SAN DIEGO — Last week, the consumer-packaged-goods giant Kraft Heinz announced a $15.4 billion write-down of its mega-brands Kraft and Oscar Mayer and disclosed an investigation by the US Securities and Exchange Commission of its accounting practices, which sent its stock plunging.
But the write-down news is “irrelevant” to the company’s marketing, Kraft Heinz’s global brand officer and US chief marketing officer, Eduardo Luz, told Business Insider during a one-on-one interview at the Association of National Advertisers’ Brand Masters Conference in San Diego on Thursday.
“What you heard about the brands and the impairment are accounting issues,” he said, adding: “Last week’s news itself is irrelevant to our brand-building approach.”
He also addressed the importance of brands’ having a point of view on social issues, how the company was investing in innovation, and how the company’s demands of its ad agencies were changing.
Here’s an edited version of our conversation.
Tanya Dua: How does last week’s write-down affect your approach to marketing and innovation?
Eduardo Luz: Well, the sound bite is definitely not positive. But the news itself is irrelevant to our brand-building approach, or what we call “The KHC Way.” What you heard about the brands and the impairments, it’s all accounting. Those are accounting issues. It has nothing to do with the brands.
Dua: But $15 billion-plus write-down is not small. Doesn’t that mean that your brand perception has taken a hit?
Luz: In the case of Kraft and Oscar Mayer, the only reason why these impairments happened is because we didn’t change our perspective of growth for those brands. Because costs are going up, you have do those corrections accounting wise. But we are super bullish on these brands.
Some of them, Kraft for example, need a lot of love. Kraft is our largest brand, and I am super confident about the new positioning that we’ve landed on for it, which is to create moments of release to make parenting more joyful. “Kraft Now, Pay Later” was the first manifestation of the new brand’s new positioning to the world. You will see more of that.
In the Oscar Mayer portfolio, we have cleaned up ingredients on hot dogs and cold cuts. We are seeing these brands coming back big time on the back of these changes.
Dua: How are you evolving your brands to align with changing customer tastes today?
Luz: We believe that what a brand serves is not enough anymore. People want to choose and espouse brands that have a point of view to the world. And we’re trying to be very systematic in how we do that with our brands. We are spending a lot of time with our teams and our agency partners to articulate what our brands stand for. If the brands can manifest their values in the world, not only with products, but with actions, that’s our brand-building approach.
Dua: Can you share examples of some of your brands and the values they stand for?
Luz: Some are easier, because they’re new, like Devour, which exists to fulfill unapologetic pleasures. It’s harder for the legacy brands, which are over a hundred years old, and have to find their reason to exist. For Heinz, for instance, we went all the way back to what the founder said 150 years ago. Heinz is about doing common things uncommonly well, which is a quote from H.J. Heinz himself, which is beautiful. And it’s working. The brand is growing by 6, 7% every year in the US.
Dua: Can you elaborate on the “The KHC Way”?
Luz: Our model as a company is to really give a lot of leeway to people. But it’s not just about giving them leeway — you also have to equip them. The KHC Way [Kraft Heinz Way] is a set of 10 principles that articulate where we take the brands from a high-level perspective. They are basically a checklist for questions that you have to ask yourself when you’re about to take a key decision for a brand on design, media, communication, or innovation. These principles are important because it’s such a diverse, fragmented portfolio. We have a lot of work to do to make sure that our teams are capable and equipped to make the best decisions for our brands in the long term.
Dua: How are your brands grappling with trends like the rise of e-commerce ?
Luz: We will participate and compete in and be present and relevant in whatever channel makes sense for the consumers. Thirty years ago, when big-box retailers like Costco and Sam’s Club emerged, we migrated there and adapted our offerings to that channel, as we are with e-commerce now. Earlier, it was about negotiating for larger displays and more shelf space, and now it’s about being on the first page of Amazon, or the top of the Google search results. It’s the same logic — it’s just a different manifestation.
Dua: And how are you competing with direct-to-consumer upstarts?
Luz: Two years ago, we founded a platform called “Springboard.” The focus of Springboard is to work with and learn from brands that play in three or four spaces that we think will continue to disrupt the industry, so brands that are healthy breads that are organic and clean, for example. It has an incubation program, where we bring in early-stage companies and incubate them for 16 weeks, which is super cool. They learn a lot. We learn a lot. We also use Springboard to plug in acquisitions, for instance, our recent acquisition of Primal Kitchen, which is attached to Springboard and will continue to operate independently.
Dua: How can agencies remain relevant to meeting the needs of brands like yours?
Luz: Agencies and, in fact, everybody, needs to learn to operate at the speed of culture. Those days of annual planning, retainers, your 30-second TV commercial, those days are pretty much gone. What you need now is to be crystal clear about what your brand stands for and have partners who have their finger on the pulse of culture and are able to bring ideas constantly that you can activate against. The Kraft team, for example, meets with its agency Leo Burnett Chicago every Friday at 3 p.m., where the agency pitches them.
That’s how “Kraft Now, Pay Later” was born. It was pitched on a Friday, and we had set up the store by Wednesday. Those are the kind of partners we need.