Kraft Heinz Plans $2 Billion in Cost Cuts
September 15 2020 - 8:00AM
Dow Jones News
By Annie Gasparro
Kraft Heinz Co. said it plans to cut $2 billion in costs over
five years, returning to the strategy that drove the company's
formation in a merger five years ago.
Chief Executive Miguel Patricio said in an interview that the
company would make cuts more strategically than during the tenure
of his predecessors, when the company's brands lost billions of
dollars in value. Mr. Patricio, who became CEO last year, said he
plans to use some of the savings to re-energize sales of certain
brands, increasing marketing spending by 30% overall. He said the
company would detail plans for the cuts and for brands it will
target for further investment in an investor presentation
Tuesday.
"In the past, we made decisions that were too short term," Mr.
Patricio said. "We are changing that mind-set."
During the coronavirus pandemic, Kraft Heinz's brands such as
Oscar Mayer deli meat and Kraft macaroni and cheese have benefited
along with those of other food makers from consumers stockpiling
groceries. Kraft Heinz has logged stronger sales growth in the past
six months than it has in years.
Still, the company has lost market share in some categories.
Analysts have said Kraft Heinz is losing shoppers to lower-priced
store brands of cheese, deli meat and coffee. That is hurting sales
of Kraft Heinz products including its century-old Maxwell House
brand.
Kraft Heinz recorded in July $2.9 billion in impairment charges,
which resulted in the company swinging to a loss in the second
quarter. The hit came after it had reduced the value of its assets
by nearly $17 billion last year. Kraft Heinz said at the time that
consumers had gravitated toward niche brands often viewed as
healthier or more innovative. The competition drove pricing lower
and pressured the company's margins.
Mr. Patricio has previously said that some brands could no
longer generate profit margins as high as they once did. But the
company as a whole won't have to sacrifice profitability for sales
growth, he said in the interview. "Do we need to reduce margins to
grow brands? The answer is no."
After the company was created in 2015 from the merger of Kraft
Foods Group Inc. and H.J. Heinz Co., executives spent several years
removing some $1.7 billion in annual costs through job reductions,
lower administrative costs, procurement savings and other
measures.
Mr. Patricio said he is reorganizing the company to be more
focused on fulfilling the needs of contemporary consumers. He has
brought in executives from other companies, including Carlos
Abrams-Rivera from Campbell Soup Co. to lead its U.S. business, and
leaders from J.M. Smucker Co. and Mike's Hard Lemonade.
Write to Annie Gasparro at annie.gasparro@wsj.com
(END) Dow Jones Newswires
September 15, 2020 07:45 ET (11:45 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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