Kraft Heinz: Reviving a tarnished image

Kraft Heinz: Reviving a tarnished image

The company’s new CEO, Miguel Patricio, an experienced Brazilian manager, will bring the benefit of his knowledge from AbInBev.

 

 While working at Coca-Cola, Philip Morris and Johnson&Johnson in the 1990s, Miguel Patricio gained a reputation as a marketing wizard. Shareholders of Kraft Heinz, who appointed him as the food maker’s chief executive officer on April 22nd, are now hoping his magic touch extends to corporate turnarounds.

 

Born of a merger in 2015 between two American icons, Kraft Heinz has struggled to keep up with changes in consumer taste. In February it announced a $15bn impairment, cut its dividend by a third, and said that US authorities had launched an inquiry into its procurement practices. Its share price has fallen by 45% in 12 months.

 

Patricio replaces Bernardo Hees, a fellow Brazilian who had led Kraft Heinz since the merger. In his previous job as chief marketer at Anheuser-Busch InBev, the world’s biggest brewery, Patricio was credited with increasing the sales of brands such as Corona, Budweiser, and Stella Artois. The three brands now account for more than one-fifth of AbInBev’s sales His idea of replacing the Budweiser name with “America” on limited-edition bottles and cans was a major success.

 

Patricio is also already familiar with Kraft Heinz’s management culture. AbInBev’s main shareholders include the trio of Brazilians who co-founded 3g Capital, the same private-equity firm that backs Kraft Heinz. 3g made its name with its quasi-religious devotion to “zero-based budgeting,” a cost-cutting practice whereby managers must justify their expenses at the end of each and every year.

 

Critics claim that 3g’s obsession with slashing costs may have blinded Kraft Heinz to the need to invest in products that appeal to consumers. Sales have been flat since the merger. Operating profits edged up for a few years—until they didn’t. 

 

Even excluding the impairment, margins declined in 2018, while those of rivals such as PepsiCo and Nestlé held up. At Unilever, which Kraft Heinz tried unsuccessfully to buy in 2017, they increased.

 

As a marketer rather than a financier like Hees, Patricio may, despite his 3g pedigree, be happier to loosen the purse-strings for investments and research. He may want to buy a rival with a bigger presence in developed markets outside Kraft’s and Heinz’s American home. He insists that he wants to revive illustrious but “dusty” brands, like Kraft Macaroni and Cheese, Philadelphia Cream Cheese, and Planters nuts. Reviving Kraft Heinz’s tarnished image is likely to prove considerably trickier.

2019-05-10T16:22:11+00:00

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