Kraft Heinz Aims at Restructuring Operations and $2 Billion in Cost Cuts
American food and beverage company, Kraft Heinz Co. (Kraft Heinz) has unveiled its new business outlook and announced a strategic transformation of its operations to achieve the company’s long-term financial goals. To achieve these new goals, the company plans to undergo some major restructuring of its business operations including increasing marketing budget and planning, reformation of its supply chain, and cost-cutting up to $2 billion over the five years.
Chicago-based tinned food provider shared the news after Kraft Heinz recorded its better-than-expected quarterly sales growth on Tuesday, September 15, 2020. Today’s announcement was the first major strategic update of the company after a media and advertising veteran Miguel Patricio took over as CEO last year. Since then, the company recorded a surge of its share value to 4.6% due to the increase in buying of packaged foods during the lockdown, prompted by the coronavirus pandemic outbreak.
Restructuring and Cost Cutting
Patricio said in an interview today that the company’s restructuring aimed at refueling the efficiency of its business operations by focusing on its agile portfolio management and putting a halt of its non-performing products. In addition, Kraft Heinz would target to save $2 billion by 2024 through reducing operation costs, which would be procured through enhancing its logistic network.
“We are totally rethinking our operations in manufacturing logistics and procurement – it is absolutely critical because, in the five next years, we are going to improve our operations big time,” Patricio told ahead of the presentation with the investors. Along the lines of investors’ opinions, the restructuring plan also included a provision to increase spending on marketing by 30% to just over $1.4 billion, a move that could encourage the suppliers as well. Patricio said that Kraft Heinz has been facing challenges and trying to build up better relationships with suppliers due to its excessive and aggressive cost-saving policies of the company.
To ensure more productive and effective output, Patricio explained that cost-reducing remained an effective means but needed not to be too aggressive. He added, “When you cut costs too much, actually your costs increase because you lose efficiencies.”
Surging Profits and Future Policies
According to Refinitiv data, the company recorded an impressive net sales growth in the third quarter as compared to last year by surpassing the analysts’ expectation of a 2% increase in sales owing to the surge of demand during the pandemic. With this new development, it would reduce the existing figure of the company’s outstanding debt about four times EBITDA by the end of this year from the previous record of $27 billion last year.
Patricio said, “That first period was a big competitive advantage because we had a big spike in consumption when people (were) panicky and stocking up products at home,” reflecting the consumers’ storing of more package foods.
Explaining the market strategy, Patricio said Kraft Heinz would be focusing its investment in five areas, which included ready-made meals like Mac & Cheese and healthy snacks. He further added that the company needed to invest in the exiting brands by making them better instead of making more types of products. “For example, we launched more than 50 different flavors of salad dressing in the last five years… that brings an unbelievable problem of complexity to our factories,” Patricio stressed.