Kraft is about to undertake more debt than it can handle, to buy a company with exaggerated market presence, and its own cost problems, at an inflated price. This deal will go down in the books as one of the worst business moves of the year, and will hurt both the company's bottom line and its reputation with shareholders for sound business decisions and proper calculation of risk.
Kraft recently started charging their magazine subscribers $13.98 for an annual subscription to four issues. For those who do not know, the magazine contains recipes of Kraft products. A possible reason for this move could be due to raising money for their acquisition of Cadbury. This has caused an uproar with their customers. The last thing Kraft wants is to anger them and affect their revenue stream.
After skyrocketing commodities prices raised Kellogg's input costs in mid-2008, the company was forced to raise consumer prices. As the recession takes its toll, however, Kellogg will have a difficult time maintaining demand at the elevated prices. Consumers, looking to cut spending, will trade down to lower cost alternatives, such as private label foods offered by competitors like Wal-Mart. This could prompt a price war in which Kellogg will have to lower prices in order to compete.