Kraft Heinz CEO Miguel Patricio is confident that the company will meet its full-year net sales targets and exceed previous gross profit margins as part of a four-prong action plan to “take hold.”
The company’s US dollar share dropped from January through April, with price increases activated in February to offset inflation and a reduction in SNAP benefits in March restricting the spending ability of a key consumer group for the company.
The overall volume mix for Kraft Heinz fell 7 percentage points in the quarter and 8.1 percentage points in North America following an 11-percentage point and 9.4 percentage point pricing increase in each, respectively. The impact of the price increases was a headwind we expected, but the good news is that the pricing is done, and even with the elevated price gaps, we aren’t losing incremental share to private labels.
He acknowledged that the company is, however, losing incremental share to brands that are promoting more than Kraft Heinz. In the second quarter, Kraft Heinz sold 29% of its volume in the US on promotion, compared to a branded competitor that sold 35% in the same period.
To reassure investors and analysts, Patricio noted the company is taking a disciplined and surgical approach to protecting its profit dollars in certain categories. With this approach and by continuing to unlock efficiencies across the value chain, they are generating margin gains. With these margin gains and in line with their strategy to drive further growth, they are investing more in marketing, R&D, and technology. Since executing a four-prong plan to increase volume and capture additional share across the US retail business, volumes have begun to rebound.
The company has already started increasing its marketing spend, boosting it by 23% in the second quarter compared to the previous year, delivering improvements. The average ROI increased approximately 15 percentage points compared to 2019 and approximately 5 percentage points compared to the prior year. The company is also expanding into new aisles in the grocery store, including KRAFT Mac & Cheese entering the frozen aisle and Lunchables being introduced in the produce aisle. While Kraft continues to grapple with losses in many categories, Taste Elevation and Easy Meals have returned to share gains.
Improved gross margins hold promise as each of these strategies continues to gain traction, allowing the company to maintain its expected 4-6% organic net sales growth projection for fiscal 2023. Gross margin levels in the second half of the year are expected to be roughly in line with the first half as inflation eases and promotions increase.