New Kraft Heinz CEO pledges to rein in agency fees and production costs

Miguel Patricio took control at the struggling food company on 1 July.

Kraft Heinz has failed to invest sufficiently in media, despite seeing overall marketing costs rise in the past two years, newly installed chief executive Miguel Patricio has said.

Patricio, who spent six years as chief marketing officer at brewing giant AB InBev, took over from Bernardo Hees on 1 July and was tasked with turning around a company that saw its share price plummet in February when it was forced to write down the value of two US-focused brands, Kraft and Oscar Mayer, by $15.4bn.

Speaking on a call to analysts as the business revealed disappointing half-year results, Patricio said: "I want to be candid with you from the start of my tenure here. You deserve straight talk from me about how this business is run.

"The entire board has mandated a new approach to Kraft Heinz. It’s my job to tell you what we got wrong and how we got it wrong."

Referring to Kraft Heinz’s reputation as a business focused on efficiency and the bottom line, Patricio said: "Many of you believe our story as one of cost control and zero-based budgeting." These approaches, he said, had "enhanced our business – without this discipline we would be in a worse place today". 

But he acknowledged that "we have to do more than that... [we have to] apply strong consistent investments in our brands".

Kraft Heinz had made some successful investments, Patricio said, pointing to support for Heinz tomato ketchup, including the development of lower sugar and salt options, helping it achieve its highest ever US market share.

But he said that "for the investments that are not working, we move those dollars to areas that may need more investment".

One key example was in marketing, where "we’ve increased investment in the past two years, but in media we’ve been declining". He added: "We grew investment behind many other things – agency fees, production, product development, but the things the consumer really sees, we’ve declined, to pay the other expenses."

Changing this imbalance would help the company’s existing spend achieve more, he said: "It’s not just about cutting costs – it’s about efficiency and making dollars already in our base work harder elsewhere."

Net sales at Kraft Heinz in the first six months of 2019 were down 4.8% to $12.4bn (£10.2bn), while its EBITDA – earnings before certain adjustments – were down 19.3% to $3.03bn. 

In the US, net sales in the period were down 1.9% to $8.71bn. In the EMEA region, they fell 10.2% to $1.25bn – although more than half of this was the result of exchange rates.

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