Kraft Heinz Splits Into Two Companies

Kraft Heinz announced on September 2nd that they would be splitting into two separate companies. This split, occurring about a decade after the initial merger of Kraft and Heinz, will result in two new companies. One company will focus more on the global leader brands such as Heinz, Kraft Mac & Cheese, and Philadelphia, while the other will focus on North American food and beverage brands such as Lunchables, Oscar Mayer, and Capri Sun. Join the positioning duo for this week's episode to hear their thoughts on the Kraft Heinz separation.

Join Mark and Lorraine for 30-ish as they discuss all things marketing, advertising, and of course … positioning!

Transcript

Mark Vandegrift 
Welcome to another episode of the Brand Shorthand Podcast. I'm your host, Mark Vandegrift. And with me today is your creative conqueror, Lorraine Kessler. Lorraine, we have some news to talk about. 

Lorraine Kessler
My gosh, Creative Conqueror. 

Mark Vandegrift 
It's your favorite topic. You ready? AI.

Lorraine Kessler
Oh gosh, yeah, my favorite, yeah. Yeah.

Mark Vandegrift 
And guess what? You're gonna love it because it is proven what we've been saying. There's a story on LinkedIn, and if you haven't seen it, you need to look it up. 95 % of AI implementations are failing.

Lorraine Kessler
Well, by whom?

Mark Vandegrift 
Does that surprise you?

Lorraine Kessler
Yeah, no, well, I just have questions. 95 % of AI implementations by whom?

Mark Vandegrift 
Well, by any corporation, and the fail is this, they are not increasing productivity and they're not increasing revenue. In fact, they're causing less revenue and or more expense because of it takes to implement it.

Lorraine Kessler
So how would, so help me understand, how would a company other than like Google or when you're trying to research something, how would a company want to use AI?

Mark Vandegrift
Okay. Well, let me give you a really good example because one of our developers and I were just talking about it two days ago. So he comes, he goes, Hey, when are we going to implement our AI model? And I said, male or female is what I thought. He goes, not a person. He goes, you know, like the model, the, the, the generative model. You guys, you load up all of our stuff and instead of needing to look up in a handbook or look up on a Wiki, you just ask the AI, what is it that, what's your question? Like how many hours of PTO does an Innis Maggiore Associate get per year? And it should be able to look through all of our documents, come back and tell us that, or how do I mark my time down if I'm you know, if I have bereavement leave and it returns that information from the manual, right? Well, what essentially is happening there, oh, by the way, we do have a name for it. We're going to call it Dick after our founder, Dick Maggiore. It'll be Ask Dick and all of the results have to return in lowercase. There can be no caps. So we have this all thought out, we're in good shape. But what that would essentially say is 95 % chance is we do all this work, we load all of our content, and it does nothing in helping us out. In fact, it will cost us more money because we've spent time doing it, and it's provided little if no return or an accurate return. And so that's an example of implementing an AI solution.

Lorraine Kessler
Okay. Yep. Okay. Well, I get it now, I guess. So from an employee or an HR standpoint, especially when you're 35 people, right? Just ask somebody. Just pick up the phone. Like, I mean, it's crazy. Well, I mean, this isn't new. You and I lived through the internet, the web, We live through social media, right? And no one did it right to begin with. Everybody did it wrong. Everyone oversold it. You know, it's nothing new. People can research this through AI, but new technology has a very long learning curve from PC to cell phone to the internet to social media, how to use it, when to use it, what is it best used for. You know, unfortunately, it's trial and error. I mean, you'll have to make mistakes. You'll have to waste some time to figure out what's valuable and what isn't. And things evolve at the same point that you're learning and failing. So I'm not surprised at all and the more specialized and the newer the technology, typically what we find is doing it yourself is not a good idea. Right? There tends to be early experts in these fields. So we saw companies who would say, well, my daughter can build a website. Right? My son-in-law can do social media. That doesn't mean they're doing it well or doing it right or have the best knowledge to build on. So, you know, these are the, this is what happens with anything new technologically. I think there's going to be a lot of fits and starts and a lot of bad starts. And it's going to take a while for people to realize what is the real value in our business. I think it will find a home in most companies, but 95 % failures is still exceedingly high. yeah, yeah,

Mark Vandegrift 
Yeah, that's significant, isn't it? Well, speaking of failures, that's our topic for today. And it's a failure in a probably another area where we would have said this is not a good idea. And if I said to you craft and Heinz, and then I put that together, would you know who I'm talking about?

Lorraine Kessler
Well, yeah, I mean, they came together at some point, right? And it's always been confusing from the beginning when you have the name of the company be also the name of a brand, right? Like Kraft is cheese and lots of other, they've done line extension more than any other brand I can think of right now in terms of the Kraft name, meaning many things. But in Heinz, you know, ketchup and pickles, but mainly ketchup. So when it's a company, you know, it's a little, that always creates a little bit of confusion.

Mark Vandegrift
Well, they split in two after merging. And what are your thoughts on the split? Why did it happen and does it mean anything to anybody really?

Lorraine Kessler
Well, yes, it means very little to consumers, right? Let's just start there. Consumers buy brands. They don't buy companies. Real simple. And they rename these companies, and I guess these are placeholder names, thank heavens, Global Taste Elevation Company. I don't know, is that an elevator company? My competitor is Schindler-Houghton Otis Elevator.

Mark Vandegrift 
Yeah. Ha ha.

Lorraine Kessler
It was very confusing. And North American Grocery Company. So that sounds like a grocery store. They're really bad placeholders, but thankfully they are placeholders.

Mark Vandegrift 
Did you look at the acronym for North American Grocery? NAG. I work for NAG.

Lorraine Kessler
Oh, nag. No, I didn't see it. Oh my God. Yeah, work for Nag. Okay. So let's clarify this for everyone. The only people who would care about this split of companies and their portfolios, which are these brands, right? The brands of Ore-Ida and the brands of Philadelphia cream cheese and Kraft and Heinz and Maxwell House, that's what consumers care about. But the company split and the company's division is really intended for investors. That's who should care about this. Investors should see some greater return. That's what they're looking for. That's the value. Some may be greater synergy direction, strategy, focus, whatever. And that's what this means. So I can only hope that once they rename these companies, right, that they get more handable names than NAG or the Elevator Elevation Company. Let's just hope that they have something a little bit better. So they do tend to lean towards one is more American. One is global. Okay, so that's what they're trying to accomplish here. But for the life of me, I can't make strategic sense out of the portfolio, the brands that they put, because Kraft is in both. Kraft is in, yeah, Kraft brand is in both. In one, it's in, I think in the global. I can't remember which one that is. Let me look up and see. In the Global, there's sauces, spreads, and seasonings, right? That's what Global's about. Global is supposed to be about 70 % sauces, spreads, seasonings, and they have Kraft Mac and Cheese. So how does that fit? It's not like a sauce, a spread, or a seasoning. It's like an actual food. And then Kraft Singles is in the grocery box. So I don't understand how they, I don't see how the portfolios and how that split makes sense. So someone would have to explain that to me. Now I do think I can see value in splitting the companies. And the value is, you and I know this, the bigger the company, the greater the bureaucracy. The greater the bureaucracy, it's a killer. It's a killer to innovation, to nimbleness, to being able to react to the market, right? It's just less productive, right? Productivity usually goes down as bureaucracy goes up. Now employees become really in tune that they're rewarded for following whatever procedures or processes rather than being nimble and innovative. And so process wins at the expense of innovation. And I think in a fast moving food category, that's not a good trade off. Okay. So I could see that they got too unwieldy, got too big, thought, hey, we can get more efficiency. We can get more strategically focused, which is usually has more productivity, we can be more innovative, we can be more nimble if we split. And that, I think, remains to be seen as to whether that's the output.

Mark Vandegrift
Do you think for the investor that's where value will be created? Is that what you're saying?

Lorraine Kessler
Absolutely, if they do it. Just seeing it cursory, what brands they put with what operations. They have two different presidents, two different operating systems. Never in the twain will meet. They've diversified there in terms of that. The proof has to be shown. I mean, if the decision-maker gets, if decision-making gets closer to the customer. And by customer, I mean both the business to business customer, the grocery stores who buy the products, you know, those purchasing agents, and the consumer. Then typically, you're going to have greater ROI, higher margins, you know, so you'll have more alignment in the portfolio in terms of what brands should be funded, what brands are cash cow, how you assign roles to different brands in the portfolio. So for investors that's higher margin, higher profit. That's how it should work, but it's, we'll have to see because I believe part of this is a cultural shift. And you and I know that, well, Peter Drucker said culture eats strategy for breakfast, right? So they could have the best strategy in the world, but I think they must have a cultural problem they're trying to solve as well or get at least more benefit out of a culture that's more focused. And if that happens, it should prove valuable for investors.

Mark Vandegrift 
Well, the only thing that I can make sense of is it had more to do with the distribution strategy, because how else would you have Kraft, for instance, in both companies as a brand? Because value is always created on the goodwill of the brand. like we always say, half of Coke's market capitalization is the goodwill of their brand, right? We'll call their brand equity, right? Okay. Well, I've now taken Kraft and thrown it in both companies.

Lorraine Kessler
Right.

Mark Vandegrift 
So I don't think they're doing it for the brand equity of the brand craft. I don't think, I mean, you're talking about becoming more nimble. So if I'm more nimble, I automatically, my mind goes to distribution. That maybe one company is taking one half of the grocery store and the other company is taking the other half of the grocery store and it has everything to do with what truck your goods arrive in. Is there any other logic to what's going on with this?

Lorraine Kessler
I'm looking at the portfolio now and I really, I can't make, I don't know why Heinz is global other than its distribution is global, okay? Heinz is sold everywhere. But Kraft Mac and Cheese, that's a product line.

Mark Vandegrift 
Right. Well, and it's only sold in the US. We tried to get Kraft Mac and cheese abroad and you can't get it.

Lorraine Kessler
Well, now it's in the global portfolio.

Mark Vandegrift 
Well, they must be introducing it globally because four years ago when my daughter was in Germany, you could not order it from any of the European Amazon sites, for instance.

Lorraine Kessler
Yeah, you see, guess, you know, it doesn't, if I was like, they have, for example, in North America, they have Kraft Singles, Oscar Mayer, Launchables, Capri Sun, Maxwell. I mean,

Mark Vandegrift 
That's all global?

Lorraine Kessler
No, that's North American. I just, it isn't about, I can't see. I really can't see what the logic is. Maybe distribution isn't global. I mean, at the highest level, this is North American. These products are really big here. And globally, these are our best wins globally. But it just seems strange to me because of what you're saying, it goes against the brand equity, right? I mean, let's say someone is, say you're marketing craft singles in North America and you have a totally different vibe, totally different personality, totally different way that you're going after the market. And then in your advertising, in your communication, and then, global taste elevation there's a big wall, I can't talk to them, they take a totally different tact for that brand, craft, for that product line. That's maybe totally not in sync, in fact, contradictory in tone and personality and feeling in brand, in the whole brand. Brands have personalities. Now you have no control of that. So what's a Kraft? It's even worse, right? I just, I don't know how they're going to make that work. I really don't. I think it's a bad, I think the problem is in splitting the companies into smaller, more nimble enterprises, if you will. I think the problem is the portfolio and how they divide.

Mark Vandegrift 
Brain rationalization, it still seems to be a mystery to so many companies.

Lorraine Kessler
Yeah, you know and a brand can only stand for one thing in the mind so craft now that this is this shows the problem with the line extension and now you've essentially said we're gonna separate the advertising for this Kraft from the advertising of this Kraft because they're different products and They may be totally contradictory in terms of how they're presented to the public. That's a problem with the same name

Mark Vandegrift 
Well, we typically, like you said, we recommend the split just to for many reasons. And recently Kellogg's and Johnson and Johnson have done it. Why do you think we're seeing this trend of bigger companies splitting right now?

Lorraine Kessler
Because I think to go to a positioning principle, you know, markets categories divide. And what's happening is we're finding people coming into markets like Poppi. We talked about Poppi Soda and others. There's many others that are finding a very profitable niche, right? And they're able to take share away. And these companies are left. These bigger companies are left almost kind of in a wait and then I'll buy kind of mood. I'll acquire rather than innovate or block. You know, we've always said a should is the only one in the market who can play defense. So how do you play defense? Will you attack yourself? And if you're not willing to attack yourself, right, you have to block strong competitive moves aggressively. So I think what they're finding is they're slow to do both. They're just not responding to the market fast enough. And the market's moving faster than these. If you take how much easier is it to turn a speedboat than a freight liner? And so I think they're in a very dynamic competitive market in many of these brands that they have. But their structure internally is working against their ability to respond to the markets in the way that they need to.

Mark Vandegrift 
Yeah. Yet what's funny is, so these big guys are splitting. We're seeing a lot of consolidation and acquisition going on right now on middle sized companies. So we know we have a couple of clients that were acquired by larger entities. And so that's happening at the same time. So it's like the big guys are trying to get to this size. The little guys are trying to get to this size. Feels like there's a middle ground here that everyone's trying to reach. And maybe it's a point of optimization. I don't know, but there's a lot of movement. Yeah.

Lorraine Kessler
I think you make a good point. I think it is. I think it is. I think if you're too small, you're vulnerable, right? You're very vulnerable to an attack. And usually resources are limited, like financial and even talent and your ability to hire people. So that's a liability. When you're too big and you're too bureaucratic, you know, it's the pogo thing. We've met the enemy and it's us. We can't move. We just can't innovate. Plus, there's a certain amount of complacency that sets in and kind of this is the way we do things, kind of thinking. It's really dangerous, right? And then there's that happy Goldilocks middle, I think, where you realize you still have the ability to connect the management's principles of a higher level with the management sectors and kind of congeal. And I think you still have the best of both worlds. You have a little more strength. It's like when the English fleet beat the Armada, right? They weren't a bunch of rowboats. They were good fighting ships, but they were very small, very agile they could turn and cut a lot faster and the Spanish Armada could not navigate and get as close for their shots. And it's a great example. So I think finding that Armada, finding the British fleet size, which not too small, not too big, still able to maneuver but defend yourself, I think is really important.

Mark Vandegrift 
Yeah. Well, good. We'll see how it plays out. I don't have high hopes for Kraft or Heinz or their new brand. I mean, the brands will be fine, I think, as long as they don't do what you're talking about, which is present Kraft as one thing here and a different thing over here. But boy, don't get the. Yeah, I don't get the lack of brand rationalization in any of this, but we'll see. We've been wrong before, but we've been mostly right.

Lorraine Kessler
All I know is in the real world, and my husband lived through this, his company was divided into many different businesses, right? And they each had presidents and never the twain could meet. So he, as a young man of 26, came up with this idea that this one division made laminates for countertops and that's when laminates were the bomb, right? Before Corian, before Granite, before quartz, you know, it was laminate. And they made rigid plastics and laminates. And he's doing soft upholstery for like couches and furniture and restaurant seating. And they both buy, and those customers buy both products. So he reached out to the president from the other division and had the idea, let's put a whole package together where your laminates coordinate with my upholstery. And he's not selling to consumers, he's selling mainly to design specifiers who appreciate that. Because now they see these things together as a system. His president of his division went bollocks over that. Crazy that he was talking to this other president. This is the kind of stuff that can happen in real world business politics and they can be very defeating. So we'll see how it works out with global elevation and NAG.

Mark Vandegrift 
Good. Well, let's wrap up today's episode of the Brand Shorthand Podcast. Thank you Lorraine for joining us and for our listeners for tuning in this week. Don't forget to like, subscribe and share with your friends and hit that subscribe button. Until next time, have an amazing day.