Kraft Heinz recently announced a planned split into two separate companies with the goal of improving operating performance and accompanying shareholder return for each of the successor entities. This announcement has generated significant coverage in the business and financial press, with much of this coverage focusing on the challenges Kraft Heinz has faced related to changing consumer tastes and preferences. Additionally, many other companies in consumer products have lamented recent softness in consumer spending across multiple categories.
But are these the primary causal factors of Kraft Heinz’s woes, which actually extend back nearly ten years? While they are undoubtedly part of the story, there has been little to no coverage questioning whether Kraft Heinz has, for years, underinvested in Advertising and Marketing. Further, is this a consequence of a structural misallocation of resources by Kraft Heinz senior management and its board in a fundamentally cash-generative business? Kraft Heinz’s public filings provide information that should provoke some deeper thinking about Kraft Heinz’s past and its prospective future (or futures) as two separate entities.
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Kraft Heinz is among the few companies that disclose Advertising and Marketing in its public filings, though it is not the easiest number to find. Brand-centric public entities are generally very protective and opaque about this number. From 2016 to 2024, Kraft Heinz expended amounts ranging from 3.2% to 4.6% of Net Sales on Advertising and Marketing. For instance, specifically in 2024, Advertising and Marketing of $1.031 billion was 4.0% of $25.9 billion in Net Sales — a Net Sales amount that is actually down from 2016’s level of $26.3 billion. Yes, this business has had its woes for quite some time!
At other brand-centric consumer-products companies, resources dedicated to Advertising and Marketing are more than double that of Kraft Heinz.
For example, Constellation Brands, the producer and marketer of the Corona and Modelo beer brands in the United States, mentioned in a 2023 Investor Day presentation that ~9% of Annual Net Sales would be “Reinvested in Marketing” during its Fiscal 2024 to 2028 cycle. Hostess Brands, a company once bankrupt, allocated amounts ranging from 7.6% to 9.8% of Net Sales on Marketing, Advertising, and Selling during the 2015 to 2022 period before being purchased by J.M. Smucker for $5.6 billion in November 2023.
Constellation Brands’ word choice of “Reinvested” versus “Spent” is an important distinction, and it provides a clue to what could be a broader and prevailing resource allocation issue at Kraft Heinz. In 2024, Kraft Heinz’s $1.031 billion of Advertising and Marketing compared to $1.931 billion of dividend payments and $988 million of stock repurchases, in a year that Operating Activities generated $4.2 billion of cash. This is not a single-year phenomenon. In light of $37 billion of goodwill and other intangible write-downs since 2016, compared to the current market capitalization of $32 billion, one cannot help but ask whether resource allocation priorities have been right.
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Now, this provocative suggestion is not meant to categorically bash healthy dividend payments or stock buybacks. However, as Kraft Heinz announces more details on its planned separation, there will logically be a focus on how debt is allocated between the two entities and what shareholder dividend policies will prevail, among other key financial factors. But, understanding plans relating to Advertising and Marketing should not be overlooked or ignored as another very key financial factor.
Contributed to Branding Strategy Insights by Jim Meier, retired Finance executive of Molson Coors Beverage Company, and Trustee of the Marketing Accountability Standards Board (MASB).
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