TL;DR
Kraft Heinz’s new CEO emphasizes long-term success through pricing optimization, marketing, innovation, and renovation, rather than succumbing to competitor and retailer pressure to boost short-term promotions. While other CPG companies are increasing promotional levels, Kraft Heinz aims to protect gross margins and reinvest in the business.
Kraft Heinz’s soon-to-be CEO, Carlos Abrams-Rivera, stands firm against the pressure to increase promotions for short-term gains. Instead, he advocates for long-term success by investing in pricing optimization, marketing, innovation, and renovation to protect gross margins. While many other consumer packaged goods (CPG) companies are ramping up promotions, Kraft Heinz believes in maintaining a strategic approach that safeguards profits and customer loyalty.
Abrams-Rivera highlights the importance of not succumbing to the immediate demands of the industry and emphasizes the need for long-term viability. By focusing on protecting gross margins, Kraft Heinz aims to build a sustainable business model that can withstand market fluctuations. The company plans to operate promotions at a lower level than in 2019 while also ensuring their effectiveness compared to pre-pandemic times.
Utilizing AI-enabled solutions for revenue management, Kraft Heinz has improved its return on investment (ROI) for promotions by 15 points compared to the previous year. This disciplined approach allows the company to promote more strategically and maintain a higher ROI. While promotions will have a slight increase in the fourth quarter, Kraft Heinz remains committed to maintaining a mid-30% proportional level and exercising discipline in their promotional strategies.
Kraft Heinz’s commitment to a conservative approach to promotions stems from the lessons learned between 2017 and 2019. During this period, the company faced negative returns on a significant portion of the increased promotions. Instead of investing in promotions with poor returns, Kraft Heinz focuses on price optimization. Devoting resources to pricing optimization and leveraging proprietary solutions, the company can enhance its understanding of past events, improve future planning, and achieve sustainable growth.
To drive volume, Kraft Heinz plans to invest more in marketing and research and development (R&D). The company increased marketing dollars by 23% in the second quarter, aiming to strengthen brand visibility and consumer awareness. Additionally, a 10% increase in R&D investment supports the development of innovative products that resonate with consumers. Kraft Heinz’s stronger consumer insights enable them to create sustainable innovations that drive future volume and success.
Kraft Heinz’s refusal to give in to the pressure of increased promotions means that there will be fewer deals for store owners to take advantage of and pass on the savings to their customers.
