The Kraft Heinz Debacle – A Cautionary Tale of Brand Survival

The following is a playbook on how to destroy a brand.

“My bologna has a first name, it’s O-S-C-A-R…” If you can finish the song, chances are you were born before the 1990s. This jingle was firmly lodged in the brains of every American before the formation of Nirvana, but since then the hotdog giant has severely eroded its market share—and it’s getting worse. In the last 3 years, they’ve essentially killed the brand, and it’s not just because they’ve dramatically cut spending in mass media, they’ve lost touch with consumers altogether.

In February of this year, Kraft Heinz (Oscar Meyer’s parent company) released their Q4 earnings report. Though organic sales had a solid net increase, Kraft Heinz and Oscar Meyer reported a net loss of $12B—about half of their annual net sales.

In June of 2013, Kraft Heinze was partially acquired by the global investment firm 3G Capital. 3G uses a strategy of aggressive cost-cutting to derive value. Cutting overhead and salary is certainly one way to approach running a business.  However, to expect that strategy to be successful in the long term while simultaneously ignoring fundamental marketing principles is surely foolish. The Wall Street Journal concurred calling the “experiment” in radical cost-cutting a failure.

As Mark Ritson notes in this excellent article, there were likely many causes of the loss and we won’t oversimplify by pointing to any individual factor as the cause. But, a couple of things are clear. First, while the brands in the Kraft Heinz portfolio may be strong to the point of being iconic, we see evidence that being a ‘big brand’ (an aspiration for many performance marketers of direct brands) does not, in itself, guarantee success.

Second, it’s worth noting that, with 3G’s zero-based budgeting approach, Kraft Heinz cut deeply from their TV and radio budgets. Budgets in 2018 were down about 50% from 2016. This flies in the face of the increasingly voluminous data from the most reliable, scientific sources1,2,3 in marketing, which converge on the understanding that broad-reach media is essential for success and particularly for long-term growth. Compare this to the offline media spend of Amazon, Google, and Facebook, which have increased steadily and sharply across the last 6 or more years. In an increasingly difficult world to buy mass reach, TV and radio remain powerful ways to touch the consumer.

*Source Kantar 2019

3G’s reduction in spend for Kraft Heinz ignores the SoV-SoM principle. Share of Voice (SOV) is typically required to maintain market share. Spending over or under the point of SOV equilibrium is typically associated with gain or loss in market share respectively. By cutting offline spending in half, Kraft Heinz set themselves up for a loss in market share. This exacerbated all the other problems they were facing.

But perhaps an equal factor in their demise is that these brands failed to meet the changing needs of their customers. Mass-produced food and ‘mystery meat’ are antithetical to the prevailing food trends of the 21st century. It’s a simple fact: cost-cutting will get you nowhere in the long run if you are ignoring your customer’s preferences. And, while we and our clients talk a lot about performance and brand, a culture of customer focus is surely a foundational asset that supports success in both disciplines.

For the long term health and survival of your brand, let this serve as a cautionary tale of the distinct difference between pruning for optimization and removing vital organs altogether. Even ubiquitous brands need to maintain media spend and adapt to consumer trends if they want to maintain their market share. In short, Kraft Heinz made a difficult situation worse by ignoring these key marketing rules. Are you considering a path whereby you cut your way to success? If you’re looking for a more balanced approach whereby you minimize bloat and improve efficiency in your media investments, perhaps we can help.

1 Marketing in the Era of Accountability, Les Binet & Peter Field

2 The Long & The Short of It, Les Binet & Peter Field

3 How Brands Grow, Byron Sharp

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