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 and seek to increase sales under a five-year turnaround plan. The US food giant said it plans to accomplish 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 strategy involves making “growth investments” including a 30 percent increase in marketing spending. Patricio said the moves will create “a clear path to rebuilding” Kraft Heinz into an industry leader.
This is not the first time the company has cut costs significantly. Following the merger of H.J. Heinz and Kraft Foods in 2015, costs were cut by $2 billion, but the combined company fought to grow sales of its long-running food brands in an era of changing tastes.
In recent years, Kraft Heinz has struggled as consumers shopped more around the perimeter of the grocery store in search of fresh foods. The sales downturn led the company to report billions of dollars in write-downs 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. Additionally, Lactalis will be licensing the Kraft cheese brand.
Kraft Heinz will use the proceeds of the deal to pay down its debt. The deal is expected to close in the first half of next year and is subject to regulatory approval.