CHICAGO – Even since Miguel Patricio took the helm of the Kraft Heinz Co. in April 2019 he has been formulating a strategy to return the business to growth. On Sept. 15, he and his management team outlined the new strategy in detail. It is an endeavor that will reshape the company’s portfolio of global brands.
“We have a new outlook based on a new formula for success,” he said at the beginning of the investor day presentation. “The new formula relies on two fundamental things: our scale, where we have leadership, size, high penetration, reliability and operating efficiency, but we have not taken full advantage of this; and secondly, agility, which we are building. This is about integrating the business. It's about speed. It's about innovation, relevance, efficiency in execution.”
A key component of the new strategy is a reorganization of Kraft Heinz’s brand portfolio into six consumer platforms, including Taste Elevation, Easy Meals Made Better, Real Food Snacking, Fast Fresh Meals, Easy Indulgent Desserts and Flavorful Hydration.
“We have moved from viewing our business through the lens of more than 55 separate categories to managing a portfolio of six consumer-driven platforms that are based on how consumers live their lives and how they eat today,” Mr. Patricio said. “And let me be clear, this is not a future vision. We are doing this today. We have already restructured our company to begin operating this way, right now. Two of these platforms, Taste Elevation and Easy Meals Made Better are global. The others are focused on US and Canada.”
Brands tagged as “grow” represent about 50% of Kraft Heinz’s sales and is where management will prioritize investment. Energize brands represent about 30% of sales and have the potential to be rejuvenated and eventually grow. Stabilize brands make up about 20% of sales.
The Taste Elevation platform generates approximately $7 billion in sales, according to the company, and includes ketchup, mayonnaise, mustard, nut spreads and jams, and hot sauces. Easy Meals Made Better have about $4.3 billion in sales and include baked beans, macaroni and cheese, pizza and pasta sauces, and frozen snacks and appetizers. Real Food Snacking has $2.2 billion in sales and includes nuts, seeds and trail mix, meal combinations such as Lunchables, and cheese snacks.
All three platforms have been identified for growth by the company, said Nina Barton, Kraft Heinz’s chief growth officer.
“These are all large and growing markets that are in sync with consumer trends,” she said.
International opportunities for Fast Fresh Meals and Easy Meals Made Better fall into the energize category. Product lines in these platforms include bacon, cream cheese, deli meat and pickles.
“It's a sizable market but has a lower growth potential,” Ms. Barton said. “Kraft Heinz has a strong position with brands, including Philadelphia and Oscar Mayer in the US and Canada, but we need to better differentiate our products through renovation and revitalization. We are investing judiciously to improve performance and plans are already underway in these brands.”
Flavorful Hydration and Indulgent Desserts fall into the stabilize segment. Brands within these platforms include beverage applications, gelatin, marshmallows, pudding and whipped topping, and have limited growth potential but higher consumer loyalty, Ms. Barton said.
“Over the next five years, our overall marketing investment will increase by 30%,” she said. “… this investment will not be spread evenly among grow, energize and stabilize brands. Instead, to maximize return and ensure we deliver the highest, most sustainable top-line growth, we will prioritize investment in the higher growth platforms where we have a market advantage.”
Putting the plan into action
Kraft Heinz’s US and Canadian businesses together generate approximately $20 billion in sales. Household penetration in the United States is 97%, said Carlos A. Abrams-Rivera, US zone president. To meet management’s goals is going to require rethinking how the company approaches product development.
“In the past, we focused almost entirely on new product development and gaining share in predefined categories, the outcome of which was limited consumer appeal and low incrementality and prevented us from putting energy against the greatest opportunity,” Mr. Abrams-Rivera said. “Now we'll be closer to 60% innovation and 40% renovation. This is a significant change to our vision.”
The company is doing a review of the current product portfolio and aggressively reducing the number of stock-keeping units (SKUs) it sells. More than 1,100 SKUs have been eliminated, roughly 20%, in the United States and Canada.
Using Kraft Heinz’s growth platforms as an example, Mr. Abrams-Rivera outlined how he sees product development and innovation playing out. With Taste Elevation, the focus will be on adding more flavor and texture.
“Our research shows that 75% of flavor enhancers (are) used for a protein-based center-of-plate food like chicken or burgers,” he said. “But the participation of Kraft Heinz products in those types of food is considerably lower, so we have enormous runway to go.
“We command 70% of the ketchup market, so you might think there's limited upside to capture given our strong share. But we're included in less than half of all burgers being made by consumers. So, by looking at it this way, we move from a ketchup leader to a burger fighter as we compete with an unlimited number of options that can make a burger taste delicious. Our new approach aims to own the space between the bun. From condiments to pickles to Kraft American slices, no one else in the market has the scale or the culinary know-how to elevate the burger.”
With Easy Meals Made Better, the focus is on meeting the consumer’s new definition of convenience, which includes fewer meal preparation steps and not expending too much mental energy making a meal. Using Kraft Heinz’s macaroni and cheese line as an example, Mr. Abrams-Rivera said it means offering variety, whether it is gluten-free, specific flavors, in a cup or served in a bowl.
And Better Food Snacking will be focused on health, flavor and convenience.
“There's plenty of salty and sweet snacks today, but very few options at scale that are wholesome and offer familiarity from both a food and a brand standpoint,” Mr. Abrams-Rivera said. “We can own this space. To win, we have to refresh our core brands and reintroduce satisfying, better-for-you options while accelerating innovation and spend on our premium brands to win over adults and kids. Real food snacking presents a huge opportunity for us.
“The area we're focused on is growing twice as fast as the rest of the snacking category. The combination of health, taste and familiarity is why we are so uniquely positioned to own this space and create a new paradigm for impulse snacking.”
Company research shows some consumers using Lunchables as a snack. They may open the package, but not eat everything in it at once. An innovation opportunity is creating a snack compartment to meet this need.
“We also thought about new entry price points to go after impulse snacking,” he said. “Smaller portion, $1 packs with meat, cheese and cracker make for a quick bite in a grab-and-go format and solve two challenges. The single-serve packs drive incremental growth and expand all retail options like entry to C-store, where we lack a meaningful footprint today.”
The strategic changes being made are expected to drive organic net sales growth of low single digits, adjusted EBITDA growth of 2% to 3%, and 4% to 6% of adjusted earnings per share growth.
“At the end of the day, what we are building is simple, it's all about growth,” Mr. Patricio said. “We are using more consumer data, and (will) leverage that through our knowledge to understand and to meet and to exceed consumer needs.”