Kraft Heinz to shift more dollars to media, 'frenzy of innovation' too cannibalistic

Kraft Heinz will see a "significant percentage" increase in media spend and an "even greater" increase for the brands that are the biggest drivers of its profitability in 2020, said CEO, Miguel Patricio in the third quarter earnings call.

This comes as?Patricio seeks to define the marketing framework and optimal marketing spend.?He said: "So far, we identified the opportunity to reallocate a substantial amount of dollars to work in within 2020, as well as redirect dollars disproportionately toward support of our flagship brands."

According to him, Kraft Heinz has began to see results from its increase in marketing and eCommerce spending from the previous year. It includes investments in sales and customer service. However, while the company's overall performance is improving, numbers are still negative versus the prior year, and performance remains uneven across categories and geographies.

"To change our trajectory, we must improve our execution around the category, brand and sales initiatives by making critical fixes and closing any capability gaps; and drive greater efficiency in our supply chain across procurement, manufacturing and distribution," said Patricio. Therefore, in 2020, Kraft Heinz will focus on developing nine "transformational projects". Five projects of them are focused on top line, two are focused on operational efficiencies, and two are focused on organisational effectiveness.

Meanwhile, it is also working to?revamp its product development process to be faster and more consumer-centric with new products. Innovation will also be shifted to support "fewer, bigger, better" initiatives and launches that are more incremental to company's base. As a result, in 2020, Kraft Heinz will reduce the number of projects being launched by half.

Patricio said the company's "frenzy of innovation" in the last two to three years to compensate the decline in net sales has not been successful. He explained:

We brought a lot of complexity to the system but this innovation was not translated into additional sales.

"It was very cannibalistic and brought much more complexity. And as a consequence, a lot of supply chain losses and lower margins," added Patricio, who joined Kraft Heinz in July.?Believing that innovation is a big driver for growth for the future in the food industry, Patricio said that innovation in the company has to be reduced to focus on bolder and more profitable ones.

Patricio's focus on?investment in core brands was first revealed in an earnings call in August. He had also announced plans to?redeploy media ?inefficiencies? in agency fees, production, research, product development. Kraft Heinz has?made a number of moves to enhance its leadership team, both at the global level and within business units. They include the promotion of Kraft Heinz Canada president?Nina Barton to chief growth officer in September. In addition to leading the development of our enterprise strategy,?Barton is tasked to oversee the overall channel growth, global eCommerce and digital innovation, marketing services and R&D.

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