Dynamic Marketing Communiqué

Branded Delights: How did this food giant become the global powerhouse that it is today? [Monday Marketing Marvels]

September 28, 2020

What do you eat when you’re always on-the-go?

Peanuts?

Crackers?

Easy-to-cook Macaroni and Cheese?

This food company’s got you covered!

Whether you’re at home, school, work, a restaurant, or always on the road, this company has a variety of food products you can choose from.

The Kraft Heinz Company, commonly known as Kraft Heinz, is an American food company that was founded after the merger of food companies Kraft Foods and H.J. Heinz Company in 2015.

As of 2019, the company is the third largest food and beverage company in North America and the fifth largest in the world.

Kraft Heinz also comprises of other food brands such as:

  • Boca Burger
  • Gevalia
  • Grey Poupon
  • Oscar Mayer
  • Philadelphia Cream Cheese
  • Planters
  • Primal Kitchen
  • Wattie’s

The company is co-headquartered in Chicago and Pittsburgh in the US, operating with a vision:

“To sustainably grow by delighting more consumers globally.”

The Kraft Heinz Operating Model

In September 2020, Miguel Patricio, CEO of Kraft Heinz, announced a company transformation that includes a new strategy, operating model, and key initiatives.

This transformation signals a shift in Kraft Heinz’s approach to expanding its business and brands at a global scale.

According to Patricio, the company is “placing the consumer at the center of everything we do, leveraging our greatest assets, strengthening our partnerships, [and] generating fuel that funds growth investments.”

Kraft Heinz’s new operating model contains five primary elements:

  • People with purpose. The company believes that employees are its greatest resource, as they are the ones tasked to bring strategies to life.

    Inspired by Kraft Heinz’s purpose, “Let’s make life delicious,” these employees believe in the possibility of creating a healthier and more sustainable environment for the company’s consumers.

  • Consumer Platforms. From having over 55 individual food categories, Kraft Heinz trimmed these down into six consumer-driven platforms, namely:

    1. Taste Elevation

    2. Easy Meals Made Better

    3. Real Food Snacking

    4. Fast Fresh Meals

    5. Easy Indulgent Desserts

    6. Flavorful Hydration

    The company has vowed to employ a disciplined approach according to the opportunities and objectives for each platform.

  • Ops Center. This is Kraft Heinz’s key source of fuel for growth in driving better alignment across the company.

    The center brings together the company’s value chain on an end-to-end basis in order to create a fast, adaptable, and integrated supply chain with greater visibility.

    Up to the year 2024, the Ops Center targets approximately USD 2 billion of gross productivity efficiencies to support Kraft Heinz’s growth initiatives.

  • Partner Program. Kraft Heinz has organized centralized customer development and revenue management teams to strengthen its existing customer relationships and build new strategic partnerships.

  • Fuel Growth. The company plans to apply an agile portfolio management to accelerate its new strategy.

    The fifth part of Kraft Heinz’s new operating model also aims to enhance the company’s geographic profile as well as sharpen its focus on areas of advantage while maintaining price discipline.

“Fewer but bigger bets”

Early this year, Patricio reported plans to focus its marketing efforts on its strongest brands, detailing that Kraft Heinz will increase media spending by 30%.

Patricio said the extra spending is necessary for Kraft Heinz’s brands to continuously stand out as grocery stores introduce their own lower-priced private-label brands.

Heinz condiments, Philadelphia Cream Cheese, and Planters Nuts are among the company’s brands that will likely enjoy a greater marketing spend.

Aside from that, Kraft Heinz will also cut its innovation efforts by 50% in order to focus on “fewer, bigger, and bolder initiatives.”

According to Patricio, this will enable the company to shift from brand extensions (creating more products) to “expansionary launches” of its existing brands to boost sales.

The move includes work to support American food brand Maxwell House and grow Kraft Heinz’s higher-end Gevalia brand, as well as launch a new Ethical Bean brand in the US.

In response to the COVID-19 pandemic, Kraft Heinz decided to make fewer varieties of some of its products in order to focus on those that have the highest demands.

In May 2020, the company’s Oscar Mayer brand created its first-ever Front Yard Cookout, inviting consumers to take their backyard cookouts to their front yards to connect with their neighbors even while staying apart.

Kraft Heinz also shifted more of its media strategy to digital and social media platforms where it can easily engage with consumers.

According to Carlos Abrams-Rivera, President of the Kraft Heinz US Zone, the company needs to be everywhere consumers shop―from the local store to online.

He said e-commerce represents an opportunity for Kraft Heinz’s products because consumers are expanding their presence in this channel.

As of the moment, only Heinz has its own e-commerce site named Heinz to Home, which is only available in the UK.

In the past five years, Kraft Heinz has recorded a revenue of:

  • USD 18.3 billion in 2015
  • USD 26.5 billion in 2016
  • USD 26.1 billion in 2017
  • USD 26.3 billion in 2018
  • USD 25.0 billion in 2019

With its new operating model and consumer-centric approach, Kraft Heinz is in a direction towards seeing more positive results for its brand.

The Kraft Heinz Company’s Earning Power: Valens Research vs. As-reported numbers

The Kraft Heinz Company (KHC) makes for a great case study that we come back to regularly. One great reason?

The company has proven itself to be a better earning power generator than investors might think.

So, how well has KHC been growing its business in the past years?

The research doesn’t lie—nor do the results. Earning power (the blue bars) continues to show results higher on average than what traditional databases show.

The blue bars in the chart above represent KHC’s earning power (Uniform Return On Assets). KHC has seen generally improving profitability. From 2004-2013, Uniform ROA expanded from 17% to 26% in 2013. Thereafter, Uniform ROA gradually improved until it achieved a peak of 42% in 2019.

The global ROA is just 6%.

The orange bars are the company’s as-reported financial information. If you relied on these numbers, KHC’s profitability is understated. When looking at the as-reported numbers, you can see that returns are generally declining compared to the improving trend of the blue bars. Additionally, when Uniform ROA achieved a peak of 42% in 2019, as-reported ROA (return on assets, a measure of earning power) was at its lowest level of 3%.

That’s what you’ll see in Yahoo Finance, Google Finance, and most other databases.

As stated by Abrams-Rivera, in moments of crisis or challenge (such as the COVID-19 pandemic), there are companies who retreat and companies who play offense.

Kraft Heinz, on the other hand, is leaning in and reshaping its business strategy to be more consumer-obsessed and agile for long-term success.

With a strong sense of ownership and a clear purpose, Kraft Heinz is assuring consumers of one thing: It won’t slow down in serving its consumers and their families with all its trusted food brands.

About The Dynamic Marketing Communiqué’s
“Monday Marketing Marvels”

Too often, industry experts and the marketing press sing the praises of some company’s marketing strategy.

…Only for the audience to later find out that their product was a flop, or worse, that the company went bankrupt.

The true ROI in marketing can’t be separated from the business as a whole.

What good is a marketing case study if one can’t prove that the company’s efforts actually paid off?

At the end of the day, either the entire business is successful or it isn’t. And the role of marketing is always paramount to that success.

Every Monday, we publish a case study that highlights the world’s greatest marketing strategies.

However, the difference between our case studies and the numerous ones out there, is that we will always make certain that the firm really did generate and demonstrate earning power worthy of study in the first place (compliments of Valens Research’s finance group).

By looking at the true earnings of a company, we can now rely on those successful businesses to get tips and insights on what they did right.

We’ll also study the greatest marketing fails and analyze what they did wrong, or what they needed to improve on. We all make our mistakes, but better we learn from others’ mistakes—and earlier, rather than later.

Hope you found this week’s marketing marvel interesting and helpful.

Stay tuned for next week’s Monday Marketing Marvels!

Cheers,

Kyle Yu
Head of Marketing
Valens Dynamic Marketing Capabilities
Powered by Valens Research
www.valens-research.com