Kraft Heinz to increase marketing spend to drive ‘profitable growth’
The company behind Philadelphia and Heinz says while the increased investment will hit margins in the short term, it is necessary to return it to profitable growth.
Kraft Heinz is set to increase its marketing spend as it looks to turn around seven quarters of disappointing sales and drive long-term growth.
Speaking on a call with analysts this afternoon (16 February) following its fourth quarter results, CEO Bernando Hees said Kraft Heinz plans to increase spend on “working media dollars”. That means on media that is seen by consumers, as opposed to, for example, production costs or agency fees.
“We are increasing working media dollars. That will translate into near-term margin pressure, but we have been ramping this up for some time now and we are confident of its scalability and [that it will help us] return to profitable growth,” he said.
Kraft Heinz sees an increase in marketing spend as one of the ways it can boost its business after its Q4 net sales were up by just 0.3% year on year to $6.88bn. Stripping out the benefits from currency fluctuations and other items, organic sales fell 0.6% year on year, with sales particularly disappointing in the US, where they fell by 1.1%.
That means sales in its biggest market have fallen for seven straight quarters. Sales in Europe were up 0.9% but Hees says there is still more work to do.
“There’s no question that our financial performance in 2017 did not reflect our progress or potential,” he explains. “We made significant improvements in many of our businesses, and were able to accelerate some important business investments at the end of the year. This, together with additional investments in our capabilities, should help further advantage our brands and grow our business in 2018 and beyond.”
That investment in capabilities includes the launch of internal academies in departments such as marketing, as well as investment in digital capability. Kraft Heinz has also released its first ever CSR report, outlining its sustainability goals in areas including reducing water use, greenhouse gas emissions, energy use and waste sent to landfill.
Kraft Heinz is not the only FMCG company looking to increase media spend behind its major brands with the hope of improving performance in difficult economic conditions. PepsiCo admitted earlier this week that it needed to refocus its marketing efforts around its big brands after finding it could not sell as much product at full price as its rivals.
READ MORE: Unilever increases media spend by £220m and shifts more money to digital
Unilever (which Kraft Heinz tried to buy last year) and Procter & Gamble have been reducing marketing costs such as production and agency fees and reinvesting those savings into media spend.