Selling More Chocolate in Emerging Makets Gets Kraft Past $36
Kraft Foods (NYSE:KFT) is the second largest food and beverage company in the world after Nestle. It manufactures and markets packaged food products including chocolates, gums, snacks, beverages, cheeses, convenient meals and various packaged grocery products. It competes with PepsiCo (NYSE:PEP), General Mills (NYSE:GIS) and Kellogg (NYSE:K) in this market.
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We currently maintain a $36.40 price estimate for Kraft Foods in line with the market price.
Cadbury acquisition consolidated Kraft’s position in the confectionery industry
Acquisitions have played an important role in Kraft’s expansion plans. In order to strengthen its position in the lucrative global confectionery industry, Kraft acquired the British confectionery firm Cadbury for $18.9 billion.
This acquisition has made Kraft the #1 player in global chocolate and candy market and the #2 player in global gum market.
Emerging markets are more attractive for future growth
Kraft Foods and other food and beverage manufacturers have seen strong growth in emerging markets in recent years. Of late, sales in mature markets have remained sluggish.
As incomes rise, packaged food becomes more accessible to a larger section of the population, thus stimulating demand for these products. Kraft’s developing markets have seen robust growth in the recent years, generating sales of $8.2 billion in 2008, $7.9 billion in 2009 and $13.6 billion in 2010.
Mitigated Healthy eating trends in developed countries
People in developed countries are becoming more conscious about their food habits and are switching to healthier alternatives. This is one factor mitigating Kraft’s confectionery sales in the U.S. given its limited presence in natural and organic foods. In the segment, a host of emerging players focusing on organic foods, such as Whole Foods Market, are sourcing its own products instead of purchasing from companies like Kraft.