Kraft Heinz, the maker of the Heinz ketchup and Oscar Meyer, said in an investor’s call Tuesday it will cut costs by $2 billion under a five-year turnaround plan. The US food giant said it also seeks to increase sales, accomplishing these goals with a new operating model focused on procurement, manufacturing and logistics.
“I am extremely confident that unlocking the power of scale with agility, combined with our new operating model, will return Kraft Heinz to consistent and sustainable growth,” CEO Miguel Patricio said in a statement.
While it may seem counterintuitive, the company will increase marketing spending by 30 percent and make other “growth investments.” The moves will create “a clear path to rebuilding” Kraft Heinz into an industry leader, Patricio noted.
This is not the first time the company has cut costs significantly. In 2015, costs were cut by $2 billion following the merger of H.J. Heinz and Kraft Foods. Despite the successful merger, ever-changing tastes forced the newly combined company to fight to grow sales of its long-running food brands.
Since more consumers are shopping around the perimeter of the grocery store in search of fresh foods in recent years, Kraft Heinz has struggled. The downturn in sales led the company to reduce the value of its assets by billions of dollars on some of its brands, including Cool Whip, Oscar Mayer, Kraft and Maxwell House.
But stockpiling and other behavior changes related to the pandemic have boosted Kraft Heinz’s revenue in recent months and revived sales of some of its lagging brands. In both the first and second quarters of this year, revenue rose more than three percent, marking the largest improvement to quarterly sales since 2016.
Another major highlight from the investor’s call is that the company is selling a part of its cheese business to French multinational dairy company Lactalis for $3.2 billion. Popular brands including Breakstone’s, Athenos, Hoffman’s and Cracker Barrel are included in the deal, accounting for $1.8 billion in net sales over the last 12 months. Lactalis will also be licensing the Kraft cheese brand.
Kraft Heinz will use the income from the deal to pay down its debt. The deal is expected to be completed in the first half of 2021 and is subject to regulatory approval.