Kraft-Heinz merger: Good news or bad news for agencies?

Recently Kraft and Heinz announced the merger of the two F&B companies to take on the title of the fifth largest F&B company in the world.

The combined entity, named The Kraft Heinz Company, will have revenues of about US$28 billion, with eight US$1 billion-plus brands and five brands between US$500 million to US$1 billion.

An article on Adweek shed light on the fact this may impact agencies negatively as the combined company will be spearheaded by a group known for its efficient cost-cutting measures. This was also further validated by the fact the company estimated that US$1.5 billion in annual cost savings were to be implemented by the end of 2017.

Is this good news or bad news for agencies? Agency leads have given mixed comments.

Marie Gruy, regional director of Carat Asia Pacific, said that as a part of the streamlined operations, there was always the looming possibility of agency consolidation. However, while cost savings are likely to be a focus for any global F&B company today, the silver lining remains there will be a strong focus on growth and expansion which is a core priority for this newly formed entity.

“Given this, innovation and good ideas will always still be welcomed, as long as they can be well quantified by partner agencies too,” Gruy said.

From an agency point of view, she explained that any company which has the capability to “substantiate its media efficiencies and contributions to the business in the shorter and longer term can only benefit further from working with newly created global entities”.

Thomas Sutton, country director of Landor Indonesia, was less optimistic.

“I doubt the merger will have a positive impact on anything other than for the new brand powerhouse being created. Clearly economies of scale will be of benefit in logistical areas such as distribution. This merger may give them more negotiating clout with retailers when negotiating product listing … will these economies of scale be passed on as price benefits to consumers? We can only hope,” he said.

“Unless there are clearly conflicting brands within the new merged portfolio, I doubt much will change. However, if cost-cutting is key we may see rationalisation of the individual brand ranges themselves – perhaps a reduction of the number of variants and SKUs some brands offer.

“Without a doubt, agencies will be affected by the merger. Some will lose out, but some may see their portfolio increase as the new entity consolidates their agency roster with fewer agencies.”

Meanwhile, Tom Child, senior consultant at Clear Ideas, also highlighted that when the merger was announced, share prices rocketed by up to 35%. This clearly demonstrated the consumer has trust in the stability and long-term success of these brands working together.

“The bigger challenge comes from a portfolio perspective and recognising where the international growth will come from. The merger provides a diverse portfolio of brands, which needs an efficient and effective approach to innovation in order to gain the return of growth the owners are clearly after,” Child said.

John Cahill, Kraft chairman and chief executive officer, who will become vice-chairman and chair of a newly formed operations and strategy committee of the board of directors, said that together the company would have some of the most respected, recognised and storied brands in the global food industry.

The combination, hence, will offer significant cash value to shareholders and gives them the opportunity to be investors in a company very well positioned for growth.