Kraft-Heinz: $15bn down, rejects more cost-out
By taking a $15bn impairment charge, Kraft Heinz is admitting its brands are worth a lot less than they thought they were. Who’s eaten the food conglomerate’s lunch? (Marketing Week)
Mark Ritson fingers the key culprits:
- Reduced marketing spend since merger (10% year-on-year in US)
- Direct-to-consumer competition, though "the jury is still out on how much is genuine threat and how much is overstated bullshit".
- Own brands/private labels
- Changing consumer tastes
Ritson deduces that in this instance, failure has many fathers, all of the above colluding to leave Kraft Heinz in 57 varieties of trouble.
Lessons here for all in how consumer brands are behaving under new pressure. Ritson makes sound points, as usual. The last two factors in his piece - own brands and changing consumer tastes - are intrinsically linked. They present the biggest existential threat to Kraft Heinz and the broader CPG sector.
In Australia, Aldi has changed consumer perceptions of own brand, in the process building up almost 13% market share and driving Coles and Woolworths to invest heavily in private labels. Own brands now account for around 25% of all supermarket sales, equating to a $22bn Australian market.
Crucially, supermarkets make much higher margins on private labels, meaning the trend is only going one way: Coles is aiming for 40% sales to be own brand by 2023; it launched 442 new lines in the first half of 2018 alone, touting a "step change in quality and innovation" to investors.
Better quality means shoppers are more likely to try more own brand products, fuelling growth. Crucially, supermarkets don't have to make $15bn goodwill write-downs if shoppers' tastes change – just create new own brand products to meet those tastes.
For media owners, it theoretically should be win-win: CPG must spend on product innovation and marketing to maintain share, but own brands are now big brands in their own right – they need to fight for attention too.
