entrants moderate.
Bargaining Power of Suppliers – Low
The large volume purchase offers Kraft Heinz an edge over its suppliers. The products, raw ingredients, it needs are standard and not differentiated. Also, if it wishes to switch to another supplier, it is relatively easier as there would be numerous suppliers willing to serve Kraft Heinz and gain excellent business. Also, a supplier would find it difficult to enter the business as all brands are associated with their regular suppliers. Suppliers give importance to Kraft Heinz as it provides them with large orders. Thus, suppliers of Kraft Heinz do not have any bargaining power over the company.
Bargaining Power of Buyers – Moderate
The number of buyers of the company’s products is in millions each making a relatively small purchase. The buyer can also easily switch to another company if they do not like the taste or find the products to be priced higher than the competitors. Also, they do not need any additional information from the company to make the purchase. Customers can also manufacture various products, such as ketchup and various sauces, at home with ease. They are sensitive to price and look for a seller that offers a better price. The products of various brands are slightly differentiated by can easily be substituted for each other. Thus, the bargaining power of buyers is moderate.
The Threat of Substitutes – High
The customers of Kraft Heinz can easily manufacture the various products the company sells at their home with ease. The taste and quality would be similar. Also, many products the company sells have substitutes that offer similar tastes (Key, 2015). For example, various sauces may be substituted for each other if the main sauce is too costly or not available. Also, the substitutes are attractive enough to drive the customers towards them. The switching costs are also minor. It would only take some time and effort to make the sauces and other products at home. As a result, the threat of substitution is high for the Kraft Heinz Company.
References
Feeney, N., 2015. Kraft and Heinz Merge to Become World’s 5th Largest Food Company. [Online] Available at: https://time.com/3757678/kraft-heinz-merger/ [Accessed 09 Dec. 2019].
Key, D., 2015. A Porter’s Five Forces Analysis of Kraft Heinz Company. [Online] Available at: https://marketrealist.com/2015/12/porters-five-forces-analysis-kraft-heinz-company/ [Accessed 09 Dec. 2019].
KHC, 2019. The Kraft Heinz Company. [Online] Available at: http://ir.kraftheinzcompany.com/static-files/e0ec203b-d7c4-4025-b263-52cfe321960f [Accessed 09 Dec. 2019].