Kraft Heinz Co (Food)

KRAFT HEINZ CO IN PACKAGED FOOD (WORLD)
March 2017
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briefing is of a statistical nature and,
while every attempt has been made
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Euromonitor International cannot be
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errors.
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Established in July 2015

following the merger of Heinz
and Kraft creating the world’s
fifth largest packaged food
company, Kraft Heinz strongly
focuses on two categories, dairy
and sauces, dressings and
condiments, while
geographically, it is heavily
biased towards North America.
A reliance on mature categories
and developed markets
undermines organic growth, and
3G Capital’s stake in the group
makes Kraft Heinz more strongly
geared towards growth through
future acquisitions.
© Euromonitor International PACKAGED FOOD: KRAFT HEINZ CO PASSPORT 2
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STRATEGIC EVALUATION
COMPETITIVE POSITIONING
MARKET ASSESSMENT
DAIRY
SAUCES, DRESSINGS AND CONDIMENTS
OTHER PACKAGED FOOD CATEGORIES
BRAND STRATEGY
RECOMMENDATIONS
Key company facts
 Kraft Heinz Co was formed in July 2015 by the Kraft Heinz Co

merger of Heinz and Kraft instigated by the 3G Headquarters: Chicago and Pittsburgh, USA
Capital investment vehicle. Heinz holds a 51% stake Regional
in the new group, whose headquarters, at least Global
involvement:
initially, remain split between the locations of its two
entities. Among its core packaged food categories Dairy, sauces, dressings and
Key category
are dairy, sauces, dressings and condiments and condiments, processed meat
involvement:
processed meat and seafood, which combined and seafood, ready meals
generated an estimated 67% of its packaged food World packaged food
sales in 2016. Heinz focuses on sauces, dressings 1.4%
value share (2016):
and condiments, while Kraft’s key categories are World packaged food
dairy, processed meat and seafood and ready 2.2% (CAGR 2011-2016)
value growth:
meals.
 Although the merger of Heinz and Kraft gives the
new company a wider global reach and
opportunities for more international expansion,
thanks to a limited geographic overlap between the
two entities, the group’s domestic US market is still
set to account for 66% of its total packaged food
sales in 2016.
 3G Capital is expected to seek acquisition targets in
in 2017, after an unexpected failed bid to merge with
Unilever in February 2017. Market speculation had
surfaced in late 2016 that it may be considering a
bid for Mondelez, spun off from Kraft Foods in 2012.

Kraft Heinz results: Higher profit margin despite sales stagnation
 Despite a modest rise in global revenues in its 2016 financial year, with a small decrease in organic sales
in the US and growth outside the US being undermined by unfavourable currency exchange rates, Kraft
Heinz recorded a strong rise in operating profit. This resulted in a sharp increase in its operating margin,
from 17% in 2015 to 23% in 2016, which compares favourably against key global rivals in the food industry,
most of which are at around 10%, and puts Kraft Heinz in a strong position to acquire smaller rivals in 2017.
 Operating profit was boosted by aggressive cost cutting, including through further reducing the company’s
headcount in 2016, notably with several factory closures in the US in 2016, as part of an ambitious
restructuring programme to cut costs by USD1.7 billion by 2018, a target raised from USD1.5 billion.
 The most profitable geographic divisions in 2016 were Europe and North America, with EBITDA margins of
31%, compared to 20% for the rest of the world, although the latter was the fastest growing division.
Kraft Heinz Co: Financial Year (FY) to 31 December
2016 Sales and Profits 2015-2016
Adjusted
Net sales EBITDA
FY ending 31 2016 (USD % annual (USD
December 2016 million) growth million)
US 18,641 -0.3 5,862
Canada 2,393 1.4 642
Europe 2,520 -2.6 781
Rest of the World 3,263 5.9 657
TOTAL 26,817 0.3 7,778

SWOT: Kraft Heinz Co

STRENGTHS WEAKNESSES
Stronger global reach Wide category and Brands’ image still linked Riskier strategic rethink
and high profit margins geographic presence to heavily processed food to offset market maturity
 Following the merger  A wide global reach for  Key brands remain too  A strong reliance on
between Heinz and Heinz in emerging associated with mature categories and
Kraft, the new entity markets, notably due to unhealthy processed developed markets,
gained greater scale of acquisitions in Latin food not resonating notably dairy in the US,
operations and global America and Asia, adds among US consumers undermines the group’s
reach. It also swiftly to Kraft’s strong position seeking more natural organic growth potential,
implemented cost cuts in the US. The group’s food, notably young forcing it to acquire
and has been able to brand portfolio spans adults, despite reducing other companies or to
raise its profit margins. numerous packaged artificial ingredients. focus on new products.
OPPORTUNITIES food categories. THREATS
Healthier variants of main More acquisitions; scope Dependence on UK and Rivals with strong health
brands and co-branding for more group synergies US creates uncertainty and wellness credentials
 As the group’s brands  Due to 3G Capital’s  An uncertain political  Some of the group’s key
cover diverse categories, stake in Kraft Heinz, it is landscape in the UK and brands remain too
this favours innovations likely to make new the US, with possible associated with heavily
through co-branding, as acquisitions, possibly shift to protectionism, processed food in many
well as by focusing on targeting niche players. may affect the group’s consumers’ minds and
variants positioned as There remains scope for operations in two of its risk losing out to rivals
natural and healthy to leveraging distribution to key markets and in with a clear health and
boost their image. boost its global reach. neighbouring markets. wellness positioning.

Key strategic challenges and objectives
Ambitious cost-cutting targets need to be Acquiring cheese companies in emerging

balanced by longer-term growth strategies markets likely to be a major axis for growth
 Since the merger leading to creation of Kraft Heinz  As Kraft Heinz relies mainly on the mature North
in 2015, the company’s cost-cutting ability has American markets in its largest category, cheese, it
been demonstrated by being ahead of its target, may seek to focus its growth efforts on emerging
leading it to raise it from USD1.5 billion savings to markets, notably under key local brands already in
USD1.7 billion by late 2017. However, sales growth its portfolio, in Brazil and Indonesia. Beyond
is lagging behind and the prospects for a major leveraging the Heinz brand’s greater global reach
upturn appear remote. Nurturing brands’ capacity in order to expand the distribution of Kraft brands, it
for growth by investing in distribution, innovation may need to look for partnerships or to acquire
and marketing strategies may be jeopardised by local players in order to establish local sourcing, in
having fewer resources due to restructuring. addition to pursuing organic growth.
Brand and distribution synergies opportunities 3G Capital’s search for large deals - acquiring
between Heinz and Kraft, including co-branding brands to achieve sustainable growth strategy
 While strategies to create synergies between  The move to approach Unilever with a merger offer
Heinz and Kraft are still ongoing, this could allow in February 2017, although rejected, highlights that
Kraft’s brands to enter new markets thanks to Kraft Heinz is likely to look for a large acquisition in
Heinz’s greater global reach. Co-branding is also 2017. Although it will primarily target companies
likely to be widely implemented with ready meals offering potential for deep cost cuts, the group may
and sauces, dressings and condiments offering also seek to acquire niche companies which would
potential for innovations, notably with ethnic food help shift its positioning towards healthier, natural
recipes. However, such complex branding products, notably with healthy snack brands, which
exercises pose the risk of diluting brands’ images. would help resume a sustainable growth strategy.

MARKET ASSESSMENT
DAIRY
BRAND STRATEGY
RECOMMENDATIONS
ConAgra, Nestlé and Unilever among key global competitors
 ConAgra has the largest market

overlap with Kraft Heinz in packaged
food. The two companies compete
most strongly against each other in
ready meals. However, Kraft Heinz is
present almost entirely in chilled
lunch kits and dried ready meals,
whereas ConAgra focuses mainly on
frozen ready meals, therefore is not a
direct competitor.
 Nestlé and Unilever are among the
largest global competitors to Kraft
Heinz, particularly in sauces,
dressings and condiments, with all
three companies present in
mayonnaise. Nestlé also competes
against Kraft Heinz in dairy, notably
in processed cheese. The overlap
between Kraft Heinz and Nestlé
increased strongly between 2011 and
2016, notably due to the latter’s
growth in sauces, dressings and
condiments in key emerging markets.

Overreliance on US market undermines performance against rivals
 When combining the sales of Heinz and Kraft Foods prior to 2015, Kraft Heinz’s global sales recorded
modest growth over the 2008-2016 period, with the company consistently underperforming against two of
its key global rivals, Nestlé and Unilever.
 Kraft Heinz recorded its strongest performance in 2012, when it was driven by a recovery of dairy sales in
North America and continued growth in emerging markets, notably Brazil and China. In 2016, Kraft Heinz is
expected to continue to see stagnation in dairy in North America being partly offset by gains in sauces,
dressings and condiments, particularly in emerging markets in Asia Pacific.
 However, Kraft Heinz’s growth remained undermined by a strong reliance on the mature North American
markets. Nestlé and Unilever both have a stronger presence in emerging markets than Kraft Heinz,
particularly in Asia Pacific and Latin America, which helped sustain higher-paced growth. Nestlé’s
performance benefited not only from a wider global reach but also from a stronger focus on high growth
categories, including baby food.

Largest packaged food players: Kraft Heinz remains among top five
 The merger of Heinz and Kraft Foods created a new company ranking among the top five largest packaged
food players. Among its most direct global US-based rivals, only PepsiCo ranks higher, in second place.
However, Kraft Heinz remains a smaller player than Kraft Foods was prior to the spin-off of its snacks
division under the Mondelez unit in 2012, when it was the largest packaged food company ahead of Nestlé.
Packaged Food Top Players by Value Share 2016 and Ranking 2011-2016  Danone overtook Mars for
% company sixth place in 2016, as it
Company (GBOL)* 2011 2012 2013 2014 2015 2016
share 2016 benefited from global growth in
Nestlé SA 1 1 1 1 1 1 2.8 its two core categories, baby
PepsiCo Inc 2 2 2 2 2 2 2.1 food and yoghurt, whereas
Mondelez International Inc 3 3 3 3 3 3 2.0 Mars’s performance was hit by
Unilever Group 4 4 4 4 4 4 1.6 stagnating sales in chocolate
Kraft Heinz Co 5 5 5 5 5 5 1.4 confectionery, which accounts
Danone, Groupe 7 7 7 7 7 6 1.3 for the majority of its packaged
Mars Inc 6 6 6 6 6 7 1.3
food sales. Hence, Danone is
Lactalis, Groupe 9 9 8 8 8 8 0.9
well placed to overtake Kraft
General Mills Inc 10 10 9 9 9 9 0.8
Heinz into fifth place.
Kellogg Co 8 8 10 10 10 10 0.8
Inner Mongolia Yili Industrial  The steady rise in the ranking
15 15 14 13 13 11 0.7 of China’s two largest
Group Co Ltd
Ferrero Group 12 12 12 12 11 12 0.7 packaged food manufacturers,
Grupo Bimbo SAB de CV 11 11 11 11 12 13 0.7 China Mengniu Dairy and
China Mengniu Dairy Co Ltd 14 14 13 14 14 14 0.5 Inner Mongolia Yili, was driven
Hershey Co, The 17 17 17 16 16 15 0.5 by strong growth in dairy
Note: * Company shares measured by GBO by latest owner. between 2011 and 2016.

MARKET ASSESSMENT
DAIRY
BRAND STRATEGY
RECOMMENDATIONS
DAIRY
Cheese competitive landscape: Kraft Heinz loses out to Lactalis
 Kraft Heinz’s presence in dairy is

almost entirely derived from cheese,
accounting for an estimated 90% of
its dairy sales in 2016. The group’s
main global competitors in cheese
are Sargento, Saputo and Lactalis.
 Kraft Heinz is estimated to have lost
its number one global spot in cheese
to Latcalis, as the latter benefited
from a resilient performance in
Western Europe and strengthened its
position as the largest operator in
Latin America, where Kraft Heinz
only has a modest presence.
 Kraft Heinz’s geographic and
category reach in cheese remains
too dependent on processed cheese
and on North America. Sales of
processed cheese in North America,
which accounted for an estimated
45% of its total global cheese sales
in 2016, saw a decline between 2011
and 2016.

DAIRY
Kraft Heinz loses out to rivals due to reliance on processed cheese
 Kraft Heinz’s two main competitors in North America in cheese are Sargento and Saputo. Sargento
outperformed Kraft Heinz for most years in cheese, due to robust growth in hard cheese. Sargento also
focused on flavour innovations, thin-sliced and snack-sized sticks sold in resealable pouches to boost its
share. While Saputo’s growth lagged behind that of Kraft Heinz between 2011 and 2016, it recovered in
2015 and 2016, helped by being almost entirely present in unprocessed cheese, a growing category.
 This contrasts with a decline seen in processed cheese, due to its image as a less healthy type of cheese
often containing preservatives, which US consumers increasingly shy away from. Due to its major presence
in processed cheese, Kraft Heinz not only risks losing out to cheese competitors in terms of sales growth,
but may also see its brand image suffer from being too closely associated with over-processed food.
 Beyond North America, Kraft Heinz’s key rival, Lactalis, benefited from a growing presence in emerging
markets notably through acquisitions in Brazil, Egypt and India in 2014 and 2015. By contrast, Kraft Heinz’s
global reach in cheese is strongly biased towards mature markets, including Australia and Japan.

DAIRY
Finding growth beyond North America without neglecting home turf
 Kraft Heinz is reliant on mature

markets, with little exposure to high-
growth emerging markets, particularly
in Latin America and the Middle East
and Africa. However, boosting its
presence in unprocessed cheese in
the North America could help the
group maintain growth in this region.
Eastern Europe

DAIRY
Small but growing presence in cheese in a few emerging markets
 Kraft Heinz’s geographic reach in

cheese is almost entirely centred on
North America, with Canada and the
US accounting for an estimated 9%
and 79% of its global sales in the
category, respectively, in 2016. This
strong dependence on North America
is due to the Philadelphia brand being
controlled by Mondelez in all markets
outside North America since the spin-
off between Kraft Foods and
Mondelez in 2012.
 The company underperformed most
strongly against the cheese category
in Australia, with the Kraft and Kraft
Singles brands rapidly losing ground
to private label ranges, notably from
the discounter chain Aldi and from the
two largest grocery retail chains, Coles
and Woolworths. By contrast, Kraft
Heinz gained in processed cheese in
small but growing emerging markets,
notably China and Saudi Arabia.

DAIRY
Building on growing presence across Asia to offset flat US sales
 In China, where its cheese sales rose strongly between 2011 and 2016, Kraft Heinz has potential for higher
sales as its share remains low, allowing it to make incremental gains by boosting its distribution clout.
Malaysia and Indonesia show opportunities, although Kraft Heinz already dominates in cheese.

MARKET ASSESSMENT
DAIRY
BRAND STRATEGY
RECOMMENDATIONS
McCormick, Nestlé and Unilever among rivals seeing strong growth
 Unilever, is the largest global

player in sauces, dressings and
condiments, Kraft Heinz ranking
second in 2016. Unilever’s growth
was driven by its reach in bouillon,
ketchup and mayonnaise, in which
Kraft Heinz also operates.
 Although McCormick appears as
the second largest competitor to
Kraft Heinz, McCormick dominates
in one of the most dynamic
categories, herbs and spices, in
which Kraft Heinz remains absent.
However, the two companies are
direct competitors in mayonnaise.
 Among smaller rivals, Nestlé’s
global share steadily increased in
sauce, dressings and condiments,
thanks to making gains in emerging
markets, notably China, Nigeria and
across Latin America, offsetting the
stagnation of its sales in Western
Europe.

Kraft Heinz recovers but suffers from geography and category bias
 Kraft Heinz’s growth performance in sauces, dressings and condiments consistently lagged behind that of
its two major global rivals, McCormick and Unilever, during the 2011-2016 period, although it saw a steady
return to growth since 2014, driven by stronger growth in Latin America in ketchup and pasta sauces and
Asia Pacific. Unilever and Kraft Heinz both benefited from a growing reach in Asia Pacific, notably in
Indonesia within soy sauces, while Kraft Heinz also increased its presence in China in soy sauces. In North
America, Kraft Heinz is strongly present in the stagnating ketchup category, while McCormick dominates in
one of the most dynamic categories, herbs and spices.
 A strong reliance on the mature North American market continued to hinder Kraft Heinz’s global sales in
sauces, dressings and condiments, a factor that also affected its main domestic rival McCormick, whose
presence in emerging markets is modest and focused on a few markets, notably China, Mexico and Russia.
By contrast to its US-based rivals, Unilever’s performance was helped by a broad presence in emerging
markets, as it was the largest player in Eastern Europe, Latin America and in the Middle East and Africa.

Ketchup remains key growth driver, mayonnaise sees stagnation
 Ketchup, the largest category for the group, generated an estimated 25% of its sales in sauces, dressings
and condiments in 2016, up from 21% in 2011. With a CAGR of less than 2% predicted for 2016-2021,
ketchup is forecast to provide Kraft Heinz some opportunities for growth, particularly outside the US. This
contrasts with the second largest category for the group, mayonnaise, whose proportion of the company’s
sales declined from 19% to 15% between 2011 and 2016, and whose global market size is forecast to see
a CAGR of under 0.5%. Soy sauces, the fastest growing category in actual terms between 2011 and 2016
and second largest globally, is predominantly sold in Asia Pacific and could be a future growth area for
Kraft Heinz, notably under its ABC and Master brands sold in Indonesia and China, respectively. In herbs
and spices, expected to remain among the best performing categories, Kraft Heinz is absent.

Local brands in emerging markets the main driver for global growth
 Although North America is still

estimated to have generated 52%
of its global sales in 2016, Kraft
Heinz has a wider global reach in
sauces, dressings and
condiments than in other key
categories.
 This global presence spans most
large emerging markets alongside
key developed markets. However,
it is almost exclusively achieved
through brands controlled by
Heinz, while the main brands from
the Kraft unit, Kraft and Miracle
Whip, are predominantly sold in
North America. Western Europe
 The company’s growing presence
in Asia Pacific and Latin America
is largely built around the
operation of local brands, unlike in
Eastern Europe and Western
Europe, where its largest brand is
Heinz.

Robust emerging markets growth fails to offset stagnation in the US
 Kraft Heinz underperformed the

growth in sauces, dressings and
condiments in its largest market,
the US, as well as in most of its
largest developed markets,
notably Australia, Canada and
the UK. Although it outperformed
Russia
the category in major emerging
markets, including Brazil, China
and Mexico, as these are smaller
markets for the group, this failed
to offset declines in key markets.
Among key emerging markets,
the group had its highest share
and continued to see growth in
Indonesia under the chili sauces
and soy sauces brand ABC.
 In Brazil, the acquisition of
Coniexpress in 2013 boosted the
group’s presence under the
Quero brand, present in pasta
sauces and table sauces, and
growth momentum continued.

The US still offers growth potential by targeting premium niches
 Despite Kraft Heinz having recorded stagnating sales between 2011 and 2016 in the US, the market still
offers the company its largest opportunities in actual terms. Kraft Heinz could tap into these growth
opportunities by acquiring a niche manufacturer with a health and wellness positioning such as organic.

MARKET ASSESSMENT
DAIRY
BRAND STRATEGY
RECOMMENDATIONS
Processed meat and seafood and ready meals brands stagnate
 In processed meat and seafood as well as in ready meals, the vast majority of Kraft Heinz’s sales are
derived from North America. Although Kraft Heinz retained its position as the largest player in processed
red meat in the US, driven by its Oscar Mayer brand, which continued to benefit from consumer perception
that it is healthier than frozen or shelf stable meat, it was under fierce pressure from its closest rivals, Tyson
Foods and WH Group. In ready meals, chilled lunch kits recorded steady growth over 2011-2016, with
sales estimated to leapfrog those of dried ready meals in 2016, as the P3 range benefited from the rise in
popularity of high protein content snacks. In dried ready meals, the two main brands, Kraft Macaroni &
Cheese and Velveeta, saw stagnation due to the lack of growth in the category, despite improving the
former brand’s health credentials following the launch of a new recipe containing no artificial preservative
and colouring agents and by focusing on convenience under the Easy Mac microwaveable variants.

Baby food growth offset by falls in fruits and vegetables and snacks
 Kraft Heinz’s processed fruit and vegetable sales stagnated between 2011 and 2016. Its presence almost
entirely stems from brands inherited from the Heinz stable, notably Ore Ida in frozen processed potatoes in
the US and Heinz in shelf stable beans in the UK. Ore Ida’s share in the US has seen steady decline, hit by
pressure from private label in a category seeing intense price competition. A similar competitive pressure
negatively affected the Heinz brand’s sales in shelf stable beans in the UK, where baked beans are in a
long-term decline as they appeal mainly to elderly consumers, forcing manufacturers to rely heavily on
promotions. In 2016, Kraft Heinz launched Mexican recipes in order to invigorate the category. Baby food
sales saw rapid growth, due to the Heinz brand generating the majority of sales from emerging markets,
mainly from the fast-growing Chinese market, in which the Heinz brand steadily increased its share in dried
baby food and prepared baby food, benefiting from the growing trust in international brands over domestic
ones. The company’s other key baby food brand, Plasmon, recorded a strong decline due to a presence
confined to Italy, which has seen falling sales for baby food excluding milk formula.
 In savoury snacks, Kraft Heinz’s presence
mainly derives from the Kraft unit through
Planters, the largest nuts brand in North
America. While growing awareness among
consumers of the health benefits of nuts
drove category sales, Planters’ share was
eroded over 2011-2016 as nut types other
than peanuts benefited more strongly from
health credentials. Seeking to broaden its
geographical reach, the group launched
Planters in the UK in 2016.

MARKET ASSESSMENT
DAIRY
BRAND STRATEGY
RECOMMENDATIONS
BRAND STRATEGY
Prominence of two global brands within a wide portfolio
 The greater reliance on North America in the Kraft part of the business than in the Heinz unit is apparent in
the national ranking of the group’s brands. While Kraft is its largest brand in Canada and the US, Heinz
dominates group sales in Latin America, while local brands are prominent in Argentina, Belgium and Italy.

BRAND STRATEGY
Wide brand portfolio but group growth driven by top three brands
Kraft Heinz Co: 10 Largest Brands in Packaged Food  Although Kraft Heinz controls a vast brand
2016 and Growth 2011-2016 portfolio, its sales are strongly biased towards its
Value sales Absolute growth top three brands, which generated an estimated
Brand % CAGR
(USD million) (USD million) 56% of packaged food sales and 79% of growth
(GBN) 2011-2016
2016 2011/2016 in 2016, while its top 10 brands generated 80% of
Kraft 2.3 6,303.6 675.1 sales in 2016.
Oscar Mayer 3.4 5,133.3 800.4
 Despite its reliance on the mature North
Heinz 4.4 4,630.6 897.2
American market in chilled processed red meat
Planters 3.5 1,681.2 263.7
Philadelphia -8.6 1,409.8 -801.4
and chilled lunch kits, Oscar Mayer outperformed
Velveeta 5.3 1,079.2 245.8 Kraft, helped by a focus on innovative flavours
Kraft Singles -2.6 973.0 -139.5 and more natural ingredients to present an image
Ore Ida -2.3 751.2 -93.7 as a healthier product, notably by eliminating
Jell-O -1.7 613.2 -54.1 artificial preservatives, flavours and colours and
Miracle Whip -3.7 459.5 -94.0 by making the entire range gluten-free.
 Such attributes are increasingly valued among US consumers, due to rising concerns about the use of
hormones and additives in processed meat. By contrast, the Kraft Singles brand recorded steady decline in
sales in the US, underlining the move away from processed cheese towards more natural products within
the Kraft brand’s strategy, reflecting the wider trend seen in the cheese category in North America.
 The strong decline in Philadelphia’s sales was the result of the spin-off of Kraft brands to Mondelez in
2012, resulting in Kraft Heinz retaining control of the brand only in North America, where its share saw a
slight increase between 2012 and 2016, boosted by the growth of the Philadelphia Flavors range. Despite a
reliance on the US market, sales were driven by the solid performance of spreadable processed cheese.

BRAND STRATEGY
Kraft, Heinz and Oscar Mayer: Diversification and focus on snacks
 The Kraft brand’s performance remained strongly hindered by the declining sales of Kraft Singles in the
US. Kraft Singles suffered from its presence in other processed cheese, a category seeing a sharp
decrease in sales in the US, and its positioning does not help it benefit from the rise in demand for dairy
products with more natural and less processed ingredients. However, the resilient performance of the Kraft
brand in unprocessed cheese underlines the move towards more natural products in Kraft’s US sales,
reflecting the wider trend seen in the cheese category. The Kraft brand also encompasses a wide range of
products sold internationally such as mayonnaise, which helped maintain global growth.
 Heinz was the best performing among the group's four largest brands between 2011 and 2016, reflecting
its wider global reach and its greater focus on innovations through new flavours, and by focusing on other
sauces than ketchup, notably barbecue sauces. In addition to robust growth in its core category, sauces,
dressings and condiments, the Heinz brand’s sales rise was also the result of a robust performance in baby
food, helped by a growing presence in emerging markets. Oscar Mayer’s growth remained driven by its
focus on the P3 protein-based chilled lunch kits to meet the rise in demand for convenient snacks.

BRAND STRATEGY
Kraft: Major challenges in North America, Indonesia a bright spot
 For the Kraft brand, the gap between its lacklustre performance in developed markets and its rise in smaller
emerging markets was particularly strong. In Canada and the US, the Kraft brand remains undermined by
its mid-price positioning, particularly within sauces, dressings and condiments. The polarisation of the
category, with consumers increasingly favouring either premium sauces or cheaper economy private label
products, made Kraft particularly vulnerable to this shift.
 Among the fastest growing markets for Kraft, Indonesia presents further growth opportunities in cheese,
due to the rising popularity of Western foods creating more demand from consumers using cheese as an
ingredient to cook pizzas or pasta dishes, cakes or to prepare toasted sandwiches. However, despite
retaining its position as the largest cheese brand in Indonesia, Kraft faces growing competition from more
affordable local brands, notably Prochiz, forcing the brand to adopt a more aggressive pricing strategy.

BRAND STRATEGY
Oscar Mayer: Protein-based and snacking variants boosts brand
 Oscar Mayer saw a resilient performance in the US between 2011 and 2016 in chilled processed meat,
retaining an estimated 17% share in 2016. The brand’s innovations helped improve its health credentials,
especially by focusing on containing no artificial preservatives and flavours and by offering protein-based
recipes to meet the growing demand for high-protein convenient snacks such as bacon jerky in pouches.
Beyond the US, Oscar Mayer has a modest but rapidly growing presence in Mexico in chilled processed
meat, dominated by domestic brands. It has potential for growth by offering products suitable for snacking.
 Oscar Mayer dominates
chilled lunch kits in the
US, maintaining a 69%
share between 2011 and
2016, with WH Group
and Hormel minor
players in a high-growth
and high-margin
category.
 Oscar Mayer P3, a high
protein variant launched
in 2014, featuring Oscar
Mayer meat, Kraft
cheese and Planters
peanuts, drove sales
despite its rising level of
maturity.

MARKET ASSESSMENT
DAIRY
BRAND STRATEGY
RECOMMENDATIONS
RECOMMENDATIONS
Achieving cost-cutting without foregoing growth and innovation
A balancing act between cost-cutting and Stronger focus on naturally healthy positioning,
maintaining a strong innovation pipeline and organic variants in mature categories
 The cost reduction imperatives dictated by 3G  A stronger focus on a healthier and more natural
Capital risk undermining the group’s efforts to fuel positioning could help offset the maturity of
growth through innovation and by entering new categories such as shelf stable fruit and vegetables
product categories and geographies. Improving and differentiate Kraft Heinz’s offer. Following the
health and convenience attributes in low-growth success of Heinz Beanz with 50% less sugar in the
mature environments should remain a core UK, it is being replaced in 2017 with a no added
objective and be combined with exploring new sugar variant with no artificial sweeteners. This
high-growth categories such as soy sauce and may also be achieved through a wider range of
those that could complement the group’s existing gluten-free products in the US, and by promoting
product assortment, such as herbs and spices. organic ranges such as Heinz Beanz Organic.
Co-branding to fuel expansion and innovations Emerging markets growth through expansion of
and rejuvenate categories hit by stagnation existing brands in neighbouring markets
 The group’s vast brand portfolio and wide interests  The group’s modest presence in the Middle East
in packaged food due to the merger between Heinz and Africa, largely built around cheese in Saudi
and Kraft gives potential for numerous brand Arabia, may be expanded in neighbouring markets
synergies through co-branded products, following and adjacent categories associated with Western
the success of Oscar Mayer with the Kraft and dishes. Brands such as ABC in soy sauces and
Planters brands. This approach may help Planters’ Master in ketchup, sold in Indonesia and China,
expansion into new markets and could be used to respectively, may expand across Asia Pacific,
rejuvenate other brands, notably in ready meals, by while the Brazilian pasta sauces brand Quero may
offering ethnic flavours, using Heinz’s credentials. be launched across Latin America.

FOR FURTHER INSIGHT PLEASE CONTACT
Raphaël Moreau
Analyst - Food
raphael.moreau@euromonitor.com
http://uk.linkedin.com/pub/raphael-moreau/62/12/548
RELATED ANALYSIS
Kraft Heinz’s Quarterly Results: Beyond Cost-Cutting in a Low-Growth Environment
- November 2015
Kraft Announces New, More Natural Recipe for Its Iconic Mac and Cheese - April
2015
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Kraft Heinz Co (Food)

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KRAFT HEINZ CO IN PACKAGED FOOD (WORLD)

Established in July 2015

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Key company facts

 Kraft Heinz Co was formed in July 2015 by the Kraft Heinz Co

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Kraft Heinz results: Higher profit margin despite sales stagnation

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SWOT: Kraft Heinz Co

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Key strategic challenges and objectives

Ambitious cost-cutting targets need to be Acquiring cheese companies in emerging

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ConAgra, Nestlé and Unilever among key global competitors

 ConAgra has the largest market

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Overreliance on US market undermines performance against rivals

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Cheese competitive landscape: Kraft Heinz loses out to Lactalis

 Kraft Heinz’s presence in dairy is

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Kraft Heinz loses out to rivals due to reliance on processed cheese

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Finding growth beyond North America without neglecting home turf

 Kraft Heinz is reliant on mature

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Small but growing presence in cheese in a few emerging markets

 Kraft Heinz’s geographic reach in

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Building on growing presence across Asia to offset flat US sales

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McCormick, Nestlé and Unilever among rivals seeing strong growth

 Unilever, is the largest global

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Ketchup remains key growth driver, mayonnaise sees stagnation

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 Although North America is still

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Robust emerging markets growth fails to offset stagnation in the US

 Kraft Heinz underperformed the

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The US still offers growth potential by targeting premium niches

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