Kraft Heinz is having another “brand-wagon moment.” Its new CEO, Steve Cahillane, announced that the organization would be postponing the previously announced split into two separate companies. This was a split that Wall Street hailed as marvelous. CEO Cahillane believes that a resource-funded focus on its stable of core Americana brands – getting back on the brand wagon – can bring Kraft Heinz back to profitability and, hence, generate shareholder value. Shareholder value has been lacking since the fabled merger of Kraft and Heinz. This “pause” in the expected split coincided with fourth-quarter earnings that fell short of analyst expectations, including a 4.2% drop in organic revenue and a weak outlook for 2026.
Is this pause a mere delay of a financial strategy? Or is the pause actually a meaningful discontinuation of a financial strategy?
Not a surprise that the Wall Street debut of the two companies has not happened.
Kraft Heinz’s track record on its stable of brands has been a classic case of brand mismanagement for more than a decade. The Kraft Heinz brands have lost a massive amount of value through mergers, splits, and financial shenanigans.
- In 2010, Kraft purchased Cadbury, the British confectioner.
- In, 2011, Kraft split into two companies. A snack company and a confections company. The confectionery company would be known as Modelez International., based in the UK
- In 2015, Brazilian investment firm, 3G Capital, with the assistance of Warren Buffet, acquired Kraft and merged Kraft with Heinz.
3G Capital owns or has huge stakes in a lot of big global brands: Burger King, Popeye’s, Tim Horton’s, AB InBev. 3G Capital has a management approach that shovels cash to shareholders. It is called zero-based budgeting. Wall Street was always in heaven when it came to the 3G brand portfolio’s performance.
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At the time of the Kraft Heinz merger, the new management team at Kraft Heinz promised that strategic plans would increase profit margins over the next few months by eliminating around $1.5 billion in costs from the newly combined budgets of both companies.
The romance between Wall Street and 3G Capital follows the lyrics of the Frank Loesser song, Sue Me, from Guys and Dolls:
You promise me this, you promise me that
You promise me anything under the sun
Then you give me a kiss,
And you’re grabbing your hat
And your off to the races again
Dancing in their dreams of avarice, executives, observers, analysts, and the rest of the financial community ignored the damage that zero-based budgeting was inflicting on the Kraft Heinz brands. The promised wealth accumulation never happened.
Rather than detailing the brand mismanagement, keep in mind the bottom line: Kraft Heinz brands suffered for years, lost market share, lost customer-perceived value, and, hence, shareholder value. COVID-19 was not the cause of Kraft Heinz’s brands’ decline. Some of the blame goes to flawed strategies where Kraft Heinz raised prices post-pandemic on its now customer-perceived, less valuable brands. However, it was zero-based budgeting that starved Kraft Heinz brands of customer research, innovation, renovation, and other marketing, causing the problems.
Mr. Cahillane was hired from Kellogg to manage a split into two publicly traded entities. (Kellogg had recently and successfully split into two companies that were both scooped up by larger, global entities.) But apparently, the wounds of zero-based budgeting left a portfolio of Kraft Heinz brands that were not attractive to investors.
Perhaps the full understanding of the weakened state of Kraft Heinz brands became a serious roadblock for a potential split. As some observers opined, the goal of the pause aims “to stabilize Kraft Heinz brands before considering further restructuring.” In fact, after Mr. Cahillane’s statements on the pause, Kraft Heinz shares fell approximately 5–6%, indicating that investors are concerned that Kraft Heinz’s brands might not be strong enough to generate shareholder value and operate as two standalone, public companies.
Regardless, it is important to parse what Mr. Cahillane has recently stated. This is not nitpicking. What he said is extremely important for branded portfolios. What Mr. Cahillane said is a crash course in potential troubles: for the Kraft Heinz brands and for Kraft Heinz shareholders:
“We are confident in the opportunity ahead and believe this investment ($600 million in marketing, sales, and product development) will accelerate our return to profitable growth.”
- “Profitable growth.” The goal for all brands must be enduring, profitable growth. Brand business is not a horse race. There is no Win, no Place, no Show. Brands need all three elements: enduring, profitable, and growth. Growth that is not profitable is a hobby. Enduring growth without profit is a road to commodity corner: big and getting bigger, but no profits. Like Amazon in its early days. But Kraft Heinz is not in its early days. Nor is it Amazon. Kraft Heinz says the goal is profit now. Profitable growth that is not enduring is short-term, great for shareholders, not so much for brands, stakeholders, and customers.
Zero-based budgeting ensured that resources would not be allocated to long-term growth, just short-term profits. Of course, a brand needs both short-term and long-term strategies because if the short term is ignored, there will be no long term. However, without long-term strategies, there will not be enduring profitable growth.
- Quality revenue growth. No mention of this critical issue. There is quantity of growth, and there is quality of growth. A brand needs both. Right now, based on Kraft Heinz’s statements, the focus is on the immediate pace of growth. Quality revenue growth requires a focus on customer needs and problems, leading to a relevant, differentiated brand promise that aligns with the expected brand experience. If the customer loves the promised brand experience, the brand becomes the preferred brand. Brand preference leads to more customers who buy more often, becoming more loyal. These frequent purchasers are loyalists who grow share and demonstrate lower price sensitivity, which, in turn, leads to increased revenues and sustainable, profitable shareholder value.
- $600 million allocated to marketing, sales, and product development. Great idea. However, when it comes to brands, short-term seems to get in the way of long-term. This means that areas such as sales take precedence. Which means more discounts and deals. Product development is critical. But product development takes time, as does brand-building. Mr. Cahillane states that the focus is on immediate profits and growth. Brand-building of the magnitude needed at Kraft Heinz, because of the number of brands affected, may be given the short straw when it comes to resource allocation. The mere fact that shares dropped after the announcement means that investors are concerned about the strength of the brands. Each Kraft Heinz brand must have a relevant, differentiated set of characteristics. Relevant differentiation is how brands compete. Commodities compete on price and convenience. Advertising alone cannot fix a brand’s promise. Telling isn’t selling.
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Peter Drucker, the respected management guru, once said, “The purpose of business is to create a customer.” Years of brand mismanagement led to Kraft Heinz brands losing customer focus. The future belongs to customer-focused businesses that are best at attracting and retaining customers, resulting in sustainable, profitable share growth. Going for immediate profitable growth may stop the bleeding, but brands need both short-term and long-term strategies.
Contributed to Branding Strategy Insider by Joan Kiddon, Partner, The Blake Project, Author of The Paradox Planet: Creating Brand Experiences For The Age Of I
At The Blake Project, we help clients create meaningful differences that increase value and underpin competitive advantage. Please email us to learn how we can help you compete differently.
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