Mark Ritson - Brand Architecture

Kraft Heinz’s new CEO needs to deliver a much-needed dose of tough love

“Who is Miguel Patricio,” asked AdAge last week, “and what is he getting himself into?”

There are two brief solutions to that double-barrelled question: he’s a bit of a advertising legend and, probably, a big box of shit.

Patricio is the new CEO at Kraft Heinz and whether the Portuguese native can navigate his approach out of the aforementioned shit box will come down to just how good a marketer he really is. In the press the previous AB InBev CMO comes throughout as sensible and interesting however this has to be one of the most important and toughest jobs in advertising. Can he pull it off?

By now you already know the again story. Kraft and Heinz mega-merged in 2015 with the backing of Warren Buffet and legendary personal fairness participant 3G Capital. The deal appeared to be golden with the basic PE mannequin of squeezing costs and driving profitability resulting in spectacular returns in 2017 and an audacious, although finally unsuccessful, bid for Unilever that same yr.

But by the start of 2019 there was dramatically dangerous information. The corporate admitted that two of its marquee brands, Kraft and Oscar Meyer, weren’t value what had that they had valued them for less than 4 years earlier. The $15bn write down, one of the most important in business historical past, spooked the market. As did the next information that revenues have been down and costs up. Kraft Heinz’s stock has halved in worth in that previous 12 months, a performance that noticed former CEO, Bernardo Hees, fall on his sword.

READ MORE: Mark Ritson – Kraft Heinz is in 57 varieties of hassle

Apart from the leadership of Hees, much of the finger-pointing has also been in advertising’s course. At a shopper packaged items enterprise like Kraft Heinz the place 30% or 40% of the company’s complete market capitalisation is often tied up in brand fairness, a flawed strategy to advertising is a financial meltdown waiting to occur. Not only do badly managed brands scale back demand, additionally they depart Kraft Heinz weak to personal labels.

We’re previous timers in this nation when it comes to store brands given they take virtually precisely half of the full spend on groceries within the UK. But America was all the time method behind us in personal label phrases and solely now, as the penetration of retailer manufacturers approaches 20% of complete grocery sales, are the screws tightening on second-rate grocery brands over there. The weaker your brand, abruptly the extra weak you’re to paying for the privilege of remaining on the supermarket shelf.

Names like Shake ‘n Bake, Positive-Jell and Range Prime instantly signal how historic and knife-worthy much of the Kraft Heinz portfolio is.

Putting a noted marketer like Patricio into the large seat alerts that Kraft Heinz accepts much of the criticism that has been aimed on the company over its negligent strategy to model administration. His first enter to long-term marketing-led progress will paradoxically be the kill-list.

The company has round 70-something international manufacturers (tellingly, it’s arduous to be actual) and whereas that appears nice on the corporate website beneath the title ‘Beloved Global Brands’, it spells strategic disaster for the corporate. Totally different brands in several nations, cannibalisation, lack of focus, and inertia are just some of the various issues of an over-populated model portfolio and unclear brand structure.

Once I was a young advertising scholar the large international food corporations owned and operated a whole lot, typically hundreds, of brands the world over. In the present day, most of them, led by Procter & Gamble (P&G) and Unilever, have winnowed that portfolio down to double digits with often around 20 core brands as the main target for international operations and funding.

With a complete portfolio of 70-something brands it’s not that Kraft Heinz has too many manufacturers. However there appears to be a lack of readability about which brands are the core international brands. And there’s the sinking feeling that after Heinz and…er… [scans the list of brands again in increasing panic] this is very a lot a record of 20th century manufacturers whose greatest days are behind, not in front.

READ MORE: Is your brand portfolio match for function?

A special type of CEO

Patricio has already signalled that his experience makes him a very totally different variety of CEO from his predecessor. “My profile can help the future,” he lately defined. “It’s not about liking what happened, it’s about understanding the future. We need to lead, not follow”. That’s all properly and good.

However, regardless of how skilled the turnaround artists in cost, does he even have a portfolio that may be pointed in the appropriate path?

Patricio has also made a lot of the very fact his new employer owns the primary or number two brands in about 50 classes. True. However, with the exception of a few mega categories like ketchup, profitable in areas like fruit pectin, stuffing and seasoned bakery coating should really feel a lot like dropping. Names like Shake ‘n Bake, Positive-Jell and Range Prime instantly signal how historic and knife-worthy a lot of the Kraft Heinz portfolio is.

Wanting on the portfolio Patricio has inherited, the new CEO might simply off-load half the portfolio and nonetheless discover himself operating a second-tier operation. As CEO it is going to be his job to sanction which manufacturers ought to go, and which should remain and receive major refocus and reinvestment. Apparently, brands like Breakstone and Maxwell House are already on the front step of the divestment department, but many extra will want to comply with.

The entire state of affairs reminds me of a greater, American model of our own Premier Meals. A decade ago I began writing extremely unhelpful columns suggesting that while its new “star brand” strategy through which the company doubled down on its prime brands made sense, the flaw in this strategy was the company did not actually have any star brands.

I acquired a tremendous response from buyers who accused me of being a “muppet”. Later, when the corporate’s share worth dropped by greater than 99% in worth, I took absolutely no pleasure.

Kraft Heinz is not any Premier Meals, nevertheless. As an alternative of Mr Kipling we’ve Kraft. Hundreds of thousands of pounds develop into billions of dollars. However there’s that very same abject feeling that for all its heft, that is a company that merely does not have the manufacturers to prosper when it comes to model management.

I don’t doubt Patricio or the logic of placing a marketer in charge. Regardless of how good the new CEO turns out to be, the uncooked materials he’s chartered with reworking appear restricted.

Nothing stunts a model’s future greater than an amazingly successful past.

Mockingly, just as he is completing his kill record it’s probably Patricio may even be heavily concerned in acquisitions too.

One of the key benefits of model consolidation is that it additionally reveals categories and buyer segments where progress is possible however where no present Kraft Heinz brand presently operates. Patricio will want to use a marketer’s eye to spot the fitting manufacturers in the proper classes on the proper worth to guarantee the right offers are struck.

That’s not to say the prevailing, surviving brands will probably be left alone. The beginning of the issue for Kraft Heinz was the realisation that two of its largest manufacturers were not what they as soon as have been.

It’s the oldest story in branding. A scorching new model rises on a tide of innovation, it scales up and becomes an icon. Shoppers age. Time passes. Tastes change. New rivals arrive. The market evolves. However the model stays constant to its conventional formulas and operations and loses step with its target shoppers.

The very things that when made manufacturers like Kool-Help, Miracle Whip and HP Sauce so profitable begin to work towards the brand. They remain icons with lengthy and spectacular brand heritage.

But we put icons up on the partitions of monasteries, we don’t put them on the desk at tea time and eat them with vigour. If I needed to gown a movie set in the 1970s Kraft Heinz has all the things I want. If I would like to make dinner for my household tonight, not so much.

READ MORE: Kraft Heinz UK CMO on bringing ‘the magic’ again to advertising

Patricio claims his two watchwords in his new position are curiosity and velocity. He’s spot on. If Kraft Heinz had exhibited these traits earlier issues won’t now have grow to be so precarious.

Curiosity forces even the most important corporations to maintain asking the exhausting questions of themselves and their market. Velocity ensures the metabolism of a brand doesn’t sluggish to a funereal tempo. Nothing stunts a model’s future more than an amazingly profitable past. The trick for Patricio is to dare to problem and change some of the icons in his portfolio earlier than they get any dustier and extra weak.

There’s the urgent requirement for creativity – a Patricio speciality. For those who’ve spent the summer time learning hundreds of Effie instances, as I’ve, it turns into apparent that effectiveness has many mother and father. However the Massive Daddy and Prime Momma are scale and creativity.

Huge manufacturers get all the advantages of excess share of voice, present infrastructure and the deep pockets to guarantee scale efficiencies. Artistic manufacturers take pleasure in an unlimited maximiser effect across all their investments as ideas influence the market.

Kraft Heinz has the size however very little of the creativity. Positive, the new Ed Sheeran ad for Heinz Ketchup is a breath of recent artistic air. Nevertheless it’s virtually as meat and potatoes as the stuff our Ed splashes his sauce on within the advert.

The very fact the whole concept came from the singer (over Instagram) and never the corporate’s advertising staff speaks volumes.

Patricio will shake things up dramatically just as he did in the beforehand stale world of beer. However he needs to transfer fast to encourage his groups to take dangers and push arduous in phrases of product, advertising and all the other touchpoints.

In fact, by simply strolling via the door of the corporate’s Illinois HQ and taking his seat at the head of the company, Patricio has already made his largest influence on his new employer. The mega-write down sparked a hundred columns eager to painting the short-termism of 3G and the out of contact sensibilities of Warren Buffet. Kraft Heinz was, most columns concluded, not a place the place advertising and brand constructing have been the large focus any more.

By recruiting one of probably the most high-profile marketers in America, famed as a lot for his “Dilly Dilly” advertising as his consistent capacity to develop sales at AB InBev, Kraft Heinz has despatched a sign that they take advertising critically and are ready to spend money on the most effective to get it right. This message buys time with buyers and re-assures advertising talent that Kraft Heinz is a place to follow the darkish art.

Now all Patricio has to do is to justify the hype and pull this big mission off.