Kraft Heinz raises prices on 2/3 of portfolio, ‘but that is not the only thing we are doing’ to offset inflation
Kraft revealed that it has increased prices for about two-thirds of its portfolio, representing about 4-5% net pricing, “but that is not the only thing we are doing,” said Carlos Abrams-Rivera, US zone president.
He explained that the company is “using the full revenue management system,” including strategies such as price-pack architecture, and instituting “a design to value focus in our brands.”
Abrams-Rivera explained this involves ensuring that products have the right ingredients, the right pack size, the right materials and agile ingredient formulations to better weather inflation.
Finally, Kraft Heinz is offsetting the negative impact of inflation by strengthening the resiliency of its portfolio through renovation to ensure that products meet modern consumer needs.
“Year to date we have renovated about 45% of our portfolio, and by the end of 2022 that number will be 90%, which means that as we go through this, we’re also making sure that our portfolio is stronger,” he said.
While CFO Paula Basillo said he is “very confident” the pricing Kraft Heinz has taken so far is enough to “protect our margin and deal with the inflation we are seeing today, and also protect us with carryover inflation in 2022,” he added that the company is open to raising prices again if inflation continues to rise.
If another round of price increases is necessary, Abrams-Rivera said the company would ensure that consumers can still access the products they love by offering select promotions and restoring key retail activations, such as back-to-school events happening now.
‘Share performance is certainly encouraging’
The executives’ confidence in the company’s ability to pass inflation through to consumers also is reinforced by its sustained strong market share gains and brand performance, which is up 58% in the US in the second quarter.
“Share performance is certainly encouraging,” as is household penetration which is up 70% from 2019 and repeat purchase rates that are up 73% from two years ago, Abrams-Rivera said.
He attributed part of this to the “new normal” of eating more at home – whether that be more snacks or looking for ways to recreate at home the restaurant experience. And while more Americans are returning to offices, schools and other obligations out of the home, he said, many people will continue to work from home at higher rates than before the pandemic, which will translate to higher sales of retail food.
“Just as an example, in our company, we are going to work in a hybrid way two days a week from home, three days week in the office. Just that is 40% of our time at home, right? And that has, of course, consequences on consumption,” he said.
Insights & marketing are key investments
Abrams-Rivera also attributed the strong performance to strategic company investments, including in “people capabilities” that build up the company’s “marketing prowess,” and sales capabilities.
“Second, we are actually investing in insights. So we understand much better not only where consumers are eating and shopping, but also ... what are the things that they are going to want in the years to come, and we have actually shifted quite a bit of our focus to make sure we address those,” he said.
And finally, he said, Kraft Heinz is investing more in brand marketing. “We have invested over $100m more in marketing that is much better quality and it is driving a better return on investment.”
While these measures give Abrams-Rivera significant confidence going forward, he also acknowledged that he is “not ready to declare victory,” and that there is more work to be done to satisfy consumers and more room to grow.
One way Kraft will rise to this ongoing challenge is through increased innovation – particularly around convenient “easy meals” and its taste elevation platform.
