CHICAGO — The Kraft Heinz Co. is undertaking several major projects to further stabilize its business and lay the groundwork for future growth and profitability. Many of the projects are intended to bring the company’s capabilities into alignment with customer and consumer expectations.
“To change our trajectory, we must improve our execution around the category, brand and sales initiatives by making critical fixes and closing any capability gaps; and drive greater efficiency in our supply chain across procurement, manufacturing and distribution,” said Miguel Patricio, CEO and interim president of the company’s US zone, Oct. 31 during a conference call to discuss third-quarter results.
In marketing, for example, Kraft Heinz is working to define its optimal marketing spend by brand.
“Based on this alone, we will see a significant percentage increase in media spend and an even greater increase for the brands that are the biggest drivers of our profitability,” Patricio said.
Kraft Heinz also is reorganizing its product development efforts with a focus on speed and being more consumer centric.
“We are evaluating shifting innovation support to fewer, bigger, better initiatives, launches that promise to be more incremental to our base,” Patricio said. “As a result, in 2020, we will reduce the number of projects being launched by half and better align our post-2020 pipeline with our enterprise strategy.”
Patricio said he wants to instill a philosophy of continuous improvement into the organization.
“We need to transform this company into a much more consumer-driven company in a much more looking-forward type of company rather than just operating the present,” he said.
He added that the lack of forward-thinking has hurt Kraft Heinz, particularly when it comes to innovation.
“We were the first company introducing veggie burgers 15 years ago,” Patricio said. “But because we didn't have a good vision about how the world would progress, Boca has not been a focused brand. And as a consequence, we never really took advantage of everything that is happening in this area.”
Several other projects are focused on improving sales execution. One such effort will improve the planning process between sales, category teams and retailers. Executives also are being tasked with developing a roadmap for price, mix, promotion and trade improvements. A third project will develop a channel strategy with better defined roles and priorities for each part of the company’s portfolio.
“In supply chain, we have several projects under way that collectively can deliver significant efficiencies to help offset inflation with the goal of funding our long-term strategy,” Patricio said. “A key driver of this will be examining every sku (stock-keeping unit), cutting anything with a negative margin, and in the process, removing complexity from the system to boost productivity and improve mix. Based on our work to date, we see scope to rationalize a significant portion of the skus in our US business and with minimal impact on profits.”
Underlying all the projects is a reorganization of the company.
“We are developing a much better understanding of the consumer with a view to the future,” Patricio said. “We are setting our strategic direction, where we believe we can drive the greatest growth and returns by brand, by category, by geography and by channel with the full support and participation of our board.
“And we are assessing how best to organize ourselves against our biggest opportunities. There is still much work ahead of us, but we remain confident in our ability to launch our enterprise strategy and share it in detail with you early next year.”
For the third quarter ended Sept. 28, Kraft Heinz net income totaled $899 million, equal to $0.74 per share on the common stock, and an improvement over the same period of the previous year when the company earned $619 million, equal to $0.51 per share.
Sales for the quarter fell to $6,076 million during the quarter from $6,383 million the year prior.
“We are not where we believe we can be, but we are excited with the evolution we had in the third quarter and what we have ahead of us,” Patricio said.
In the United States, the company’s largest business unit, sales fell 1.6 percent to $4,361 million when compared to the same period of the previous year. Volume/mix fell 3.1 percent and was driven by lower retail takeaway in natural cheese, cold cuts and Lunchables, according to the company. The volume/mix decline more than offset growth condiments, sauces and nuts during the quarter.
“We are seeing significant positive momentum where we have something to say, and this includes mid-single-digit retail takeaway in our US condiments and sauces, cream cheese, snacks, desserts and seasonal franchise,” Patricio said. “Our total US sauces business, which includes ketchup, mustard, mayo, Miracle Whip, salad dressings and pasta sauce, has continued to build momentum since 2017.”
The company did not release guidance for the fourth quarter or fiscal 2020.
“I will tell you, however, in recognizing that we are still at early stages, it would be prudent to expect year-on-year top- and bottom-line performance in Q4 to be generally similar to what we saw in Q3,” said Paulo Luiz Araujo Basilio, global chief executive officer. “And from an earnings per share perspective, while we have delivered better-than-expected income and expenses below adjusted EBITDA, we still expect these items to be unfavorable on a year-on-year basis in the fourth quarter.”