Kraft-General Foods

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Prior to the Kraft and General Foods acquisitions in the mid to late 80s, Philip Morris appears to rely heavily on their tobacco-based products. At the time, Philip Morris (P-M) was one of the least diversified tobacco companies and attributed more than 70% of sales and 90% of profits to tobacco. As a result of a deteriorating domestic cigarette market, P-M realized the need to develop a new corporate growth strategy centered on diversification. The reasons for P-M adopting this strategy was in hopes of reducing and/or mitigating potential risk as well as making use of their excess cash in a way that builds shareholder value. Initially, P-M thought they could diversify their company through small acquisitions of unrelated businesses such…show more content…
As seen in Table A on page 8 of the case, the estimated savings from the five different focus areas (leverage purchasing of supplies / services, consolidate domestic and other jobs, eliminate international duplications, consolidate manufacturing and distribution, and refocus research and technology) of the synergies was $175 million. In the first phase, KGF tried to implement as many of these as possible in hopes of meeting some very aggressive numbers. Most of these changes did not generate organizational resistance and the synergies implemented actually produced about $115 million in annual…show more content…
It is in my opinion that this final step is a critical piece in fully recognizing and utilizing the combined synergies of both companies. This consolidation not only allows both Kraft and GF to build upon their complementary strengths but the realignment also enables the company to save $50 million annually in operating expenses. With regards to the sales force, the new look consolidated sales force would move from the current/interim five domestic sales force groups to just two; one for dry and one for refrigerated items. This allows KGF to systematically cut costs while increasing their economies of scale. The consolidation of the sales forces allows KGF to eliminate duplicate assets, which equals financial savings and allows the overall company to operate more efficiently. With a consolidated sales force, the current sales routes would be combined, improving the productivity of calls by decreasing the amount of travel time necessary. It also would allow KGF to exploit superior salesperson / retailer relationships, and reduces the number of industry distributors. This in turn gives KGF more negotiating power to get more favorable deals with the

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