In March this year Forbes published an article by Robert C Walcott (Clinical Professor of Innovation and Entrepreneurship at the Kellogg School of Management) which explored the trials and tribulations experience by Kraft Heinz under the leadership of 3G.
In the article Walcott confirmed what many in the industry had long suspected that by focusing on cost reduction across the Kraft Heinz portfolio, profits would not necessarily increase. 3G built the acquisition plan of Kraft Heinz on what they believed were two immoveable objects. The first being that the portfolio largely consisted of ‘forever brands’ and secondly that there would be no change in the market trading conditions of shopper behaviour. At least that was the plan.
In August 8th, 2019 the Kraft Heinz roller coaster was heading towards a cliff. Whilst the newly appointed CEO Miguel Patricio was giving a much anticipated first conference call to the financial markets, the share price tumbled 16%. In 15 minutes, the rollercoaster that running over the cliff. Wall Street had finally lost faith. During the call Patricio detailed the problems but didn’t offer a solution. If any of us had been in the job for only 5 weeks we all would have found that challenging. Could anyone provide an optimistic outlook to a $20 billion business that was floundering? Probably not.
In being appointed Kraft Heinz CEO Patricio had been given a hospital pass. With 30 years’ experience with 3G and latterly being credited with turning around Anheuser-Bausch, Patricio by successfully integrating the SAB acquisition Patricio’s credibility was sky high, having led the continued financial growth of the global Beer juggernaut. But even with a stellar reputation like Patricio’s he could not shore up the decline Kraft Heinz was experiencing so soon in his tenure ship.
3G and Berkshire Hathaway had known for some time that they had bitten off more than they could chew. But they were joined at the hip even when Berkshire Hathaway had offloaded 7% of its stake six months previously. The problem was no one had planned for change, even though it had been sign posted 5 years previously by many industry commentators including ourselves. The change came in the form of the disruptors who took larges slices of the shelf away from the portfolio of legacy brands in the Kraft Heinz arsenal.
In the time that Kraft and Heinz had merged great pools of talent had left the company, the accountants had tightened their grip on operational creativity and NPD was consigned to creating yet even more types of Heinz Ketchup. There are now 22 Tomato Ketchup varieties!
In the excitement the previous leadership team had lost sight of the one determining factor that generates a successful business… know what your customers want?
Never has the saying “Start with the end in mind” be more important. Had 3G and Berkshire Hathaway invested in some robust and compelling market analysis they may have recognised that the investment assumptions were built on sand.
Many of us were writing about the changing shape in consumer behaviour for a number of years. At Big River we first published these three articles in 2012 2010 and 2008 when niche brand was just starting to capture the consumers imagination.
So what happened at 3G? The problem was the leadership team didn’t have a clear vision of where the Kraft Hienz could grow. There was little or no consideration given to the vision across multiple categories. If there was a clearly identified set of drivers they were not understood or embedded across the operational units. Without understanding the workforce, the investors had little confidence that the business was focussing on the areas of growth.
The case of Kraft Heinz points to the need for people to have a good grasp of their future ambition if they are to answer the question “How much do we want to invest in this business?” In this case, Kraft Heinz did not have a strong understanding of their future. On closer examination it could be argued that 3G assumed they could overcome a set of circumstances they didn’t fully appreciate. The backup plan was simply to rely on clever accounting to justify the investment.
We would advocate that any company considering their future investment should have a robust vision and drivers as these are critical to that decision….. and we help deliver that through our model – Hindsight, Foresight, Insight.
“It’s time for insights that deliver growth and a future” is how our CEO Christine Edwards introduces the concept of change to our clients. Without a plan and a commitment to execute, the payback will not be released.
We encourage our clients to focus on the issue that adds value and delivers lasting capability.
“We teach you to fish we don’t catch the fish for you.” Experience has taught us that any leadership team needs a holistic understanding of their business and this starts with insights.
It’s time for Kraft Heinz to invest in the future. It’s time to throw away the old play book and re-invent a $20 billion business into an agile and disciplined entrepreneurial culture where NPD and commercial excellence thrive.
We know that performance is delivered through measurement, feedback and build. There is always time to reset. As Kraft Heinz have confirmed to their investors there is never time to chase the wrong target.