What are the lessons to learn from Kraft Heinz cost-cutting efforts

When the mega-merger between Kraft and Heinz took place in 2015, many believe the cost-cutting measures are on the cards. This will, by no means, include marketing budgets as that has been a key target for expenditure controls.

In less than two years, Kraft Heinz has cut its workforce by 20% and reduce overheads by 40%. While this sounds impressive on paper, according to Forbes, critics have been contending for the longest time that such moves will affect sales growths.

As it turns out, these fears became reality for Kraft Heinz saw its sales decline for six consecutive quarters. This losses come at a price as the massive food manufacturer lost US$16 billion of its market value last week. This is the result of its stock losing 30% during trading in late February 2019.

Necessary Investments

Cutting operational and human resource costs is no longer the silver bullet organisations can depend on. Reducing expenditures on all fronts will not open the way for growth.

Instead, as the Forbes commentary puts it, businesses must look at investing into something long-lasting and tangible. In the Kraft Heinz example, it pointed to the primary problem that is actively ignoring: stopping investments into its brands. Innovation is lacking for this merger and its preventing them from keeping up with the shift in consumer tastes.

Rightfully, businesses should refocus their growths through the pursuit of innovation; specifically, in marketing, customer engagement, and brand experience. They cannot follow the Kraft Heinz strategy of self-destruction that most still believe will turn things around. That includes stopping budget cuts that are, evidently, causing the brand value to deteriorate.

Even now, marketing budgets for external agencies continue to fall. Interestingly, internal spending for in-house processes are up. That clearly proves branding is still critical for businesses. This is true for developing nations and rapidly expanding markets that have a growing middle class like China and India.

For both, and in similar countries like Indonesia, South Africa, Brazil, and Russia, consumers actively seek out brands; premium brands even. It’s been proven time and again that brands have long-term staying power even during tough times.

Text by: Victor Yap