Kraft (NYSE:KFT) is the world’s second largest food and beverage company after competitor Nestlé (OTC:NSRGY). It also competes with PepsiCo (NYSE:PEP), General Mills (NYSE:GIS) and Kellogg (NYSE:K) in this market. Snacks account for nearly 19% of our $32.58 price estimate for Kraft’s stock, which slightly ahead of the current market price. Chocolate, candy & gum contribute another 31% to our price estimate, with beverages adding 14% and grocery representing another 14%.
Marketing Will Help Global Push
Kraft sees marketing of its power brands as one of the keys levers to growth going forward. With the economic environment improving in the U.S. and other developed markets, the company is looking at channels like TV advertising for its larger brands and use digital media and customer relationship management for its smaller brands. [1]
Emerging markets are a key source of growth for Kraft where the snacks and packaged food markets are growing much faster than in developed markets. In addition to this, Kraft stands to benefit from the acquisition of Cadbury, which has a strong presence in the chocolate, confectionery and gum segment, especially in emerging markets.
Kraft can leverage Cadbury’s supply chain and distribution network in emerging markets to sell its own brands. Kraft’s flagship Oreo brand has already crossed $200 million in sales in the Asia Pacific and can further benefit. [2]
Kraft’s market share in the global snacks market jumped from 9.7% in 2007 to 15% in 2008 after the acquisition of LU biscuits in November 2007. LU biscuits has become one of the flagship brands of Kraft with annual sales of more than $1 billion. The market share declined to just below 14% by 2010, driven by a fall in consumer spending during the recent economic downturn, with customers shifting to cheaper alternatives.
Going forward, we expect Kraft’s snacks market share to grow and reach 15% by the end of Trefis forecast period led by growth in premium brands Oreo, LU and Nabisco. If Kraft is able to monetize its increased marketing plan as well as successfully leverage Cadbury’s supply chain and distribution network in developing countries to grow its flagship brands, there can be an upside to our forecast. If the market share increases at a faster rate, reaching around 18% by the end of our forecast period, there can be an upside of around 6% to our current price estimate for Kraft’s stock.
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