Kraft’s Decision to Reduce its Supplier Base by over 50% is Ominous

Kraft Foods, which has over 30,000 suppliers of ingredients for its packaged foods announced that it is planning on reducing its number of suppliers by 50% in order to streamline its operations and save costs.

http://www.cnbc.com/id/32752590

At first blush this is yet just another story of a large behemoth corporation cutting its costs so that it can maximize its earnings. While this is most likely good news for Kraft Foods’ shareholders it is not good news for the economy. It means that 15,000 of Kraft’s present vendors will lose one of their biggest customers. The discontinued vendors will likely have to lay off staff and manufacturing personnel, which had previously been dedicated to servicing Kraft. The big cheese company’s decision will also likely not be a panacea for Kraft’s remaining vendors either. Kraft will likely choose their remaining vendors based on the willingness of those vendors to reduce the prices that Kraft is currently paying them. By taking this action Kraft can increase its profit margins and thus its profits without having to increase its revenue.

I applaud any company for taking measures to lower costs and increase profit margins and profits. However, investors should be aware that the action that Kraft and many other behemoth companies are taking to maximize their profits at all cost generally happens during economic downturns and is one of the key reasons why all super or secular bear markets bear markets since 1802 have lasted a minimum of eight years.

In super bull markets and expanding economies public companies get out of shape as consistent increases of share prices and increased economic activity cures all ills. In a secular or super bear and during economic contractions public companies get lean and mean so that they can maintain or increase their dividends in order keep their share prices off their lows. Therefore, the psychology or trend changes from a secular bulls to secular bears and back again can be and are generally long lasting.

The super or secular bear continues based on my just recently concluded research which indicates that revenue for a majority of the 224 industry groups which are monitored by StockDiagnostics.com has not yet stabilized and continues to fall. For more information on the current secular bear which began in 2007 and how disciplined investors can make just as much or more in a super bull than a super bull go to www.bearmarketnavigator.com.

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