Kraft Heinz touts its new operating model’s focus on growth

Set to be fully deployed this year, the company says being able to pursue the best growth opportunities is already beginning a "turnaround" in Canada.
Kraft Heinz HQ

Kraft Heinz used its Q4 results on Thursday to tout the performance of a new operating model, saying the efficiency and focus on growth it provides is helping it grow share in key category and fuel a turnaround in the Canadian market.

According to its Q4 and end-of-year earnings report, the CPG giant laid the foundation for its shift to the new operating model over 2020, which will be fully implemented in 2021. Globally, that included increasing its marketing spend in targeted areas by $100 million and “agile portfolio management,” said Miguel Patricio, CEO of Kraft Heinz.

In Canada, much of Kraft Heinz’s shift to the new model involved reprioritization. According to Paulo Basilio, the company’s CFO, that meant placing heavier focus on the consumer and exiting categories where the CPG giant did not have the competitive advantage. On a global level, that is aimed at reducing its exposure to private label brands, and were creating a “turnaround” in the Canadian business.

In 2020, Kraft Heinz sold its natural cheese business to Groupe Lactalis. Alongside the financial results on Thursday, the company announced it would sell its nut business – including most products sold under the Planters label – to Hormel Foods.

“It will enable us to sharpen our focus on areas with greater growth prospects and competitive advantage for our powerhouse brands,” Patricio said.

In addition to simplifying its consumer platform in order to focus on growth, the new model also includes increasing operational effectiveness to save on costs; developing its “partner program” to find new ways to sell to customers, including ecommerce, which now represents over 5% of global sales for the company after achieving 100% year-over-year growth; and fueling growth by taking savings from other parts of the structure and reinvesting it into talent and brands.

According to Basilio, greater focus on key platforms, including what the company identifies as “Taste Elevation,” is paying off. That platform includes Kraft’s ketchup, mayonnaise, nut spread, mustard, jam and hot sauce brands. Basilio pointed to the new Kraft hazelnut spread, which launched in Canada last year and has positioned itself as a challenger brand in its marketing, as a one example of success, noting it had already captured a 17% share of a category that is synonymous with Nutella.

In Canada, brands in 70% of categories that the company has pegged for growth gained share against the competition. That includes “Taste Elevation” categories, but also “Easy Meals Made Better,” which includes things like macaroni and cheese, frozen pizza and pasta sauces, which the company said had the strongest growth.

Food service declines and the exit from McCafe were identified as drags on Kraft’s performance, especially in Canada, but the company says its growing market share with key brands, including Heinz ketchup and Lunchables (part of its “Real Food Snacking” portfolio, another area of growth focus), offset those factors.

Taste Elevation represents 21% of the company’s net sales, and grew by 16% in 2020 when excluding the declines in foodservice. Easy Meals Made Better represent 19% of sales, growing by 14% in 2020, while Real Food Snacking made up 9% of sales, up 4% for the year.

Fast Fresh Meals include bacon, cream cheese and deli meat brands and falls into the “energize” category, which is not pegged as a current area for growth but represents 25% of net sales, so is something the company is looking to pursue more innovations in.

Though it saw a 3.1% decline in organic net sales in Canada in the fourth quarter, the company as a whole grew by 6% in the same period. For the full year, organic net sales declined 0.1% in the Canadian market and grew by 6.5% globally. Amidst that, Kraft Heinz still increased its marketing and selling investments, with expenses as a percentage of net sales increasing by 97 basis points in 2020, specifically when it comes to “working media” that helps drive conversion.

“We entered 2020 with goals of stabilizing underlying profitability, maintaining industry-leading margins, and laying the foundation for future growth,” said Patricio. “We exit 2020 having accomplished all those things.”