Kraft Heinz Seeks $2 Billion Cost Reduction, Hopes Suppliers Can Ketchup
Kraft Heinz, producer of iconic food brands such as Jell-O and Grey Poupon — and, of course, Heinz Ketchup and Oscar Mayer hotdogs — is taking a hard look at its supply chain to improve efficiencies and reduce costs.
CEO Miguel Patricio today unveiled a sweeping transformation of the company that includes a massive investment in marketing and a reimagining of its old portfolio of more than 55 individual categories. This involves moving brands into 6 portfolio platforms based on “real consumer needs,” such as “Easy Meals Made Better” and “Flavorful Hydration.”
“We are placing the consumer at the center of everything we do,” Patricio said. “[We are] leveraging our greatest assets, strengthening our partnerships, generating fuel that funds growth investments like our 30% increase in marketing spend, and creating a clear path to rebuilding Kraft Heinz into the industry leader we have the potential to become.”
Kraft Heinz said it also wants to create a “fast, adaptable, integrated supply chain with greater visibility.” To that end, the company seeks approximately $2 billion of “gross productivity efficiencies to offset inflation and critical investments to support … growth initiatives” through 2024.
“We are totally rethinking our operations in manufacturing logistics and procurement — it is absolutely critical because in the five next years, we are going to improve our operations big-time,” Patricio said. Most of the cuts will be on the procurement side.
However, it doesn’t sound like Kraft Heinz intends to squeeze its suppliers like a bunch of ripe tomatoes. In comments made to Reuters, Patricio shared that the company also wanted to build better relationships with vendors.
“When you cut costs too much, actually your costs increase because you lose efficiencies,” Patricio said. He told Reuters that Kraft Heinz will work with suppliers, transportation and logistics companies to improve their productivity. Formerly, he noted, “We had a very transactional relationship with our suppliers.” However, Kraft Heinz views them as “part of the equation to find solutions to improve productivity in our factories,” he said.
Patricio described the company’s overall performance as “stronger than expected and, as a result, we are updating our outlook for the third quarter and full-year 2020 with expected 3Q 2020 organic net sales growth in the mid-single-digit range versus the prior-year period.”