As it shrugs off successive quarters of Covid-induced sluggishness, Kraft Heinz, the maker of Jell-O and Philadelphia Cream Cheese, is beginning to see a turnaround to its operations. At the same time, it is increasing and shifting its marketing investments to regain lost ground. While the firm's net sales shrank marginally (by 0.5%) for the second quarter, it rebounded from a steep loss a year ago to post an operating profit increase of 192%. The company's commentary on marketing stood out in a call with analysts.
"Let me say that, first, we are excited about the changes that we have been making in our marketing programs and capabilities," said Miguel Patricio, CEO of Kraft Heinz. According to him, the firm is upping its marketing focus in three ways ways. First, it is increasing its marketing spend, second it is focusing on improving the efficiency of its investments and third, it is enhancing creativity.
"The first one is more marketing dollars," he said. "We have $100 million more in marketing than we had in 2019. And we said that we want to increase marketing moving forward. However, I think it’s not only about increasing marketing. It’s really about efficiencies. We are today achieving 30% more of our consumers with the same spend by doing better marketing, not only better marketing, but also better media."
Kraft Heinz said it is enhancing creativity through a hub strategy. "We started an internal agency in digital media in Canada in May last year," Patricio said. "And today, we have 12 of these internal hubs in different places covering more than 30 markets around the world."
The different pieces of Kraft Heinz's marketing machines are cranking up elsewhere too. In Q2, the firm executed nine co-branded culinary limited-time offers with quick-service-restaurant partners. "As consumers continue to evolve, how they cook and they eat and including the use of meal delivery kits, we’re actually inserting our Kraft Heinz brands into that equation," Carlos Abrams-Rivera, US Zone president, told analysts."So we are working with one popular direct-to-consumer company to develop things like a recipe specifically for our Philadelphia Cream Cheese as a main ingredient of their products, and that actual one product was ordered over 200,000 times—really an all-time record for that sales partner."
Kraft Heinz's optimism comes on the back of a quarter where its business stabilised and profits grew, even as it managed some increases in prices. "We posted sustainable top-line and bottom-line gains versus ’19, and we are encouraged because the strongest growth comes from priority platforms and markets, what we call the growth platforms, Taste Elevation and in emerging markets, and we continue to see retail very strong and we are coming back with food service," Patricio said. "It’s recovering and recovering fast."
Despite this optimism, there are some challenges facing Kraft Heinz, such as increasing raw materials costs and supply-chain constraints imposed by the pandemic. The company is yet to firm up how sustainable this recovery is and whether it is strong across both homebound consumers and those back out in the world.
The company expects it will deliver 2021 profit ahead of its strategic plan and above 2019's level. For the third quarter, it expects a mid-single-digit percentage increase in organic net sales, year over year.