1 April 2019

Kraft Heinz needs to make its brands hyper-connected to survive

OPINION

In 2017, The Kraft Heinz Company ranked as the fifth-largest food and beverage company in the world – with revenue and reputation being driven by brands including Kraft, Heinz, HP Sauce, Grey Poupon, Oscar Mayer and more. Many of these brands individually produced total sales of over $1bn.

But 2018 was a very different picture.The company announced a net loss of $12.6bn for the final quarter – which resulted in 27% being wiped from the company’s share price in the last week.

So what happened?

Just as there is rarely a silver bullet for success, there is also rarely one reason for the kind of business results recently announced by Kraft Heinz. One influencing factor is the surging rise of direct-to-consumer (D2C) brands, which has undoubtedly played a role in damaging Kraft Heinz’s status as an untouchable fmcg giant.

Birthed with digital engagement in their DNA, these new brands have been able to disrupt well-established brands, ignoring the old rules of marketing and side-stepping the challenges of selling through retailers. The Honest Company is one of these.

The Honest Company baby care and beauty brand focuses on creating safe, effective products for families by ensuring every ingredient meets the ‘Honest Standard’ – which features a ‘no’ list of chemicals the brand refuses to use. The Honest Company’s blog analyses each of these chemicals – and with clever use of SEO appears as the top result for answering questions about these chemicals. This serves both as educational content and as a way to reach new customers – driving over 100,000 visitors to its site every month.

Of course, the only threat doesn’t come from the new wave of challenger brands. Amazon’s position in the grocery market is growing, with its current online grocery market share standing at 18% – an estimated $2bn in sales. Amazon’s user data allows it to target consumers with products at key moments, and as consumers generally become more comfortable with ordering groceries online it is almost inevitable that Amazon will benefit disproportionately.

These influences and the challenging financial results have signalled an immediate need to change how Kraft Heinz markets its products. Despite Eduardo Luz, the company’s newly installed global brand officer, insisting that the business challenges have arisen from cost increases of raw materials and transportation and are “nothing to do with the brands”, there is evidence Kraft Heinz is switching to a digital-first strategy for some of its brands.

It’s interesting to see that the marketing for the Planters and Miracle Whip brands is now handled by VaynerMedia, who take an almost exclusively digital approach. Luz also notes that Kraft Heinz now has a CMO for each of its brands – empowering each brand to find marketing methods that suit each brand individually.

But there’s a broader underlying issue here – that of Kraft Heinz taking too long to recognise a changing world with changing consumer values. As much as emerging challenger brands have affected its results, I would argue the most significant impact has come from the Kraft Heinz brand portfolio itself.

The food world has moved on. Even in the most parochial of places, consumer conversation has turned to wellness, holistic health and the impact of food on our overall wellbeing. And food brands need to go beyond the functional (calories in) or comforting.

The societal shift away from Kraft Heinz’s core products has been damaging but – and it will come as no surprise to those within the business – Kraft Heinz has been future planning. Last year the company launched Springboard, a platform dedicated to identifying, incubating and partnering with upcoming disruptive food brands. Luz talks about this platform being agile and responsive and using consumers to quickly respond in more relevant ways than the current portfolio.

Undoubtedly to turn its fortunes around, Kraft Heinz will need to tap into what modern consumers want. This means delivering brilliant product and brilliant marketing ideas, which connect with people on an emotional level and make sense in people’s lives.

What’s clear is that maintaining the status quo won’t wash. The brands that emerge victorious will be those who can emotionally embed themselves in modern people’s lives and communities. From product to marketing, these hyper-connected brands appear wherever they need to live along the consumer journey.

This article first appeared in The Grocer.

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