Three Reasons Why I Don’t Buy Their Story

On September 15, 2020, Kraft Heinz announced a new day at their investor conference. The session’s goal was to help investors understand the possibilities for the Company and share their plan for a turn around. The problem? The promise is scale and agility. The goal is growth; but the proof points are cost mitigation and manufacturing efficiency. My take? The strategy does not add up.

The Kraft Heinz case study is a great example of a company not being able to save their way to growth. While the presentation is wrapped in beautiful videos and testimonials, when you peel back the onion, the narrative does not pass the litmus test to drive value for shareholders. Instead, the biggest takeaway is the announcement to cut $2B in costs over five years with 350-400M$ in gross savings this year.


Kraft merged with Heinz in 2015. Since the merger, the Kraft Heinz stock lost more than half its value. The quandary for investors is that while the market capitalization for Kraft is $40B, the debt load is nearly $30B. ( Kraft Heinz has written down its brands by $20B since February 2019.) The stock is down 35% year-over-year while the S&P 500 Packaged Foods & Meats index, for the same period, is up 22%.

The primary issue is growth. Kraft Heinz is partially owned by 3G Capital, a Brazilian investment firm, that along with Warren Buffet’s Berkshire Hathaway, Inc, purchased Heinz in 2013. 3G, famous for zero-based budgeting to cut costs, saved money at Kraft Heinz by cutting jobs and renegotiating contracts, but when compared to peer group, the company operates with higher inventories and lower levels of asset effectiveness. It is not as simple as running manufacturing assets longer. The company has a wide range of products and assets that are not aligned. The current process focus on efficient silos is a barrier to customer service.

Markets are shifting, can Kraft keep pace? With sub-standard capabilities in planning and replenishment, the Kraft Heinz team struggled to adapt to market shifts in demand with the COVID-19. The Kraft flagship brand—Mac and Cheese— skyrocketed with volume increases of 27% during the 13 weeks ending on March 21 when compared with the same period the prior period—but, the company struggled to keep up with shelf demand. Heinz vinegar—both used in cooking and cleaning—was not available on most retail shelves for three months.

Focus is difficult. The Company operates in 56 retail categories, and admittingly, struggles to manage them all well. The historic choices in merger and acquisition strategies are a barrier to building economies in scale and category account leadership at retail.


When I listen to the investor day strategy, I cannot move past three disconnects:

#1. Marketing Driven, not Market-Driven. The focus on saving money in the back office and using it to fund growth is problematic. It does not work. The 3G zero-based budgeting cuts were deep, the Kraft organization is still reeling, and traditional marketing programs are not effective in this market. Instead, Kraft needs to invest in network modeling and improve planning to align current assets to market sales to improve customer service. Order reliability is critical in the COVID-19 world. Today, at Kraft, there is too much reliance on historic order data and syndicated data versus point of sale data which increases the time for Kraft to sense market demand and drive a response in COVID-19 volatile times.

#2. Focus on Efficient Organizational Silos. A focus on the efficient organizational silos of make, source or deliver do not make the most effective supply chain. Instead, the highest market capitalization is when these functional silos work together to deliver a balanced scorecard. In the investor presentations, the word supply chain is used, but there is never a supply chain presentation. Instead, the individual presentations focus on manufacturing or procurement.

Strong functional approaches—sole focus on manufacturing or procurement— throw the supply chain out of balance. Companies driving balance in results—growth and profitability, customer service and ROIC, asset efficiency and inventory turns— outperform their peer groups in market capitalization. A focus on improving horizontal processes like Sales and Operations Planning, New Product Launch and Supplier Development drives this balance. Balance and cross-functional alignment was not the focus of the presentations.

#3. Clarity of Strategy. In the presentation, the leadership team uses efficiency, agility and responsiveness in the same set of sentences, but the presentation’s focus was cost. A supply chain cannot be efficient, agile and responsive at the same time. These are three different and distinct supply chain types. The design is a choice.

I loved the energy in the presentation by Miguel Patricio, CEO of Kraft Heinz, but I searched to find alignment with basic supply chain principles.

The supply chain is a complex non-linear system. Based on a research study of 107 business leaders, executive team understanding of supply chain management is in the top five business pain elements for supply chain leaders in food and beverage manufacturing. This is my take away: Kraft Heinz Investor Day demonstrates the lack of understanding of core supply chain principles by the executive team.


COVID-19 gives us a chance to build supply chains to better to serve the consumer. The market opportunity for some Kraft products has never been higher, but what good is it if the company cannot align to service orders? Ironic that the company hungers to grow, but lacks the reliability in operations to service the volatile orders in the COVID-19 world.

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