Kraft Heinz appoints new CEO as it shifts from slashing costs

The company has been facing scrutiny from investors as sales continue to decline and the SEC investigates internal policies. ‘The CEO’s first concern has to be people,’ Kraft’s new chief said.

Kraft_Heinz_CEO

As debt mounts and sales slump, The Kraft Heinz Company is hoping a new chief can help lead the company in a different direction.

On Monday, Kraft Heinz announced that its chief executive officer, Bernardo Hees, is stepping down. Miguel Patricio, former chief marketing officer for Anheuser-Busch InBev, will take over the position effective June 30.

The company touted Patricio’s career accomplishments as it announced the change.

In a press release, Kraft Heinz wrote:

“Miguel is a proven business leader with a distinguished track record of building iconic consumer brands around the globe, driving top-line revenue growth through a focus on consumer-first marketing, innovation, and people development,” said Alex Behring, Chairman of Kraft Heinz’s Board of Directors.

“I want to personally thank Bernardo Hees for leading the Company through its first phase,” said Marcel Herrmann Telles, a member of Kraft Heinz’s Board of Directors. “I’ve worked with Miguel over the course of the past 20 years, and he is a natural business leader. From attracting and nurturing the best talent to leading the turnaround of the AB InBev China business into the phenomenal success it is today, Miguel has one of the best brand-building minds in the industry.”

Even if Patricio has one of communications’ “best brand-building minds,” the new Kraft Heinz chief faces many challenges as he moves the company’s focus from cost-cutting to innovation and reinvests in employees.

Reuters reported:

Kraft Heinz’s focus on cost-cutting and interest in scoring a big acquisition have been key to the company’s strategy under management installed by Brazilian private equity firm 3G Capital. 3G, along with Warren Buffett’s Berkshire Hathaway, forged the $49 billion merger of Kraft Foods with H.J. Heinz in 2015.

“I think the obsession for efficiency has to be much bigger than the obsession for cutting costs,” Patricio, 52, told Reuters on Monday.

“Cost cutting should be a priority for any company. However, you cannot cut costs every year,” said Patricio, who most recently was the global head of marketing for brewer Anheuser-Busch InBev’s. He previously worked at Philip Morris, Coca-Cola Co and Johnson & Johnson.

Patricio looks to offer a new path to save Kraft Heinz’s sinking ship.

IndustryWeek.com reported:

3G’s managers are known more for cost-cutting than nurturing brands, and after merging H.J. Heinz and Kraft Foods, Hees led the effort to slash nearly $2 billion in expenses at the combined company. That included shedding thousands of jobs and shutting factories as profit margins grew and the company’s shares surged north of $90. But without an acquisition that would have allowed the signature cost-cutting to continue, the spotlight turned to the company’s struggle to grow sales with a portfolio of brands that is considered out-of-step with modern tastes, particularly in the U.S.

Kraft Heinz’s stock also fell, along with investors’ trust, after the company announced it was being investigated by the Securities and Exchange Commission.

CNBC reported:

The iconic food company’s stock, which has a market value of about $40.2 billion, has fallen more than 43% in the last year as it struggles to keep up with changing consumer tastes and stiff competition from new brands. Sales have grown stagnant, and its cost-cutting has recently fallen short, especially as commodity costs increase.

In February, the company revealed that it had received a subpoena from the Securities and Exchange Commission four months earlier related to its accounting policies and internal controls. It further disappointed investors with the news that it slashed its dividend by 36% and took a $15.4 billion write-down on Kraft and Oscar Mayer, two of its biggest brands. It also announced revenue and earnings that fell well short of Wall Street’s estimates.

Patricio must also overcome growing industry challenges with consumer preferences along with executing new business and marketing strategies.

KFGO reported:

“The change at the top of Kraft Heinz is a positive development,” said Roosevelt Investment Group fund manager Jason Benowitz, which previously held a stake in Kraft Heinz.

“It shows that management and the board understand the serious nature of the challenges facing the company. Kraft Heinz … cannot further cost cut its way to prosperity.”

The Washington Post reported:

… Kraft Heinz needs to turn its focus to reinvigorating its brands, some of which have been losing favor with millennials who want less-processed and more on-the-go foods from upstart businesses. But if the Budweiser parent is proof of Patricio’s success, it’s worth noting that the company is still struggling with many of the same challenges as Kraft Heinz: lots of debt, a dividend cut and a target customer more interested in craft beers.

Barron’s Teresa Rivas wrote:

Kraft doesn’t exist in a vacuum, and its problems are playing out amid a broadly uncertain macro backdrop for consumers companies. Staples are just one of many sectors that have had to deal with disruption, from e-commerce to increased environmental awareness. And consumers’ evolving tastes and habits means that old stalwart companies can’t simply hope to ride out the storm on the back of brand loyalty.

Packaged food companies like Kraft have been especially vulnerable to this, given that more shoppers are opting for healthier, greener, and more organic options than those packed with preservatives and unpronounceable ingredients.  Velveeta may now include varieties with broccoli and whole grain pasta, but Kraft has more work to do in persuading consumers that they’re the best choice.

The deep cuts at Kraft Heinz might have led to delectable dividends, but the staff reductions (particularly in the marketing department) has arguably weakened the company’s ability to compete.

Rivas continued:

At some point, cutting marketing becomes a self-fulfilling prophecy. While reported numbers aren’t directly comparable—expense categorization varies by company—the general trend indicates that too much has been cut from Kraft’s marketing budget.

However, if Patricio’s interview with Reuters is an indication, the new chief is up for the challenge.

“I need to almost be an evangelist in the company,” Patricio said. “The CEO’s first concern has to be people.”

What do you think of the company’s new direction, PR Daily readers?

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