Operations Decisions for Krafts Foods Inc. and Manute Foods Company

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Companies’ Background

The two companies referred to in this study operate in the foods and beverages industry. In addition, the companies concentrate in the production of low calorie microwavable foods.

Krafts Foods Inc. is a leading global manufacturer and marketer of beverages and packaged foods (MarketResearch.com, 2011). It has its headquarters in Northfield, Illinois, but also operates in the other continents. Low calorie microwavable products from the company fall under the convenient meals sector. For instance, cheese and Kraft Macaroni come in ready-to-heat pouches.

Manute Foods Company is also a multinational foods company. It specializes in the manufacture and distribution of low calorie microwavable foods. Its operations are not as widespread as those of Krafts Foods Inc. However, its presence in the industry is significant. The organization operates from the state of Texas.

Low Calories Microwavable Foods Market Structure and Companies Effectiveness Determination Plan

Mankiw (2011) regards market structure as the number and types of competing firms operating in a given industry. Consumers across the US and the rest of the world are exhibiting increased preference for healthy and fat-free food products (MarketResearch.com, 2011).

According to IMAP (2010), the global demand for convenience foods and increasing health consciousness are expected to facilitate continued growth in the low calorie microwavable foods sector. In addition, majority of the processed foods consumed in the world are packaged.

Competition in the low-calories microwavable foods industry is intense. Krafts Foods Inc. competes with other global foods and beverages brands, not only in the low calorie microwavable foods sector. Some of the competitors include Tyson Foods (US), Danone (France), and JBS (Brazil). Others are Kellog Co. (US), ConAgra Foods (US), and HJ Heinz Co. (US) (IMAP, 2010; Rayburn, 2014; Jambrak, 2012).

In spite of the stiff competition, profits in this sector are relatively high. For instance, Krafts Foods Inc. recorded $42.2 billion in revenues in 2008 from its global operations. Operating profits and net income stood at $4.9 billion and $2.9 billion respectively (IMAP, 2010).

Krafts Foods Inc. market analysis above reveals that the low calories microwavable foods industry has a monopolistic competition market structure. The market is highly competitive, characterized by numerous operators (Yorke, 1984). The companies in this industry usually compete through the distribution of slightly differentiated products, albeit in the same line. Manute Foods Company exhibits these characteristics in line with the reality in the industry.

The two companies analyzed in this paper are operating at the product-market competition level. Analyzing market effectiveness should indicate the two organization’s firm and industry performance in terms of profits. The market effectiveness plan should be based on the entities’ operational strategies. Business strategies should exhibit the ‘forward-looking’ ability of the venture in relation to the choices and investments made. In addition, they should anticipate the future actions of the firm and those of the competitors.

Both Manute Foods Company and Krafts Foods Inc. should invest in markets that are characterized by viability and stability, as far as anticipated outcomes are concerned. Viability means that companies can make profits from the markets they are venturing. On the other hand, stability implies that entry into a new market will not lead to losses in the near future.

Two Factors Likely to Cause Change in the Low Calories Microwavable Foods Monopolistic Competition Market Structure

There are various factors that may affect the operations of the two companies. One of them includes regulations in relation to licensing and product quality.

Strict licensing terms with regards to these products might lock out some companies. Such a scenario may limit the freedom of entry into the market and exit from this industry. In addition, the terms may reduce the number of firms operating in the industry (Yorke, 1984). Reduced competition will translate to higher profits and market share for the existing companies (Arslan & Klaus, 1994).

The structure of the market may also be altered by the increasing health consciousness among consumers in the food industry. What this means is that demand for these foods may rise, leading to a rise in the number of new entrants. As a result of this condition, competition in the industry will increase. In light of this, the two companies may be eliminated from the market, in addition to experiencing an erosion of their market share.

Short-Run and Long-Run Production and Cost Functions and their Applications the Operations of Manute Foods Company

Production is characterized by a number of processes. It involves a series of activities aimed at increasing the value and altering the utility of raw materials or inputs (Mankiw, 2011). Production function determines the relationship between the inputs and the products per unit of time (Collier, Sherell, Babakus & Horky, 2014). The inputs may lead to massive costs for organizations if not well managed.

The production and cost function for Manute Foods Company can be determined symbolically as follows:

Q = f(Xa, Xb, Xc,… Xn).

Q represents total quantity of products per specified period. It takes into consideration specific combinations of inputs (Mankiw, 2011).

Xn represents the quantity of the different types of inputs.

Considering the market conditions, the production levels of Manute Foods Company can be determined or forecast using varying combinations of inputs within specified durations of time.

Analysis of costs highlights the relationship between cost and production over a specified period. In essence, the cost function provides different results depending on the firm’s application of varying utilization or inputs percentages (Arslan & Klaus, 1994).

Businesses experience fluctuations in their long-run production costs. One of the main reasons behind these changes is sustained alterations in production levels over time. Whenever Manute Foods Company incurs losses or makes profits, long-run costs change. In the long term, fixed factors of production are non-existent (Mankiw, 2011).

The short run costs of Manute Foods Company, on the other hand, should accumulate throughout the production process in relation to the production function (Mankiw, 2011). However, it is important to note that fixed costs do not affect short-run costs. The only factors that influence production in the short term include revenues and variable costs, a fact applicable to Manute Foods Company.

Short-run and long-run costs and production functions are very essential to managers. As already indicated, the low calorie microwavable foods industry is characterized by monopolistic competition. In the short term, such segments lack efficiency.

The inefficiencies result from profit maximization and specified production levels in the industry (Collier et al., 2014). Managers at Manute Foods Company should determine industry market trends in advance. By so doing, they can forecast demand and compute the levels of input necessary to ensure that production meets the demand.

The developments highlighted above have various effects on stakeholders. For example, they may lead to a net loss to both consumer and producer surpluses. The managers of Manute Foods Company can maximize short-term profits from the results of the short-run production and cost functions. When the marginal revenues equal marginal costs from the function, the costs incurred can generate profit for the companies (Mankiw, 2011).

Long-term cost and production functions can provide the low calorie microwavable foods managers with information necessary to their operations. For example, they can use the information to plan and implement business strategies. In addition, they can effectively plan for the current and the projected market environments.

The information will aid them in making the appropriate production decisions. Efficiency in the long-run costs would also be sustained following the production of the desired quantities of products at the lowest possible costs (Mankiw, 2011).

Managers can make other decisions that affect the status of their organizations from the production and cost functions. For example, they can decide to expand or decrease the size of the companies, change production quantities, and exit or penetrate other markets. Such decisions are based on the results obtained from the production and cost functions.

Possible Situations for Discontinuing Operations by the Low Calorie Microwavable Foods Company

The two foods company can cease their operations following a legal order faulting their criteria of production. The managers can contest the legal order if they believe their operations do not breach any regulations. Alternatively, the companies can opt to rectify their production systems to adhere to the regulations (Mankiw, 2011).

The company can also terminate operations if they do not expect to generate profits or revenues from the industry in the near future. Such a scenario can arise from radical changes in consumption trends, rendering their products obsolete.

Pricing Policy for Maximizing Profits in the Low Calorie Microwavable Foods Industry

Mankiw (2011) defines psychological pricing as an effective marketing strategy. It involves basing the prices of products on such factors as quality, consumer’s value perceptions, and popular price points (Yorke, 1984). In the low calorie foods market, basing prices on consumer’s health value perception will maximize profits in the long term (Girz, Polivy, Herman & Lee, 2012).

As already indicated, consumer trends in the foods and beverage industry are changing. To this end, most consumers are adopting more health conscious consumption practices. In light of this, the proposed pricing policy will facilitate the development of positive perceptions among consumers as far as the products of the two companies are concerned.

Evaluation of Financial Performance for the Low Calorie Microwavable Products Company

A company’s financial performance indicates the financial health of the entire firm. Evaluations of the performance are carried out from time to time (Mankiw, 2011). Organizations can use their financial performance to compare their position in relation to competitors in the industry. Return on equity would be appropriate in determining the performance of both Krafts Foods Inc. and Manute Foods Company (Girz et al., 2012). The measure would indicate both profits and losses made by the companies, as well as the overall efficiency of the production costs.

The return on equity metric has significant impacts on both long-term and short-term managerial decisions. The measure would also incorporate returns for all stakeholders. As a result, the managers have to focus on more than just the profits made by the company.

Increasing Profitability and Stakeholders Value in the Low Calorie Microwavable Foods Industry

Manute Foods Company and Krafts Inc. should exploit the growing demand for healthy and convenient food products. Conducting research on consumer demands and developing products to meet identified requirements will enhance return on investments. Effective management of production costs and investment in long-term market targets would improve performance in the monopolistic competitive market (Mankiw, 2011). Positive returns mean increased profits for the companies and value addition to stakeholders.

Reference

Arslan, G., & Klaus, B. (1994). Market structure and profitability in the U.S. food manufacturing industries. Atlantic Economic Journal, 22(1), 103.

Collier, J., Sherell, D., Babakus, E., & Horky, A. (2014). Understanding the differences of public and private self-service technology. Journal of Services Marketing, 28(1), 2-3.

Girz, L., Polivy, J., Herman, P., & Lee, H. (2012). The effects of calorie information on food selection and intake. International Journal of Obesity, 36(10), 1340-1345.

IMAP. (2010). An IMAP consumer staples report: Food and beverage industry global report–2010. Web.

Jambrak, A. (2012). Application of high power ultrasound and microwave in food processing: Extraction. Journal of Food Processing Technology, 4(113), 1.

Mankiw, G. (2011). Principles of economics (6th ed.). New York: Cengage Learning.

MarketResearch.com. (2011). Kraft Foods, Inc.: SWOT analysis. Web.

Rayburn, W. (2014). Improving service employee affect: The transformative potential of work design. Journal of Services Marketing, 28(1), 4-5.

Yorke, D. (1984). Marketing and non-profit-making organizations. European Journal of Marketing, 18(2), 17-22.

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