Kraft Heinz’s price discipline pays off as profit margins grow

Kraft Heinz’s profit margins have increased for the second quarter running as the company’s pricing discipline continues to reap rewards.

CEO Miguel Patricio expressed his “pride” in the company’s “resilient” portfolio, which despite pricing above the competition isn’t losing incremental share to private label.

While he accepts the business is losing share to brands that are leaning on price promotions more than Kraft Heinz is, Patricio remains optimistic. He believes the business’s more “disciplined and surgical approach” to protecting profit margins will stand it in good stead in the long-term.

“With this approach, and by continuing to unlock efficiencies across our value chain, we are generating margin gains,” he told investors in an accompanying statement today (2 August). “With these margin gains, and in line with our strategy to drive further growth, we are investing more in marketing, R&D, and technology.”

Heinz on building an ‘iconic’ brand ‘beyond ketchup’The business’s adjusted gross profit margin rose by 180 basis points to 33.3%, up from the 32.8% it posted in Q1. Its net sales increased by 2.6% year-on-year to $6.7bn (£5.3bn) and its organic net sales grew by 4%. Net income soared by 277%, while the adjusted EBITDA was up by 6% to $1.6bn (£1.3bn).

While volumes fell by 7% year-on-year, the business balanced this by raising its prices by over a tenth (11%) compared with last year’s second quarter.

Its pricing strategy is paying off, according to CFO Andre Maciel who claimed that even the products it did sell on promotion (just 29%) had an increased ROI of 15% compared to 2019, and 5% on 2022.

The business is taking its gains and reinvesting in its marketing team. Patricio spoke earlier this year of his plans to increase its marketing spend by “double-digits” – and he reiterated those plans again today. He told investors that marketing spend increased by 23% in Q2 year-on-year, as the company continues to produce “best-in-class” activations.

More than ketchup

He reserved particular praise for its first-ever global campaign which showcased the lengths its customers go to in order to showcase their love of the brand, with some even going as far as getting a tattoo.

“This campaign was born from actual consumer stories, a testament to the power of Heinz,” he said. “And at Cannes Lions this year, we were recognized with 21 Lions for our marketing and advertising campaigns. This is the most ever for Kraft Heinz, and more importantly, the most for any food company in the world.”

More products will be added into the Kraft Heinz portfolio, too, which Marketing Week revealed the brand was looking to do in June when speaking to its head of communications and brand building, Thiago Rapp, about future plans for the business. He spoke then about taking its brand love “beyond” its core products and Patricio reinforced that in his investor statement.

He spoke of the success of recent product launches, such as the Heinz culinary tomatoes line in the UK, which features 11 new products. “Heinz means a lot more than ketchup,” said Patricio, who added that 60 percent of international Heinz net sales now come in categories other than ketchup.

“We are expecting innovation to ramp up in the second half of 2023 and into 2024,” he concluded.