At the beginning of 2020, Kraft Heinz embarked on its multi-year transformation supported by a new operating model and platform-based prioritization of its portfolio, which has been divided into four segments: fast fresh meals; taste elevation; easy meals made better; and easy indulgent desserts.
"Our retail market share has continuously improved over the course of the year. What is most encouraging is that these trends are broad-based, with more than 70% of our categories experiencing positive trend bends in Q4 led by Heinz Ketchup and Lunchables, each picking up more than 2 points of share in the quarter," said Carlos Abrams-Rivers, Kraft Heinz US zone president, during a Q4 2020 management discussion call.
Kraft Heinz has found success with consumers who have been "re-introduced" to its legacy brands, he added.
"New consumers are finding that Kraft Mac & Cheese, Classico pasta sauce, and Ore-Ida potatoes are enhancing their at-home eating experience. Overall, for the full year, we grew household penetration in roughly two-thirds of the categories in which we participate," Abrams-Rivera added.
This consumer behavior trend has led the company to place more dollars into its digital (+40%) and media (+27%) investments in 2020 vs. 2019.
"We’re also starting to place more dollars behind our higher-growth platform roles within the portfolio," said Abrams-Rivers, resulting in 16% reduction of SKUs within its portfolio to focus on key product platforms that hold the most financial promise for the company.
'Taste elevation' white space
Kraft Heinz had a lot of success with its 'Taste Elevation' platform in 2020, which includes products that can be easily added to meal or snack time occasion to amp up the flavor experience.
"Taste Elevation in emerging markets [Brazil, Russia, and the Middle East] is growing three times faster than the rest of the portfolio, and we are winning share," said Kraft Heinz chief financial officer, Paulo Basilio.
One example of successful "targeted, consumer-driven innovations in right to win areas" is the company's new Hazelnut Spread product (available in Canada), which has captured 17.1% share of the hazelnut spread market between March and December 2020.
"For us, 2020 was just the beginning. There are still plenty of whitespace opportunities to go after, and we are confident that, with diligent execution, international growth will be a key driver for Kraft Heinz moving forward," said Basilio.
What does the $3.35bn sale Planters mean for Kraft Heinz?
Kraft Heinz also announced the sale of nuts business (which includes most products sold under the Planters brand including single variety, mixed nuts, trail mix, Nut-rition products, Cheez Balls, Cheez Curls, and Corn Nuts branded products) to Hormel Foods Corporation for $3.35bn.
The transaction is expected to close in first half of 2021.
What impact will selling a major chunk of its product portfolio, which contributed $1.1bn to the company's annual sales in 2020, have?
In a statement, Kraft Heinz CEO Miguel Patricio, said, “It will enable us to sharpen our focus on areas with greater growth prospects and competitive advantage for our powerhouse brands. Within our Real Food Snacking platform, this means more aggressively driving real fuel for kids through Lunchables and real meal alternatives like P3."
“This is a great example of using agile portfolio management to improve our growth trajectory,” said Kraft Heinz CFO Paulo Basilio. “As we move forward, we plan to continue deleveraging as we explore accretive investments to accelerate our strategy.”
2021 to exceed strategic plan goals
Kraft Heinz is expecting another year in which at-home consumption will drive strong performance for many of its pantry-staple brands. The lightening of its portfolio with the multi-billion dollar divestment of its Planters nuts and snacks business and sale of its natural cheese business in September 2020 will allow the company to be more flexible and agile, noted Basilio, who said the sale is expected to have "minimal dilution on an annualized basis."
"Taken together, these two divestitures improve our mix and growth trajectory," he said.
"In a nutshell, we expect a strong start to the year and are increasingly confident that our full year results will again exceed our strategic plan," said Basilio.
Bernstein's quick take
Commenting on the company’s performance, investment management firm Bernstein said, “Overall Kraft Heinz seems to be executing well vs. the conservative plan laid out at the investor day.”
However, the investment firm remains cautious in its outlook and will remain “on the sidelines” when it comes to Kraft Heinz’s future performance until analysts can get a better read on retail dynamics in a post-pandemic environment.
“The outlook for 2021 as we lap the onset of and emerge from the pandemic remains uncertain, particularly with respect to possible retailer pressure on pricing as we lap the onset of the pandemic next month,” said Bernstein.