Friday, February 22, 2019

Playing Catch-Up at Kraft Heinz

Analysts today are comparing Kraft Heinz to Anheuser-Busch InBev. In both cases, conglomerates of high-chemical consumer brands are trying to compete by cost-cutting.

I don’t drink beer so I can’t vouch for the aptness of the comparison. I have seen my beer-drinking friends switch almost entirely from factory-made beer to local craft beer over the last twenty years, and it is a transition that has happened without much discussion. From the outside, it looks as though factory beer got so icky that drinkers went looking for any available alternative.

The story with Kraft Heinz’s packaged food brands in categories such as sausage, pickles, ketchup, and cheese sauce is similar. The general strategy of the conglomerate is to homogenize a product as much as possible, add as many low-cost chemicals as they can get away with, and present it in a package that can be kept on the shelf for years. It is not the way most consumers these days would ask you to manufacture a packaged food.

The Kraft Heinz brand that is losing ground the fastest is Oscar Mayer, and I can easily imagine why. I remember in my childhood getting the chance to try out this brand, and no one could explain to me how it could be a food that people would select voluntarily. Kraft and Heinz, though, were two of my go-to brands for many years, and then I raised my sights at the same time that the factories were lowering the quality of their recipes. Heinz has fallen to about sixth place on my list of preferred ketchup brands, but I see Kraft as a brand of last resort, a product I probably haven’t purchased in ten years, though I would still eat it if I had nothing else to choose from. In both categories, ketchup and macaroni and cheese, my own personal consumption fell by more than half perhaps five years ago as I opted for more fresh and nutrient-dense foods. Even if the Kraft Heinz brands could somehow hold their market positions, they are selling into a declining space.

Other food shoppers are making this same journey now, it seems, looking for better food choices and trying new brands. Kraft Heinz is trying to adapt, but slowly, without doing anything sudden. It must now contend with several newer brands that have more credibility in niches like ketchup and macaroni and cheese. It is trying to catch up, yet is unwilling to change as quickly as its competitors can.

The news from Kraft Heinz today is complicated, to say the least. There are multiple accounting controversies and investigations, all seemingly unrelated to each other and to the company’s core problems. An eye-catching $15 billion write-down that surely looks scandalous to the casual observer and must have been the main thing prompting a 27 percent decline in the stock today doesn’t seem to connect to the larger trend, in which more supermarket shoppers are trying to stay away from the traditional high-chemical approach that has dominated packaged food since the 1980s.

In a way, Kraft Heinz is another HP-Compaq story — major brands combining just so they can decline together. In a few more years, Kraft Heinz’s total sales could be about the same as either of its two predecessors, only to go down from there, the same thing that happened to HP and Compaq.