Kraft 2008 Annual Report Download - page 14

Consolidation of retail customers may affect our operating margins and profitability. In addition, the loss of a significant customer could significantly
affect our results of operations.
Retail customers, such as supermarkets, warehouse clubs and food distributors, continue to consolidate in the U.S., the EU and our other major markets. These
consolidations have produced large, sophisticated customers with increased buying power. These larger retailers are capable of operating with reduced
inventories, they can resist price increases, and they demand lower pricing, increased promotional programs and specifically tailored products. They also may use
shelf space currently used for our products for their own private label products. If we fail to respond to these trends, our volume growth could slow or we may
need to lower our prices or increase our investments in marketing, any of which could adversely affect our profitability.
Our largest customer, Wal-Mart Stores, Inc., accounted for approximately 15% of our net revenues during 2007. During 2007, our five largest
customers accounted for approximately 28% of our net revenues. The loss of any one of our top customers could have a material adverse affect on our sales.
Continuing increases in commodity costs may affect our profitability.
We are a major purchaser of commodities including, dairy, coffee, cocoa, wheat, corn products, soybean and vegetable oils, nuts, meat products, and sugar and
other sweeteners. We also use significant quantities of glass, plastic and cardboard to package our products, and natural gas for our factories and
warehouses. Price volatility for commodities we purchase has increased due to conditions outside of our control, including fluctuations in commodities markets,
currency fluctuations and changes in governmental agricultural programs. If we are unable to increase our prices to offset increased commodity costs or achieve
cost efficiencies in manufacturing and distribution, our profitability could suffer.
Our product sales depend on our ability to predict, identify and interpret changes in consumer preferences and develop and offer new products rapidly
enough to meet those changes.
Consumer preferences for food products change continually. For example, recently, consumers have been increasingly focused on health and wellness with
respect to the food products they buy. As a result, over the last several years our products have been subject to scrutiny relating to genetically modified organisms
and the health implications of obesity and trans-fatty acids. Our success depends on our ability to predict, identify and interpret the tastes and dietary habits of
consumers and to offer products that appeal to those preferences. We have been and will continue to be affected by publicity concerning the health implications
of our products, some of which could negatively influence consumer perception and acceptance of our products and marketing programs.
Furthermore, if we do not succeed in offering products that appeal to consumers, our sales and market share will decrease, and our profitability will suffer. We
must be able to distinguish among short-term fads, mid-term trends and long-term changes in consumer preferences. If we are unable to accurately predict which
shifts in consumer preferences will be long-term, or if we fail to introduce new and improved products to satisfy those preferences, our sales will decline. In
addition, because of our varied consumer base, we must offer a sufficient array of products to satisfy the broad spectrum of consumer preferences. If we fail to
successfully innovate products across a multitude of product categories or if we do not rapidly develop products in faster growing and more profitable
categories, demand for our products will decrease and our profitability could suffer.
Our international operations are subject to additional risks.
Approximately 42% of our 2007 sales and approximately 39% of our 2006 sales were generated in foreign countries. Our international operations are subject to
inherent risks, including fluctuations in currency values, unpredictability of foreign currency exchange controls, discriminatory fiscal policies, unexpected
changes in local regulations and laws in foreign countries and the uncertainty of enforcement of remedies in foreign jurisdictions. In addition, international sales
are subject to risks related to imposition of tariffs, quotas, trade barriers and other similar restrictions. Moreover, economic changes, terrorist activity, political
unrest and other economic or political uncertainties may interrupt or otherwise negatively affect our business. All of these risks could result in increased costs or
decreased revenues, either of which could adversely affect our profitability.
We may not be able to successfully consummate proposed acquisitions or divestitures or successfully integrate acquired businesses.
From time to time, we evaluate acquisition candidates that would strategically fit our business objectives. If we are unable to complete, successfully integrate and
develop these acquisition candidates to realize revenue growth and cost savings, our
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Source: KRAFT FOODS INC, 10-K, February 25, 2008 Powered by Morningstar® Document Research℠