Kraft Heinz plans to cut agency relationships in half and boost media spend by 30 percent
Kraft Heinz plans to slash the number of creative and design agencies it works with by half and boost media spending by 30 percent, as it looks to return to sales growth after a rough year.
“Knowing you have problems is the first step,” CEO Miguel Patricio, who was brought in last year to revitalize the food company, said on a conference call.
Kraft Heinz, the marketer of foods including Heinz ketchup, Kraft cheese and Planters nuts, ended 2019 with its fourth consecutive decline in quarterly sales. And the company said it took about $666 million in non-cash impairment charges during the quarter, including about $213 million to lower the carrying amount of the Maxwell House trademark. It took billions of dollars in charges earlier in 2019 to write down the value of assets including the Kraft and Oscar Mayer trademarks.
Kraft Heinz said it would lay out its long-term strategy in early May, not in March, as some had anticipated. But it did offer glimpses into its approach with comments made Thursday.
Plans include cutting the number of agencies Kraft Heinz works with by half, Patricio said. A slide shown during his comments noted that its relationships with 36 creative and design agencies would drop to 19. Agencies were not mentioned by name.
Kraft Heinz also plans to boost working media spending by 30 percent this year. In October, Patricio had said that Kraft Heinz planned to boost media spending by a significant percentage, particularly on brands that are big drivers of profitability.
“In 2020, we will be redirecting dollars disproportionately toward support of our flagship brands,” Patricio said Thursday.
Already this year, the company has supported two of its older brands with Super Bowl commercials. Creative work for Heinz was done by Wieden & Kennedy New York. The Planters Super Bowl campaign came from VaynerMedia. Planters killed off the spokescharacter Mr. Peanut leading up to the Super Bowl, then brought him back to life in the form of Baby Nut, drawing plenty of attention on social media.
Patricio didn’t refer directly to those ads during the hour-long call with analysts, but he did mention nuts, saying the company needs to resolve service issues in two businesses: U.S. nuts and foodservice. In nuts, the issue wasn't with Mr. Peanut marketing, but rather was a bottle supply issue that Kraft Heinz said it believes has been resolved. Patricio also said Kraft Heinz lost share in cold cuts, natural cheese and coffee in the U.S. “for reasons we expected.”
The company also plans to significantly scale back the number of innovation projects it works on, hoping that fewer, more-focused efforts lead to bigger payoffs. In coffee, it said it aims to stabilize the Maxwell House brand, invest in and grow its higher-end Gevalia brand, and launch a new Ethical Bean brand in the U.S.
Fourth-quarter sales in the U.S., its biggest market, fell 2.7 percent to nearly $4.7 billion. Kraft Heinz raised prices to mitigate higher costs for dairy and meat and pulled back from significant promotional price cuts a year earlier. It sold less cheese, coffee, cold cuts, and bacon to U.S. retailers but sold more condiments and sauces.
Total sales fell more than 5.1 percent in the fourth quarter of 2019 and 4.9 percent for the year. So-called organic sales, which strip out the effects of things such as currency fluctuations and any acquisitions and divestitures, fell 2.2 percent in the quarter and 1.7 percent for the year.
“Overall it seems as though the path to ‘best in class’ financial performance may be a long one from here,” Bernstein analyst Alexia Howard wrote in a research note.
Shares of Kraft Heinz fell 8.8 percent in Thursday trading.