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How Will Coffee Prices Affect Kraft's Beverages Business? A Difficult Operating Environment Leads To A Lackluster Q3 For Kraft Foods The Impact Of Coffee Prices On Kraft Foods Group's Business MOST POPULAR Photos: The States With The Most Billionaires TRENDING ON LINKEDIN Three Traits Of Top-Notch Leaders MOST POPULAR Photos: Top College In Every State The management of the two companies have also announced that they expect to realize $1.5 billion in annual cost savings by the end of 2017, as a result of this deal. The cost synergies will mostly come from higher economies of scale in the North American market. Having larger volume of sales will help the company drive better bargains with clients such as large retail outlets and specialty food stores and restaurants. This will improve operating margins of the company and also give it an advantage in getting more shelf space in retail outlets. Some part of the cost savings will also come from the ability of the combined company to refinance Heinz’s high-yielding debt. Since Kraft has a much better credit rating, the combined entity will be able to replace such debt with low-yielding, investment-grade debt. Additionally, Heinz’s preferred stocks that become callable in June 2016 will also be replaced with such debt. This will help reduce the total cost of capital for the combined company.
In addition, changes to the operations strategy can also contribute to cost savings. These could be targeted at reducing headcount, shutting down less efficient manufacturing facilities and implementing zero-based budgeting. Zero-based budgeting means that the managers have to explain every forecast expense for the year from scratch, without appealing to previous years’ trends. This helps the top management enforce a more stringent form of cost control and realize cost savings. Since the chairman- CEO team at the new company will be the same as that which implemented drastic cost cutting measures at Heinz, including a reduction in force of 4%, closing several factories and grounding corporate jets, there is reason to believe that the projected changes to the combined company’s operations strategy would be successfully implemented. Brief History of Kraft Food's When people today hear the word "Kraft", we think of mac &cheese and dairy products we use on a regular basis. Looking into this company, you'd be surprised as to how productive it's been throughout the years. Kraft ( KFT ) has been around for quite some time. The company sells products not only based on it being food but also products that are healthy and enjoyable for consumers today.
- Fall '16
- Jane Smith
- H. J. Heinz Company, Ketchup, Kraft Foods, kraft heinz company, Kraft Heinz, The Kraft Foods Group