Competitive landscape of the industry
Kraft Foods competes directly with Hillshire Brands. The company generates the highest percentage of its revenue through meat and bakery products, at around 73% of total revenue, which is followed by its Food Service segment, at around 26% of total revenue. Taking in account the general trend in the industry, which is a growing inclination towards healthier meals, the company plans to increase its marketing and product development budget in order to bolster the sales of its healthier meat products.
At present, the company holds a market share of 3% in the meat products category within the entire North American retail market. As per the projections offered by Trefis, its market share is expected to grow at a marginal rate and reach 3.6% over the next few years.
Going forward, if the company fails to report any organic or inorganic growth in revenues, then its stock price may take a steep fall.
ConAgra Foods, Inc. (NYSE:CAG) is another competitor to Kraft Foods in the Food & Beverage industry. It has a market value of $14 billion, and owns several household brands such as Healthy Choice, Hebrew National, and Del Monte.
During the previous fiscal year, ConAgra Foods, Inc. (NYSE:CAG) net sales grew 8% and its shareholders were generously rewarded, as the dividends grew 4%. ConAgra Foods, Inc. (NYSE:CAG) possesses a robust business-to-business presence, and presently, the company is only focused on the North American market.
Going forward, its growing debt due to the Ralcorp’s acquisition and lack of presence in the fast growing developing regions will remain a huge concern for potential investors.
Foolish bottom line
The refrigerated meals market in the U.S. is estimated to grow at around 4%, as the economy is exhibiting signs of improvement coupled favorable industry trends and consumer preferences.
However, I do believe long-term growth will predominantly depend on if the consumer perceptions related to health change or not. The leading players in the refrigerated products industry are already doing their part by investing heavily in marketing in order to increase consumer awareness on the costs and benefits associated with refrigerated food items. In addition, the growing popularity of vegetarian meals will certainly bolster Kraft Foods Group Inc (NASDAQ:KRFT) revenues in the future.
Going forward, the cost-reduction initiatives taken by the company should enable it in creating a stronger brand image and more consumer-centric products through surplus cash. Such favorable trends allow me to keep an optimistic view on Kraft Food’s stock price.
The article Trends That Give Kraft Foods a Buy Rating originally appeared on Fool.com and is written by Kiran Gulati.
Kiran Gulati has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Kiran is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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