“Who is Miguel Patricio,” asked AdAge last week, “and what is he getting himself into?”
There are two short answers to that double-barrelled question: he’s a bit of a marketing legend and, potentially, a giant box of shit.
Patricio is the new CEO at Kraft Heinz and whether the Portuguese native can navigate his way out of the aforementioned shit box will come down to just how good a marketer he really is. In the press the former AB InBev CMO comes across as brilliant and engaging but this has to be one of the biggest and toughest jobs in marketing. Can he pull it off?
By now you already know the back story. Kraft and Heinz mega-merged in 2015 with the backing of Warren Buffet and legendary private equity player 3G Capital. The deal appeared to be golden with the classic PE model of squeezing costs and driving profitability resulting in spectacular returns in 2017 and an audacious, though ultimately unsuccessful, bid for Unilever that same year.
But by the beginning of 2019 there was dramatically bad news. The company admitted that two of its marquee brands, Kraft and Oscar Meyer, were not worth what had they had valued them for only four years earlier. The $15bn write down, one of the largest in commercial history, spooked the market. As did the subsequent news that revenues were down and costs up. Kraft Heinz’s stock has halved in value in that past 12 months, a performance that saw former CEO, Bernardo Hees, fall on his sword.
READ MORE: Mark Ritson – Kraft Heinz is in 57 varieties of trouble
Aside from the leadership of Hees, much of the finger-pointing has also been in marketing’s direction. At a consumer packaged goods business like Kraft Heinz where 30% or 40% of the company’s total market capitalisation is usually tied up in brand equity, a flawed approach to marketing is a financial meltdown waiting to happen. Not only do badly managed brands reduce demand, they also leave Kraft Heinz vulnerable to private labels.
We are old timers in this country when it comes to store brands given they take almost exactly half of the total spend on groceries in the UK. But America was always way behind us in private label terms and only now, as the penetration of store brands approaches 20% of total grocery sales, are the screws tightening on second-rate grocery brands over there. The weaker your brand, suddenly the more vulnerable you are to paying for the privilege of remaining on the supermarket shelf.
Names like Shake ‘n Bake, Sure-Jell and Stove Top immediately signal how ancient and knife-worthy much of the Kraft Heinz portfolio is.
Putting a noted marketer like Patricio into the big seat signals that Kraft Heinz accepts much of the criticism that has been aimed at the company over its negligent approach to brand management. His first input to long-term marketing-led growth will ironically be the kill-list.
The company has around 70-something global brands (tellingly, it’s hard to be exact) and while that looks great on the corporate website under the title ‘Beloved Global Brands’, it spells strategic disaster for the company. Different brands in different countries, cannibalisation, lack of focus, and inertia are just some of the many problems of an over-populated brand portfolio and unclear brand architecture.
When I was a young marketing student the big global food companies owned and operated hundreds, sometimes thousands, of brands across the world. Today, most of them, led by Procter & Gamble (P&G) and Unilever, have winnowed that portfolio down to double digits with usually around 20 core brands as the focus for global operations and investment.
With a total portfolio of 70-something brands it’s not that Kraft Heinz has too many brands. But there appears to be a lack of clarity about which brands are the core global brands. And there is the sinking feeling that after Heinz and…er… [scans the list of brands again in increasing panic] this is very much a list of 20th century brands whose best days are behind, not in front.
READ MORE: Is your brand portfolio fit for purpose?
A different kind of CEO
Patricio has already signalled that his experience makes him a very different kind of CEO from his predecessor. “My profile can help the future,” he recently explained. “It’s not about liking what happened, it’s about understanding the future. We need to lead, not follow”. That’s all well and good.
But, no matter how skilled the turnaround artists in charge, does he even have a portfolio that can be pointed in the right direction?
Patricio has also made much of the fact his new employer owns the number one or number two brands in about 50 categories. True. But, with the exception of a few mega categories like ketchup, winning in areas like fruit pectin, stuffing and seasoned bakery coating must feel a lot like losing. Names like Shake ‘n Bake, Sure-Jell and Stove Top immediately signal how ancient and knife-worthy much of the Kraft Heinz portfolio is.
Looking at the portfolio Patricio has inherited, the new CEO could easily off-load half the portfolio and still find himself running a second-tier operation. As CEO it will be his job to sanction which brands should go, and which should remain and receive major refocus and reinvestment. Apparently, brands like Breakstone and Maxwell House are already on the front step of the divestment department, but many more will need to follow.
The whole scenario reminds me of a bigger, American version of our own Premier Foods. A decade ago I started writing extremely unhelpful columns suggesting that while its new “star brand” strategy in which the company doubled down on its top brands made sense, the flaw in this approach was the company did not actually have any star brands.
I got an amazing response from investors who accused me of being a “muppet”. Later, when the company’s share price dropped by more than 99% in value, I took absolutely no pleasure.
Kraft Heinz is no Premier Foods, however. Instead of Mr Kipling we have Kraft. Millions of pounds become billions of dollars. But there is that same abject feeling that for all its heft, this is a company that simply does not have the brands to prosper when it comes to brand management.
I don’t doubt Patricio or the logic of putting a marketer in charge. No matter how good the new CEO turns out to be, the raw materials he is chartered with transforming appear limited.
Nothing stunts a brand’s future more than an amazingly successful past.
Ironically, just as he is completing his kill list it is likely Patricio will also be heavily involved in acquisitions too.
One of the major advantages of brand consolidation is that it also reveals categories and customer segments where growth is possible but where no existing Kraft Heinz brand currently operates. Patricio will need to use a marketer’s eye to spot the right brands in the right categories at the right price to ensure the correct deals are struck.
That’s not to say the existing, surviving brands will be left alone. The start of the problem for Kraft Heinz was the realisation that two of its biggest brands were not what they once were.
It’s the oldest story in branding. A hot new brand rises on a tide of innovation, it scales up and becomes an icon. Consumers age. Time passes. Tastes change. New competitors arrive. The market evolves. But the brand remains consistent to its traditional formulas and operations and loses step with its target consumers.
The very things that once made brands like Kool-Aid, Miracle Whip and HP Sauce so successful start to work against the brand. They remain icons with long and impressive brand heritage.
But we put icons up on the walls of monasteries, we don’t put them on the table at tea time and consume them with vigour. If I wanted to dress a movie set in the 1970s Kraft Heinz has everything I need. If I want to make dinner for my family tonight, not so much.
READ MORE: Kraft Heinz UK CMO on bringing ‘the magic’ back to marketing
Patricio claims his two watchwords in his new role are curiosity and speed. He is spot on. If Kraft Heinz had exhibited these traits earlier things might not now have become so precarious.
Curiosity forces even the biggest companies to keep asking the hard questions of themselves and their market. Speed ensures the metabolism of a brand does not slow to a funereal pace. Nothing stunts a brand’s future more than an amazingly successful past. The trick for Patricio is to dare to challenge and change some of the icons in his portfolio before they get any dustier and more vulnerable.
There is the urgent requirement for creativity – a Patricio speciality. If you’ve spent the summer studying thousands of Effie cases, as I have, it becomes apparent that effectiveness has many parents. But the Big Daddy and Top Momma are scale and creativity.
Big brands get all the benefits of excess share of voice, existing infrastructure and the deep pockets to guarantee scale efficiencies. Creative brands enjoy an enormous maximiser effect across all their investments as ideas impact the market.
Kraft Heinz has the scale but very little of the creativity. Sure, the new Ed Sheeran ad for Heinz Ketchup is a breath of fresh creative air. But it’s almost as meat and potatoes as the stuff our Ed splashes his sauce on in the ad.
The fact the whole idea came from the singer (over Instagram) and not the company’s marketing team speaks volumes.
Patricio will shake things up dramatically just as he did in the previously stale world of beer. But he needs to move fast to encourage his teams to take risks and push hard in terms of product, advertising and all the other touchpoints.
In truth, by simply walking through the door of the company’s Illinois HQ and taking his seat at the head of the company, Patricio has already made his biggest impact on his new employer. The mega-write down sparked a hundred columns eager to portray the short-termism of 3G and the out of touch sensibilities of Warren Buffet. Kraft Heinz was, most columns concluded, not a place where marketing and brand building were the big focus any more.
By recruiting one of the most high-profile marketers in America, famed as much for his “Dilly Dilly” advertising as his consistent ability to grow sales at AB InBev, Kraft Heinz has sent a signal that they take marketing seriously and are prepared to invest in the best to get it right. This message buys time with investors and re-assures marketing talent that Kraft Heinz is a place to practice the dark art.
Now all Patricio has to do is to justify the hype and pull this giant mission off.