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KRAFT HEINZ CO IN PACKAGED FOOD (WORLD) March 2017 Downloaded from www.warc.com
KRAFT HEINZ CO IN PACKAGED FOOD (WORLD) March 2017 Downloaded from www.warc.com

KRAFT HEINZ CO IN PACKAGED FOOD (WORLD)

March 2017

KRAFT HEINZ CO IN PACKAGED FOOD (WORLD) March 2017 Downloaded from www.warc.com

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SCOPE OF THE REPORT

Scope

SCOPE OF THE REPORT Scope © Euromonitor International PACKAGED FOOD: KRAFT HEINZ CO Disclaimer Much of

© Euromonitor International

PACKAGED FOOD: KRAFT HEINZ CO

© Euromonitor International PACKAGED FOOD: KRAFT HEINZ CO Disclaimer Much of the information in this briefing
© Euromonitor International PACKAGED FOOD: KRAFT HEINZ CO Disclaimer Much of the information in this briefing

Disclaimer

Much of the information in this briefing is of a statistical nature and, while every attempt has been made to ensure accuracy and reliability, Euromonitor International cannot be held responsible for omissions or errors. Figures in tables and analyses are calculated from unrounded data and may not sum. Analyses found in the briefings may not totally reflect the companies’ opinions, reader discretion is advised.

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.

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STRATEGIC EVALUATION COMPETITIVE POSITIONING MARKET ASSESSMENT DAIRY SAUCES, DRESSINGS AND CONDIMENTS OTHER PACKAGED

STRATEGIC EVALUATION COMPETITIVE POSITIONING MARKET ASSESSMENT DAIRY SAUCES, DRESSINGS AND CONDIMENTS OTHER PACKAGED FOOD CATEGORIES BRAND STRATEGY RECOMMENDATIONS

MARKET ASSESSMENT DAIRY SAUCES, DRESSINGS AND CONDIMENTS OTHER PACKAGED FOOD CATEGORIES BRAND STRATEGY RECOMMENDATIONS

STRATEGIC EVALUATION

Key company facts

STRATEGIC EVALUATION Key company facts  Kraft Heinz Co was formed in July 2015 by the

Kraft Heinz Co was formed in July 2015 by the merger of Heinz and Kraft instigated by the 3G Capital investment vehicle. Heinz holds a 51% stake in the new group, whose headquarters, at least initially, remain split between the locations of its two entities. Among its core packaged food categories are dairy, sauces, dressings and condiments and processed meat and seafood, which combined generated an estimated 67% of its packaged food sales in 2016. Heinz focuses on sauces, dressings and condiments, while Kraft’s key categories are dairy, processed meat and seafood and ready 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 Co

Headquarters:

Chicago and Pittsburgh, USA

Regional

Global

involvement:

Key category

Dairy, sauces, dressings and condiments, processed meat and seafood, ready meals

involvement:

World packaged food value share (2016):

1.4%

World packaged food value growth:

2.2% (CAGR 2011-2016)

World packaged food value growth: 2.2% (CAGR 2011-2016) © Euromonitor International PACKAGED FOOD: KRAFT HEINZ CO

© Euromonitor International

PACKAGED FOOD: KRAFT HEINZ CO

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STRATEGIC EVALUATION

STRATEGIC EVALUATION Kraft Heinz results: Higher profi t margin despite sales stagnat ion  Despite a

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.

although the latter was the fastest growing division . Kraft Heinz Co: Financial Year (FY) to

Kraft Heinz Co: Financial Year (FY) to 31 December 2016 Sales and Profits 2015-2016

 

Adjusted

 

Net sales

EBITDA

FY ending 31 December 2016

2016 (USD

% annual

(USD

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

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0.3 7 , 7 7 8 © Euromonitor International PACKAGED FOOD: KRAFT HEINZ CO PASSPORT 5

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STRATEGIC EVALUATION

SWOT: Kraft Heinz Co

STRENGTHS

Stronger global reach and high profit margins Following the merger between Heinz and Kraft, the new entity gained greater scale of operations and global reach. It also swiftly implemented cost cuts and has been able to raise its profit margins.

Wide category and geographic presence A wide global reach for Heinz in emerging markets, notably due to acquisitions in Latin America and Asia, adds to Kraft’s strong position in the US. The group’s brand portfolio spans numerous packaged food categories.

More acquisitions; scope for more group synergies Due to 3G Capital’s stake in Kraft Heinz, it is likely to make new acquisitions, possibly targeting niche players. There remains scope for leveraging distribution to boost its global reach.

OPPORTUNITIES

Healthier variants of main brands and co-branding As the group’s brands cover diverse categories, this favours innovations through co-branding, as well as by focusing on variants positioned as natural and healthy to boost their image.

WEAKNESSES

Brands’ image still linked to heavily processed food Key brands remain too associated with unhealthy processed food not resonating among US consumers seeking more natural food, notably young adults, despite reducing artificial ingredients.

THREATS

Dependence on UK and US creates uncertainty An uncertain political landscape in the UK and the US, with possible shift to protectionism, may affect the group’s operations in two of its key markets and in neighbouring markets.

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PACKAGED FOOD: KRAFT HEINZ CO

© Euromonitor International PACKAGED FOOD: KRAFT HEINZ CO Riskier strategic rethink to offset market maturity 
© Euromonitor International PACKAGED FOOD: KRAFT HEINZ CO Riskier strategic rethink to offset market maturity 

Riskier strategic rethink to offset market maturity A strong reliance on mature categories and developed markets, notably dairy in the US, undermines the group’s organic growth potential, forcing it to acquire other companies or to focus on new products.

Rivals with strong health and wellness credentials Some of the group’s key brands remain too associated with heavily processed food in many consumers’ minds and risk losing out to rivals with a clear health and wellness positioning.

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STRATEGIC EVALUATION

Key strategic challenges and objectives

STRATEGIC EVALUATION Key strategic challenges and objectives Ambitious cost-cutting targets need to be balanced by

Ambitious cost-cutting targets need to be balanced by longer-term growth strategies Since the merger leading to creation of Kraft Heinz in 2015, the company’s cost-cutting ability has been demonstrated by being ahead of its target, leading it to raise it from USD1.5 billion savings to USD1.7 billion by late 2017. However, sales growth is lagging behind and the prospects for a major upturn appear remote. Nurturing brands’ capacity for growth by investing in distribution, innovation and marketing strategies may be jeopardised by having fewer resources due to restructuring. Brand and distribution synergies opportunities between Heinz and Kraft, including co-branding While strategies to create synergies between Heinz and Kraft are still ongoing, this could allow Kraft’s brands to enter new markets thanks to Heinz’s greater global reach. Co-branding is also likely to be widely implemented with ready meals and sauces, dressings and condiments offering potential for innovations, notably with ethnic food recipes. However, such complex branding exercises pose the risk of diluting brands’ images.

Acquiring cheese companies in emerging markets likely to be a major axis for growth As Kraft Heinz relies mainly on the mature North American markets in its largest category, cheese, it may seek to focus its growth efforts on emerging markets, notably under key local brands already in its portfolio, in Brazil and Indonesia. Beyond leveraging the Heinz brand’s greater global reach in order to expand the distribution of Kraft brands, it may need to look for partnerships or to acquire local players in order to establish local sourcing, in addition to pursuing organic growth. 3G Capital’s search for large deals - acquiring brands to achieve sustainable growth strategy The move to approach Unilever with a merger offer in February 2017, although rejected, highlights that Kraft Heinz is likely to look for a large acquisition in 2017. Although it will primarily target companies offering potential for deep cost cuts, the group may also seek to acquire niche companies which would help shift its positioning towards healthier, natural products, notably with healthy snack brands, which would help resume a sustainable growth strategy.

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STRATEGIC EVALUATION COMPETITIVE POSITIONING MARKET ASSESSMENT DAIRY SAUCES, DRESSINGS AND CONDIMENTS OTHER PACKAGED

STRATEGIC EVALUATION COMPETITIVE POSITIONING MARKET ASSESSMENT DAIRY SAUCES, DRESSINGS AND CONDIMENTS OTHER PACKAGED FOOD CATEGORIES BRAND STRATEGY RECOMMENDATIONS

MARKET ASSESSMENT DAIRY SAUCES, DRESSINGS AND CONDIMENTS OTHER PACKAGED FOOD CATEGORIES BRAND STRATEGY RECOMMENDATIONS
COMPETITIVE POSITIONING ConAgra, Nestlé and Unilever among key global competitors  ConAgra has the largest

COMPETITIVE POSITIONING

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.

in sauces, dressings and condiments in key emerging markets. © Euromonitor International PACKAGED FOOD: KRAFT HEINZ

© Euromonitor International

PACKAGED FOOD: KRAFT HEINZ CO

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COMPETITIVE POSITIONING Overreliance on US market under mines performance against rivals  When combining the

COMPETITIVE POSITIONING

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.

focus on high growth categories, including baby food. © Euromonitor International PACKAGED FOOD: KRAFT HEINZ CO

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COMPETITIVE POSITIONING

COMPETITIVE POSITIONING Largest packaged food players: Kraft Heinz remains among top fi ve  The merger

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.

Danone overtook Mars for sixth place in 2016, as it benefited from global growth in its two core categories, baby food and yoghurt, whereas Mars’s performance was hit by stagnating sales in chocolate confectionery, which accounts for the majority of its packaged food sales. Hence, Danone is well placed to overtake Kraft Heinz into fifth place.

Packaged Food Top Players by Value Share 2016 and Ranking 2011-2016

Company (GBOL)*

2011 2012 2013 2014 2015 2016

% company

share 2016

Nestlé SA

111111

2.8

PepsiCo Inc

222222

2.1

Mondelez International Inc

333333

2.0

Unilever Group

444444

1.6

Kraft Heinz Co

555555

1.4

Danone, Groupe

777776

1.3

 

666667

1.3

Mars Inc Lactalis, Groupe General Mills Inc Kellogg Co Inner Mongolia Yili Industrial Group Co Ltd Ferrero Group Grupo Bimbo SAB de CV China Mengniu Dairy Co Ltd Hershey Co, The

998888 0.9
998888
0.9

10

10

9

9

9

9

0.8

8 8 10 10 10 10 0.8
8
8
10
10
10
10
0.8

15

15

14

13

13

11

0.7

12 12 12 12 11 12 0.7
12
12
12
12
11
12
0.7

11

11

11

11

12

13

0.7

14 14 13 14 14 14 0.5
14
14
13
14
14
14
0.5

17

17

17

16

16

15

0.5

Note: * Company shares measured by GBO by latest owner.

The steady rise in the ranking of China’s two largest packaged food manufacturers, China Mengniu Dairy and Inner Mongolia Yili, was driven by strong growth in dairy between 2011 and 2016.

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PACKAGED FOOD: KRAFT HEINZ CO

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STRATEGIC EVALUATION COMPETITIVE POSITIONING MARKET ASSESSMENT DAIRY SAUCES, DRESSINGS AND CONDIMENTS OTHER PACKAGED

STRATEGIC EVALUATION COMPETITIVE POSITIONING MARKET ASSESSMENT DAIRY SAUCES, DRESSINGS AND CONDIMENTS OTHER PACKAGED FOOD CATEGORIES BRAND STRATEGY RECOMMENDATIONS

MARKET ASSESSMENT DAIRY SAUCES, DRESSINGS AND CONDIMENTS OTHER PACKAGED FOOD CATEGORIES BRAND STRATEGY RECOMMENDATIONS
DAIRY Cheese competitive landscape: Kraft Heinz loses out to Lactalis  Kraft Heinz’s presence in

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.

cheese sales in 2016, saw a decline between 2011 and 2016. © Euromonitor International PACKAGED FOOD:

© Euromonitor International

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

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.

towards mature market s, including Australia and Japan. © Euromonitor International PACKAGED FOOD: KRAFT HEINZ CO

© Euromonitor International

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DAIRY

DAIRY Finding growth beyond North Ameri ca without neglecting home tur f  Kraft Heinz is

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.

could help the group maintain growth in this region. Eastern Europe © Euromonitor International PACKAGED FOOD:
Eastern Europe
Eastern Europe

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region. Eastern Europe © Euromonitor International PACKAGED FOOD: KRAFT HEINZ CO PASSPORT 15 Downloaded from www.warc.com

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

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.

growing emerging markets, notably China and Saudi Arabia. © Euromonitor International PACKAGED FOOD: KRAFT HEINZ CO

© Euromonitor International

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DAIRY Building on growing presence acro ss Asia to offset flat US sale s 

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.

although Kraft Heinz already dominates in cheese. © Euromonitor International PACKAGED FOOD: KRAFT HEINZ CO

© Euromonitor International

PACKAGED FOOD: KRAFT HEINZ CO

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STRATEGIC EVALUATION COMPETITIVE POSITIONING MARKET ASSESSMENT DAIRY SAUCES, DRESSINGS AND CONDIMENTS OTHER PACKAGED

STRATEGIC EVALUATION COMPETITIVE POSITIONING MARKET ASSESSMENT DAIRY SAUCES, DRESSINGS AND CONDIMENTS OTHER PACKAGED FOOD CATEGORIES BRAND STRATEGY RECOMMENDATIONS

ASSESSMENT DAIRY SAUCES, DRESSINGS AND CONDIMENTS OTHER PACKAGED FOOD CATEGORIES BRAND STRATEGY RECOMMENDATIONS

SAUCES, DRESSINGS AND CONDIMENTS

SAUCES, DRESSINGS AND CONDIMENTS McCormick, Nestlé and Unilever a mong rivals seeing strong growt h 

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.

offsetting the stagnation of its sales in Western Europe. © Euromonitor International PACKAGED FOOD: KRAFT HEINZ

© Euromonitor International

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SAUCES, DRESSINGS AND CONDIMENTS

SAUCES, DRESSINGS AND CONDIMENTS Kraft Heinz recovers but suffers from geography and category bi as 

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.

Europe, Latin America and in the Middle East and Africa. © Euromonitor International PACKAGED FOOD: KRAFT

© Euromonitor International

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SAUCES, DRESSINGS AND CONDIMENTS

SAUCES, DRESSINGS AND CONDIMENTS Ketchup remains key growth driver, mayonnaise sees stagnation  Ketchup, the largest

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.

the best performing catego ries, Kraft Heinz is absent. © Euromonitor International PACKAGED FOOD: KRAFT HEINZ

© Euromonitor International

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SAUCES, DRESSINGS AND CONDIMENTS

SAUCES, DRESSINGS AND CONDIMENTS Local brands in emerging markets the main driver for global gro wth

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.

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.

Western Europe
Western Europe

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SAUCES, DRESSINGS AND CONDIMENTS

SAUCES, DRESSINGS AND CONDIMENTS Robust emerging markets growth fails to offset stagnation in th e US

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 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.

Russia
Russia

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SAUCES, DRESSINGS AND CONDIMENTS The US still offers growth potential by targeting premium niche s

SAUCES, DRESSINGS AND CONDIMENTS

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.

with a health a nd wellness positioning such as organic. © Euromonitor International PACKAGED FOOD: KRAFT

© Euromonitor International

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STRATEGIC EVALUATION COMPETITIVE POSITIONING MARKET ASSESSMENT DAIRY SAUCES, DRESSINGS AND CONDIMENTS OTHER PACKAGED

STRATEGIC EVALUATION COMPETITIVE POSITIONING MARKET ASSESSMENT DAIRY SAUCES, DRESSINGS AND CONDIMENTS OTHER PACKAGED FOOD CATEGORIES BRAND STRATEGY RECOMMENDATIONS

ASSESSMENT DAIRY SAUCES, DRESSINGS AND CONDIMENTS OTHER PACKAGED FOOD CATEGORIES BRAND STRATEGY RECOMMENDATIONS

OTHER PACKAGED FOOD CATEGORIES

OTHER PACKAGED FOOD CATEGORIES Processed meat and seafood and ready meals brands stagnate  In processed

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.

ng on convenience under the Easy Mac microwaveable variants. © Euromonitor International PACKAGED FOOD: KRAFT HEINZ
ng on convenience under the Easy Mac microwaveable variants. © Euromonitor International PACKAGED FOOD: KRAFT HEINZ

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OTHER PACKAGED FOOD CATEGORIES

OTHER PACKAGED FOOD CATEGORIES Baby food growth offset by falls in fruits and vegetables and s

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.

see n falling sales for baby food e xcluding milk formula.  In savoury snacks, Kraft

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.

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STRATEGIC EVALUATION COMPETITIVE POSITIONING MARKET ASSESSMENT DAIRY SAUCES, DRESSINGS AND CONDIMENTS OTHER PACKAGED FOOD CATEGORIES BRAND STRATEGY RECOMMENDATIONS

MARKET ASSESSMENT DAIRY SAUCES, DRESSINGS AND CONDIMENTS OTHER PACKAGED FOOD CATEGORIES BRAND STRATEGY RECOMMENDATIONS
BRAND STRATEGY Prominence of two global br ands within a wide portfolio  The greater

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.

local brands are prominent in Argentina, Belgium and Italy. © Euromonitor International PACKAGED FOOD: KRAFT HEINZ

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BRAND STRATEGY Wide brand portfolio but group gr owth driven by top three brand s

BRAND STRATEGY

Wide brand portfolio but group growth driven by top three brands

Kraft Heinz Co: 10 Largest Brands in Packaged Food 2016 and Growth 2011-2016

Value sales Brand % CAGR (USD million) Absolute growth (USD million) (GBN) 2011-2016 2016 2011/2016
Value sales
Brand
% CAGR
(USD million)
Absolute growth
(USD million)
(GBN)
2011-2016
2016
2011/2016

Kraft

2.3

6,303.6

675.1

Oscar Mayer 3.4 5,133.3 800.4
Oscar Mayer
3.4
5,133.3
800.4

Heinz

4.4

4,630.6

897.2

Planters 3.5 1,681.2 263.7
Planters
3.5
1,681.2
263.7

Philadelphia

-8.6

1,409.8

-801.4

Velveeta 5.3 1,079.2 245.8
Velveeta
5.3
1,079.2
245.8

Kraft Singles

-2.6

973.0

-139.5

Ore Ida

-2.3

751.2

-93.7

Jell-O

-1.7

613.2

-54.1

Miracle Whip

-3.7

459.5

-94.0

Although Kraft Heinz controls a vast brand portfolio, its sales are strongly biased towards its top three brands, which generated an estimated 56% of packaged food sales and 79% of growth in 2016, while its top 10 brands generated 80% of sales in 2016.

Despite its reliance on the mature North American market in chilled processed red meat and chilled lunch kits, Oscar Mayer outperformed Kraft, helped by a focus on innovative flavours and more natural ingredients to present an image as a healthier product, notably by eliminating artificial preservatives, flavours and colours and 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.

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BRAND STRATEGY Kraft, Heinz and Oscar Mayer: Diversification and focus on snac ks  The

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.

kits to meet the ri se in demand for convenient snacks. © Euromonitor International PACKAGED FOOD:

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BRAND STRATEGY Kraft: Major challenges in Nort h America, Indonesia a bright sp ot 

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.

the brand to adopt a more aggressive pricing strategy. © Euromonitor International PACKAGED FOOD: KRAFT HEINZ

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BRAND STRATEGY Oscar Mayer: Protein-based and snacking variants boosts brand  Oscar Mayer saw a

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.

minor players in a high-growth and high-margin category.  Oscar Mayer P3, a high protein variant
minor players in a high-growth and high-margin category.  Oscar Mayer P3, a high protein variant

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.

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STRATEGIC EVALUATION COMPETITIVE POSITIONING MARKET ASSESSMENT DAIRY SAUCES, DRESSINGS AND CONDIMENTS OTHER PACKAGED

STRATEGIC EVALUATION COMPETITIVE POSITIONING MARKET ASSESSMENT DAIRY SAUCES, DRESSINGS AND CONDIMENTS OTHER PACKAGED FOOD CATEGORIES BRAND STRATEGY RECOMMENDATIONS

MARKET ASSESSMENT DAIRY SAUCES, DRESSINGS AND CONDIMENTS OTHER PACKAGED FOOD CATEGORIES BRAND STRATEGY RECOMMENDATIONS
RECOMMENDATIONS Achieving cost-cutting without foregoing growth and innovation A balancing act between cost-cutting and

RECOMMENDATIONS

Achieving cost-cutting without foregoing growth and innovation

A balancing act between cost-cutting and maintaining a strong innovation pipeline

The cost reduction imperatives dictated by 3G Capital risk undermining the group’s efforts to fuel growth through innovation and by entering new product categories and geographies. Improving health and convenience attributes in low-growth mature environments should remain a core objective and be combined with exploring new high-growth categories such as soy sauce and those that could complement the group’s existing product assortment, such as herbs and spices. Co-branding to fuel expansion and innovations and rejuvenate categories hit by stagnation The group’s vast brand portfolio and wide interests in packaged food due to the merger between Heinz and Kraft gives potential for numerous brand synergies through co-branded products, following the success of Oscar Mayer with the Kraft and Planters brands. This approach may help Planters’ expansion into new markets and could be used to rejuvenate other brands, notably in ready meals, by offering ethnic flavours, using Heinz’s credentials.

Stronger focus on naturally healthy positioning, and organic variants in mature categories

A stronger focus on a healthier and more natural positioning could help offset the maturity of categories such as shelf stable fruit and vegetables and differentiate Kraft Heinz’s offer. Following the success of Heinz Beanz with 50% less sugar in the UK, it is being replaced in 2017 with a no added sugar variant with no artificial sweeteners. This may also be achieved through a wider range of gluten-free products in the US, and by promoting organic ranges such as Heinz Beanz Organic. Emerging markets growth through expansion of existing brands in neighbouring markets The group’s modest presence in the Middle East and Africa, largely built around cheese in Saudi Arabia, may be expanded in neighbouring markets and adjacent categories associated with Western dishes. Brands such as ABC in soy sauces and Master in ketchup, sold in Indonesia and China, respectively, may expand across Asia Pacific, while the Brazilian pasta sauces brand Quero may be launched across Latin America.

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FOR FURTHER INSIGHT PLEASE CONTACT Raphaël Moreau Analyst - Food raphael.moreau@euromonitor.com
FOR FURTHER INSIGHT PLEASE CONTACT Raphaël Moreau Analyst - Food raphael.moreau@euromonitor.com

FOR FURTHER INSIGHT PLEASE CONTACT

FOR FURTHER INSIGHT PLEASE CONTACT Raphaël Moreau Analyst - Food raphael.moreau@euromonitor.com

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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