As Kraft Heinz appoints a new CEO and pumps £11.7m into a new global ketchup campaign, we look at what’s troubling one of the world’s biggest brands and how Heinz can contend with the future, as well as harking back to the past.
Kraft Heinz sprang an Easter surprise by announcing the appointment of former AB InBev marketer Miguel Patricio as its new CEO. Thus Kraft Heinz’s Bernardo Hees becomes the latest in a string of CEOs to exit from a food company; the parade of recent departures includes Kellogg’s John Bryant, Mondelez International’s Irene Rosenfeld and Campbell Soup’s Denise Morrison. According to CNBC, when Morrison left last May, she capped a streak of 15 CEO departures since the beginning of 2016.
The leadership change comes on the back of a $10.2bn loss reported by Kraft Heinz for 2018, a slowdown it has sought to blame on a variety of cost-cutting measures by 3G Capital, the private equity firm whose co-founder recently described himself as a “terrified dinosaur”.
Image: Jorge Paulo Lemann, co-founder of 3G Capital, which owns brands such as Burger King, Anheuser-Busch and Heinz:
“I’ve been living in this cozy world of old brands and big volumes. We bought brands that we thought could last forever and borrowed cheap money to do so. You could just focus on being very efficient... All of a sudden we are being disrupted.”
Heinz is not the only big brand that’s struggling. In 2016, the revenues of large fast-moving consumer goods (FMCG) companies – across food, soft drinks and household products – grew at their slowest rate since 2009. Global titans like Nestlé, Kellogg’s and Procter and Gamble have been amongst the worst hit.
Kraft Heinz posted a net loss of $12.6bn for the final quarter of 2018. This follows on from the company’s failed £115bn takeover bid of Unilever, which the British-Dutch company described as a ‘near-death experience.’
Kraft Heinz has begun the fightback with a sizeable marketing investment into one of its most established brands: Heinz Ketchup. Celebrating its 150th anniversary, Heinz has launched a campaign that aims to “celebrate its values” by showcasing 150 years of clean plates.
Running across the UK, Europe, the Middle East and Africa, the campaign aims to promote the role Heinz plays in making food tastier through its most iconic product.
Image: A takeover of the BFI IMAX cinema in Waterloo in London features clean plates from meals spanning different time periods – including a metal dish from the 1800s right up to modern undecorated plates.
This new Heinz campaign does little to challenge Kraft Heinz’s reputation for driving profit through efficiency gains and cost-cutting, for example by focusing its efforts on making the most of its iconic brands like Tomato Ketchup and Baked Beans.
Indeed, when you contrast Kraft Heinz’s approach with the likes of Unilever - the subject of a failed takeover bid - it’s clear that Kraft Heinz’s historical approach has been to ‘Cut and Conserve’, while Unilever’s strategy could be characterised as ‘Build and Buy’.
In terms of ‘building’, Unilever launched five new brands in the Personal Care category in 2017 alone, including Hijab Fresh (a body care range for Muslim women).
In terms of ‘buying’, Unilever has identified the acquisition of digital native and premium brands as central to its growth strategy. Since 2015, they have spent €9bn on 19 acquisitions, including two companies that market online and sell online, to people who buy online.
These new propositions and acquisitions demonstrate Unilever’s expertise in addressing the needs of specific and growing global consumer groups.
Indeed, with Kraft Heinz’s takeover bid for Unilever collapsing, there are ambitious plans at the FMCG giant to raise their game and better compete with the likes of Unilever.
For Heinz UK, changing market dynamics in the FMCG sector pose a challenge, but also provide a wealth of new opportunities to drive growth. We’ve identified the three biggest digital opportunities that will be key to the organisation’s growth moving forward:
Global FMCG online sales are on the rise and the UK market has seen dramatic change, boasting the world’s second highest proportion of groceries bought online. It’s therefore essential that Heinz UK has a strong e-commerce offering.
Over the last year, Heinz’s ketchup has performed well in e-commerce. This is despite the threat of own-label and new offerings from branded competitors. The average price of Heinz’s ketchup range is over double the price of a supermarket own brand product. Yet, as the data shows, Heinz has maintained strong market share by value.
Image: Heinz Tomato Ketchup’s e-comm market share by value in UK retailers. Source: mySupermarket
This strong performance is down to executing well in e-commerce: dominating retailers’ page listings; getting into customers’ Favourites lists; and using smart merchandising.
Image: Amazon’s own brand of table sauces available in its new Solimo range on Prime Now
Heinz’s strong execution on third party retailer sites is something it will need to replicate across its wider portfolio if it is to maintain the dominance of its well-known power brands - especially when companies like Amazon are launching their own branded offerings via highly convenient digital platforms like Amazon Prime now.
The distinct attitudes of millennial consumers (22 to 37 year olds) are growing in influence, with large FMCG companies struggling to adapt. Research shows that this audience is more environmentally aware, more health conscious and feel they can make a difference to the world through their choices. Smaller FMCG brands, whose authentic propositions and brand stories appeal to these values, are benefiting from these consumers coming into their peak earning years, at the expense of the big FMCG companies.
Heinz needs to consider these new consumer behaviours and adopt a new marketing model to reach and appeal to millennials.
For inspiration, Heinz would do well to look at baby food brand Ella’s Kitchen. This is a brand that has successfully driven growth through digital marketing, using content and influencer advocacy to drive demand. Their strategy is to share knowledge and advice with parents through relevant online channels, whether it be guidance on weaning through the app; or interactive parenting content on their website.
They also engage heavily with bloggers, winning over influencers that can build trust amongst parents. To adapt to the expectations of demanding millennials, Heinz would benefit from a look at Ella’s playbook when launching new brands and products.
This need to tell an authentic story is something that Kraft Heinz’s vice-president of marketing for EMEA, Vicki Sjardin, clearly acknowledges as a key challenge, especially when it comes to packaging. As quoted in Marketing Week:
“Packaging is more important than ever. If packaging is your physical embodiment of what your brand stands for, it’s critical that you get that right so that, visually through the product, people can understand what your brand is. If your brand was a person what would that look like? …[But] an aesthetic that works on a physical supermarket shelf may not look as pleasing on social. Brands are increasingly looking to understand how their brands will show up in the physical space but the shopping landscape is much more broad now than ever before. It’s not just a supermarket shelf it’s also an e-commerce shelf."
Image: Kraft Heinz’s vice-president of marketing for EMEA, Vicki Sjardin
Direct to consumer (D2C) is a huge digital opportunity, cutting out third party retailers altogether and selling products via a brand’s own channels. A successful D2C offering can mean higher profit margins and improved ownership of customer data than selling solely via a third party.
Often there’s a level of upfront spend needed to make the business model work, including increased costs of acquisition, e-commerce platforms and fulfillment which all make it a risky option and can put FMCG brands off. However, two areas where FMCG players have had success is with the high margins of super-premium offerings and the cumulative value of subscription services.
Unilever’s high-end condiment brand Maille is one example of a super-premium offering. It has capitalised on its considerable heritage with a direct sales website offering gourmet flavours and gift sets not available elsewhere. In terms of subscription offerings, there’s a notable rise in meal kits like HelloFresh and Gousto. This direct to consumer approach works and is certainly profitable. Especially when coupled with an easy-to-navigate website and a seamless, personalised customer experience.
Heinz UK are well placed to create an offering in this space. They already partner with Weight Watchers to produce their ‘WW for Heinz’ ready meals. Its range of recipes, diet plans and nutritional shopping books are seen as a day-to-day assistant for many dieters. Creating a subscription offering with this audience could be valuable and give the audience what they need to stay on track.
Rapidly changing expectations, particularly amongst younger consumers, means the FMCG landscape is tougher than ever - and it’s no good simply looking to the past for answers. Heinz are making positive steps in response to these challenges and will need to make good on their ambitions in order to accelerate their growth.
Strong e-commerce execution will be a key factor moving forward. To drive improved performance Heinz must start experimenting with innovative products, marketing techniques and business models.
It will take more than cost-cutting to cut the mustard (or ketchup).