Kraft Heinz to cut agency relationships, increase marketing spend

The CPG plans to boost flagship, high-performing brands in 2020.
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Kraft Heinz has offered its first look at plans to turn fortunes around in the year ahead, and it includes bold moves on the marketing front.

In an earnings call for its Q4 financial results on Thursday, CEO Miguel Patricio said the CPG company plans to cut the number of agencies it employs in half, while also increasing total marketing dollars and spending on media by 30%. He said these dollars will be redirected “disproportionately” to its flagship brands that have better momentum, better margins and more opportunities to grow. He also describes the media investment as being put towards “working media [that] consumers actually see.”

Patricio said the company plans to cut everything that “is not accretive [and] that is cannabalistic,” which will include a lot of line extensions and product innovations it had previously invested in. Overall, he says innovation in 2020 will be reduced by 50% so that it can focus on its flagship brands and innovation that “moves the needle.” In addition to simply reducing complexity within Kraft Heinz and giving it the time and energy to focus on flagship brands, it will allow the company to divert money that might have previously been spent on things like product development and new marketing research to media spend.

The approach of reducing costs to reinvest in its brands is one that has been taken at many other multinational CPG companies (including P&G), which have spent years trying to compete based on pricing. Kraft Heinz brands that could see an increased focus include Heinz-branded condiments, Kraft-branded cheese and peanut butter, KD macaroni and cheese and Philadelphia Cream Cheese.

While Kraft Heinz’ Q4 results beat analyst expectations, its financial numbers were still a mixed bag, with organic revenue dropping by 2.2%. Gains in the U.S. were offset, in part, by higher corporate expenses and lower pricing in Canada, the only region where pricing wasn’t positive. Patricio acknowledged that 2019 was “a tough year” for the company, its performance was consistent with what it expected to end the year, and brought with it greater understanding of what it needs to do in order to transform and “regain control” of the business in the year ahead.

“Progress on this front has been both excellent and exciting, especially for our marketers,” he said. ” We’ve assessed the changing food landscape, developed a proprietary view of future consumers and built top-down priorities and plans. With our full team in place, we are now detailing our bottoms-up initiatives by category, by brand to finalize what we believe will return Kraft Heinz to growth and best-in-class performance with discipline in knowing where to invest, how to win and how to prioritize investments across the portfolio.”

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