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Kraft Heinz to pause price hikes as margins recover
The CPG is seeing growth among consumers who make more than $100,000.
Amid inflation, many CPGs are continuing to raise prices this year to keep up with costs.
Kraft Heinz, however, is pressing pause.
The maker of Jell-O and Oscar Meyer raised prices by 15.2% in the fourth quarter. The company said it will not be further increasing prices.
“From a pricing perspective, 99% of all needed pricing has already been announced for 2023, CEO Miguel Patricio told analysts on an earnings call. “As we look to the rest of the year, we have no current plan to announce new pricing in North America, Europe, Latin America and most of Asia.”
With the price increases, the volume of goods sold fell 4.8%. This puts pressure on the bottom line, but Kraft Heinz is figuring out how to operate. It posted a profit with net income of $887 million. At the same time, it saw gross margin return to 2019 levels after a period when costs and price increases eroded this key metric. That will enable the company to put money toward initiatives that can help the company.
“We are investing to grow,” Patricio said. “Gross margin expansion feeds investments in technology, in people, in marketing, in R&D. We are excited as well because we anticipated pricing and today, we have 99% of all our pricing for 2023 already announced. We have about 95% of our pricing already accepted, and we have about 90% already implemented.”
It mirrors a trend playing out across consumer goods: As prices go up, consumers buy fewer goods. So at Kraft Heinz, net sales growth of 10% is coming as a result of higher prices.
“The growth in 2023 is all driven by price,” said CFO Andre Maciel. “So volume is still negative. Obviously, it improves throughout the quarters as we start to lap the prices. But even at the end of the year, [it] will still be negative. That's something that as we think about the future, it's not the negative balance that we want. We want a good balance as we think about top line growth between price and volume.”
To keep generating growth at a time when consumers are watching spending closely, the company is employing a mix of strategies, ranging from promotions to packaging that appeals to certain segments.
“We also are making sure that we continue to expand… the number of formats and price points that we offer within our categories to make sure we maintain the consumers that have been with us over the last couple of years,” said Carlos Abrams-Rivera, president of North America.
For instance, the company grew consumption 13% with consumers making over $100,000. At the same time, it is increasing offerings at club and dollar stores.
One area it is watching particularly closely is private label. When prices increase, there is a higher chance that consumers will opt for private label products. The company sees private label share gaining amid inflation.
Executives are addressing this on a number of fronts. In one sense, Kraft Heinz made a long-term plan for this by exiting categories including nuts and natural cheese that were more likely to see store brand competition. But Kraft Heinz is also making moves now to compete both against name brands and private label products.
“Looking at share performance in the fourth quarter relative to the third quarter year-to-date period, we had the most significant improvement in share when comparing to branded competition and private label,” said Patricio. “Private label saw a slight increase, while branded competition is down as private label continues to gain share from other branded players. Private label growth is not coming from us, rather from other branded competition, underscoring the strength of our brands.”
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Kellogg's takes inspiration from employees, Latin in snacks rebrand
Kellanova is now the parent of Pringles, Cheez-Its and Pop Tarts.
Kellogg Company's snacks business is now Kellanova. Here are a few finer points about how the forthcoming parent of Cheez-Its and and Pop-Tarts arrived at the new name.
Last year, Kellogg announced plans to split its business into multiple companies.
Now, one company will have North American cereals like Frosted Flakes, Froot Loops and Rice Krispies under the WK Kellogg Co banner.
Another will have snacks like Pringles, North American frozen foods such as Eggo and plant-based brands like MorningStar Farms.
This week, Kellogg announced that the snacks business has a new name: Kellanova.
Here are the strategies that Kellogg employed that led to this name:
- Ask the employees: Kellogg Company asked employees for input on the name, and received 4,000 suggestions from 1,000 employees.
- Listen to the results: 20% of the employees suggested a variation of the W.K. Kellogg name, while other employees suggested that the name include "nova."
- Go to the root: "Nova" comes from the Latin word for new. CEO Steve Cahillane said it "signals our ambition to continuously evolve as an innovative, next generation, global snacking powerhouse."
As The Wall Street Journal reports, this is just the latest new company name to take a Latin root in recent years, as Kellanova joins GE Vernova, Mondelez and Altria. It's also among a number of spinouts being completed by corporations, joining GSK spinoff Haleon, J&J's Kenvue and a forthcoming company that will spin out of 3M.
Even with a name that emphasizes moving forward, Kellanova is keeping one element that is familiar: The logo still has the iconic cursive K. It will even get the boldly simple stock ticker symbol "K" to go along with it.
Even the WK Kellogg Co is combining the past and future. The company is seeking to position itself as a "117-year-old startup," even as it draws on the name and signature of the Kellogg's founder. There's even a more subtle hint about an unwritten chapter: The "Co" doesn't have a period.
To get to the future, you need to bring along a bit of the past.