Expert Column: Kraft-Heinz Promotional Opportunities

April 1, 2015, 03:20 pm

By Tanie Andraos, lead business intelligence analyst for ECRM Data

The recent Kraft-Heinz merger will create the third-largest food and beverage company in North America, with a portfolio of iconic brands, eight of which are more than $1 billion, and five brands each worth between $500 million and $1 billion.

The complementary nature of the two brand portfolios present a great opportunity for synergies, which include an estimated $1.5 billion in annual cost savings planned to be implemented by 2017 -- synergies that will come from the increased scale of the new organization, the sharing of best practices, and cost reductions.

One area in which these cost reductions – or at least greater efficiencies – are likely to impact every retailer selling Kraft and Heinz products, is in the brands’ promotional activities and trade spending, as the combined companies seek to optimize their promotional reach via shared ad space and the cross-promotion of complementary brands.

Historically, Kraft and Heinz have not typically shared promotional space. An analysis of ECRM Data’s Ad Comparisons for the past year shows that only 1.4 percent of total Heinz circular ad blocks have also featured a Kraft brand. Within that 1.4 percent we found examples that highlight the opportunity for the new organization, such as featuring Kraft’s Stove Top Stuffing next to Heinz gravy, or promoting Heinz Cocktail Sauce with Kraft tartar sauce.

Using their combined brand portfolio, the company will have the ability to leverage their retail relationships to more aggressively cross-promote such complementary brands in shared ad blocks to both reduce its trade spend as well as drive affinity purchases of each brand.

Here are some specific ways in which The Kraft Heinz Company can leverage its new organization to enhance its promotional activity:

• One-Stop Condiment Shop: For retailers, The Kraft Heinz Company will become a one-stop shop for the entire condiment aisle, with each brand’s portfolio filling out the gaps in the other. Heinz’s iconic ketchup brand will now join Kraft’s salad dressings/toppings, pickles and olives, mustard, mayonnaise, and barbecue/steak sauce, and this will likely be reflected in its promotional activity. Condiments and dressings represent 12.6 percent of the combined company’s ad promotions for the past year.
• Kraft Penetrates Frozen: On the other hand, Heinz will bring Kraft more deeply into the frozen aisle. Ads of Heinz’s frozen brands, including Ore-Ida, Weight Watchers and Smart Ones, represent 61.3 percent of its total ad mix for the past year, compared to just 2.4 percent for Kraft’s past year’s frozen brand mix. Combined, Frozen ad promotional space represented 9.4 percent of the combined companies’ total ad mix for the past year.
• Leveraging Retail Relationships: The Kraft Heinz Company will be in the position to leverage each side’s retail relationships to drive sales at retail accounts they’ve historically struggled in.  For example, Heinz has historically seen relatively little promotional activity at Walgreens, CVS and Rite Aid, while Kraft has performed well in the channel, presenting an opportunity for Heinz brands.