Large CPG Companies Continue to Pivot

white and red labeled pack on shelf

Kraft Heinz plans to cut $2 billion in costs over five years, reported The Wall Street Journal (Sept. 15).

The company will be making cuts more strategically than in the past, according to CEO Miguel Patricio. Patricio plans to use savings to re-energize sales of certain brands—increasing marketing spending by 30% overall.

“In the past, we made decisions that were too short term,” Patricio said. “We are changing that mind-set.”

Patricio said he is reorganizing the company to be more focused on fulfilling the needs of contemporary consumers.

During the pandemic, Kraft brands such as Oscar Mayer deli meat and Kraft macaroni and cheese have benefited from consumers stockpiling groceries—causing the company to log stronger sales growth in the past six months than it has in years. However, the company lost market share in some categories. It is losing shoppers to lower-priced store brands of cheese and deli meat, according to analysts.

The Wall Street Journal also reported on Sept. 15 that the company is selling its U.S. natural-cheese business to Groupe Lactalis SA for $3.2 billion. The sale to the French company includes some of Kraft Heinz’s U.S. and international cheese brands, and is part of its simplification efforts

“We wandered away from the consumer,” said Kraft Heinz chief growth officer Nina Barton. “We are rebuilding the connection.”

The sale will include Kraft shredded and blocks of cheese and the Cracker Barrel brand in the U.S., Breakstone’s cottage cheese and sour cream, and some other assets. Kraft Heinz will keep Philadelphia cream cheese, Velveeta, Cheez Whiz and Kraft Singles in the U.S. It will also retain its macaroni-and-cheese business world-wide.

The Lactalis deal comes as Kraft reorganizes its business under six new platforms that it says are more focused on what consumers want, such a as more convenient meals and snacks, instead of 55 different grocery categories.

When the pandemic hit, Kraft had just begun overhauling its portfolio of dozens of brands. Other CPG companies, such as Mondelez and Unilever, have also made significant divestures in recent years to better focus operations.

In July, Bloomberg reported that Mondelez planned to eliminate a quarter of its products to streamline manufacturing during the pandemic.

“That’s always a discussion in a company like ours, that we have too many flavors, too many sizes and so on,” said CEO Dirk Van De Put. “This is the moment to drive that.”

Additionally, in the same month, it was revealed that Unilever would spin off its tea business, which includes brands such as Lipton and Brooke Bond, but it will retain its tea businesses in India and Indonesia as well as the partnership interests in ready-to-drink tea joint ventures, reported BBC.

“The balance of Unilever’s tea brands and geographies and all tea estates have an exciting future, and this potential can best be achieved as a separate entity,” the company said. “A process will now begin to implement the separation, which is expected to conclude by the end of 2021.”