Kraft Heinz gets a new boss. Can he save the firm?

WHILE WORKING at Coca-Cola, Philip Morris and Johnson & Johnson in the 1990s, Miguel Patricio gained a reputation as a marketing wizard. Shareholders of Kraft Heinz, who appointed him as the food maker’s chief executive on April 22nd, are hoping his magic touch extends to corporate turnarounds. Born of a merger in 2015 between two American icons, Kraft Heinz has struggled to keep up with changes in consumer taste. In February it announced a $15bn impairment, cut its dividend by a third and said that American authorities had launched an inquiry into its procurement practices. Its share price has fallen by 45% in 12 months.

The new boss replaces Bernardo Hees, a Brazilian who had led Kraft Heinz since the merger. In his previous job as chief marketer at Anheuser-Busch InBev, the world’s biggest brewer, Mr Patricio was credited with increasing the sales of Corona, Budweiser and Stella Artois. The three brands now account for more than one-fifth of AB InBev’s sales. His idea of replacing the Budweiser name with “America” on limited-edition bottles and cans was a hit.

He is also familiar with Kraft Heinz’s management culture. AB InBev’s biggest shareholder is 3G Capital, the same private-equity firm led by a trio of Brazilians that backs Kraft Heinz. 3G made its name with its quasi-religious devotion to “zero-based budgeting”, a cost-cutting practice whereby managers must justify their expenses anew each year.

Critics claim that 3G’s obsession with slashing costs may have blinded Kraft Heinz to the need to invest in products that appeal to consumers. Sales have been flat since the merger. Operating profits edged up for a few years—until they didn’t (see chart). Even excluding the impairment, margins declined in 2018, while those of rivals such as PepsiCo and Nestlé held up. At Unilever, which Kraft Heinz tried unsuccessfully to buy in 2017, they increased.

As a marketer rather than a financier like Mr Hees, Mr Patricio may, despite his 3G pedigree, be happier to loosen the purse-strings for investments and research. He may want to buy a rival with a bigger presence in developed markets outside Kraft’s and Heinz’s American home. He insists that he wants to revive illustrious but “dusty” brands, like Kraft Macaroni and Cheese, Philadelphia cream cheese and Planters nuts. Reviving the tarnished image of Kraft Heinz itself is likely to prove considerably trickier.

This post was originally posted at https://www.economist.com/business/2019/04/27/kraft-heinz-gets-a-new-boss-can-he-save-the-firm.

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