Kraft-Heinz settles for $450m after private equity-driven downfall
Kraft-Heinz settles for $450m after private equity-driven downfall
Plus: The New York Times is onboard with Seller's Inflation
This month’s top stories:
Kraft-Heinz settles for $450m after private equity-driven downfall
Things I wrote
New York Times is hot on seller's inflation.
A marketing primer
The plan to steal Coca-Cola (technology)
How Supplementary SNAP Allotments Expiring impact consumption
Kroger Albertson's Impact on Worker
A brief history of Category Killers—the PG version
Kraft-Heinz settles for $450m after private equity-driven downfall
A few years back, I wrote about the disastrous Kraft-Heinz merger and the strategy behind it. The short version is this: 3G, the notorious private equity firm, orchestrated the merger between the two keystone companies. (They got help from Warren Buffett’s Berkshire Hathaway). Once the ink was dried, the new company did the standard private equity playbook. Management cut hundreds of jobs, slashed marketing budgets, and ran the brands into the ground. In 2019 the company admitted it was a disaster and wrote down $15 billion in goodwill.
Shareholders sued, and they've settled for $450 million.
Things I wrote:
Unlocking the Power of Personalization: Target's Membership-driven Promotions (Slotting Fee)
Kraft Heinz’s Innovative Revenue Growth Management Approach (Slotting Fee)
Inside PepsiCo's Winning Strategy with Frito-Lay (Slotting Fee)
Private Label vs. Branded: A European Test Case for P&G (Slotting Fee)
New York Times is hot on seller's inflation.
The Grey Lady is late to the party, but they're here. They finally agree with some version of seller’s inflation— a term first coined by Economist Isabella Weber.
Their general argument is:
Despite a decline in the prices of raw materials and other factors, many large consumer goods companies have been raising prices and increasing profits.
These companies have stated their intentions to continue with this strategy in the foreseeable future.
These companies have cushioned their profits by raising prices and potentially contributed to sustained inflation.
After 18 months of rolling over, consumers, especially those with lower incomes, are becoming more price-sensitive, and some companies are facing resistance to higher prices.
There's not a whole lot to disagree with here, although it's both refreshing and frustrating that it took 1.5-2 years into the pandemic for something to go from a fringe view to acceptance. One caveat is that I’d argue that this profit expansion was accelerated not caused by COVID. Firms have sophisticated RGM teams for this very purpose.
I've been covering the tension between price and volume here since January. As you can imagine, the impact is really dependent on the company and category.
Mondelez has raised prices with impunity.
P&G did the same and saw severe volume declines.
A marketing primer
Clarkston Consulting wrote a nice overview of the different types of marketing within the consumer goods world. In short, brand marketing focuses on building identity and emotional connection, while performance marketing aims for measurable results and ROI. Said another way, brand marketing is Don Draper, and performance marketing is stuff most people never hear about but really drives commerce.
The plan to steal Coca-Cola (technology)
The Chinese government has been accused of encouraging the theft of Western intellectual property—too often devastating results. In this Bloomberg story, the prize is Coca-Cola—although not the legendary drink. It's the technology for the thin polymer liner inside Coke cans, which is a remarkable achievement in chemical engineering. A skilled Coca-Cola chemist attempted to steal the technology and establish her own manufacturing company in China.
It didn't work, but the whole thing raises questions about a potential larger scheme.
How Supplementary SNAP Allotments Expiring impact consumption
In February, emergency SNAP Allotments expired. The move reduced recipients' checks by around $90 a month, throwing an estimated 4 million people back into poverty. The impact was felt immediately.
All of this happened in an era of sky-high inflation.
Again, retail is political.
In the scheme of things, it seems trivial, but Numerator released a quality webinar that examines the shifting purchase behaviors of SNAP recipients in response to these factors. The program has an eye towards brands and retailers better supporting these consumers.
Kroger Albertson's Impact on Worker
Economic Policy Institute, a non-partisan think tank focusing on policies impacting working families, analyzed the pending Kroger-Albertsons merger. They estimate the new company will have such strong bargaining power that it would reduce annual worker wages by $334 million—or around $450 per worker. If EPI is correct, the deal doesn't look too great for workers.
A brief history of Category Killers—the PG version
CNN chronicles the rise and fall of category killers. It defines category killers as dominant retail chains that offer extensive product selection in one category. I always referred to these as specialty retail, but tomato, tamato. The author argues that Toys "R" Us, Blockbuster, and now Bed Bath & Beyond have fallen victim to online shopping and changing consumer preferences. It's a worthwhile and quick read, although the author greatly underestimates the toxic effect private equity and managerial incompetence had on each of the companies he highlights.
I covered Bed Bath and Beyond's fall a while back.