What brands can learn from Kraft Heinz's reckoning

Or why you can't drive growth by cutting costs

By Published on .

Credit: Mary Ellen Forte

Anyone who has ever waited impatiently as they banged on a bottle of Heinz ketchup to get that first drip can appreciate how agencies feel about Kraft Heinz as an early adopter of so-called "zero-based budgeting."

Kraft Heinz looks a lot like those ketchup bottles: doing everything in its power to hold back every drop of money. It's frustrating. Just as we know how that zing of ketchup would taste so good on that burger, we understand that great advertising can change the fortunes of brands.

Now Kraft Heinz is facing a reckoning. It's been coming for a while. Yes, the $15.4 billion write-down on the value of its Kraft and Oscar Mayer brands prompted a nearly 30 percent drop in its stock price last month, but it has also seen profits drop over the past two years.

You simply can't drive growth by cutting costs. In today's hyper-competitive environment, you can't even maintain the status quo by cutting costs. If you let procurement drive your bottom line, you're going to drown. That's not the zing we were looking for.

Companies don't have the luxury to avoid investing in building their brands. The fact that divided audience attention makes reach and frequency harder to achieve doesn't make them less necessary to support growth. The need for creativity to make an impact is more important to invest in than ever before.

Slashing budgets seemed like such a bright idea in the years following the Great Recession, when CFOs became the alpha dogs of the C-Suite. Forget about not knowing which half of your advertising budget is a waste of money—let's make sure every dime has a predictable, quantifiable ROI.

This sounded like such a good idea that the great houses of traditional brands lined up to follow suit. Mondelez, Unilever, Kellogg, Campbell Soup and General Mills jumped on the bandwagon. But who were they following?

Last April, Jorge Paulo Lemann, the co-founder of 3G Capital, the company that bought Heinz and orchestrated the ensuing shift to zero-based budgeting in 2015, called himself "a terrified dinosaur."

"We bought brands and we thought they would last forever," lamented Lemannosaurus.

How many more write-downs and stock drops are we going to see from these companies? How many will find themselves extinct?

I'm not being dramatic. The need to invest in branding will be even more urgent a decade from
now as digitally enabled commerce becomes mainstream.

More than a quarter of Americans have a smart speaker in their homes. We're just starting to ask Alexa to put things on our shopping list, but it will soon be second nature. When online grocery shopping scales, if people don't call out your brand by name, they're not going to be buying your brand.

So, what can brands do to stave off disaster?

First, they can stop killing themselves with too much ad targeting. Growth comes from new customers. They need to reach broad audiences and they need to make an impression. Kraft Heinz seems to have gotten the memo and invested in this year's Super Bowl, with spots for Planters and Devour.

Second, brands need to listen to consumers. Kraft Heinz CMO Eduardo Luz wrote in a blog post on LinkedIn at the end of January that "marketers are encouraged to take risks and try to achieve extraordinary things, as long as they have a solid plan backed by consumer insights." He pairs this with the notion of being "timely in culture." It's a good recipe.

Kraft Heinz's success with the launch of Mayochup (mayo and ketchup mixed together) is an amazing example of this. It used social listening to learn that people in the U.K. were talking online about a product that was only available in the Middle East. It launched a Twitter Poll asking if people wanted it locally, got more than a million votes (55 percent said "yes"), a billion impressions in 48 hours, and raised awareness of Heinz Mayonnaise 28 percent to boot. All over Mayochup. Zing!

Finally, brands need to commit to investing in brand health for the long haul. Short-termism is a menace. It leads to myopic decision-making and has the potential—as Kraft Heinz learned—to be catastrophic.

Drips and drops just don't cut it when it comes to ketchup—or to branding.

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