The bad news for agencies involved in today's announced merger of Kraft and Heinz is that the combined company will be run by a group known for fiercely cutting costs. The good news? Marketing probably won't be one of the first to go under the knife.
The new Kraft Heinz Company is effectively under the control of the 3G Capital execs who own the Pittsburgh-based ketchup maker. For now, agency execs working on the brands can most likely expect business as usual while the Brazilian private equity firm focuses on larger cuts needed to attain the $1.5 billion in annual savings it promised to investors.
3G, which installed its own exec, Heinz CEO Bernardo Hees, as chief of the new combined entity, is known as a relentless cost cutter whose initial priority is creating lean operating organizations after making an acquisition.
If 3G operates to past experience, observers expect layoffs, plant closings and other large moves before marketing is impacted at Kraft Heinz.
After 3G bought Heinz in 2013 along with Warren Buffett, also an investor in the Kraft Heinz deal, the Brazilians cut more than 7,000 jobs in 20 months, offered buyouts at Heinz headquarters and shut down five plants. Company jets were also grounded, and Heinz banned perks like mini-fridges at corporate offices at the time, according to media reports.
"This will be really interesting for Kraft, which has never been a flat or lean organization," said one agency observer about the changes ahead. "3G will focus on that first and then move on to marketing and advertising costs."
When cuts do first come to marketing, they will likely begin with the consolidation of media agencies, beneficiaries of the companies' largest ad investment. In the case of Kraft, last year that spending amounted to over $540 million in measured media, according to Kantar Media, dwarfing Heinz's spending of $42 million.
Starcom USA handles Kraft's spending in the U.S., while UM works for Heinz domestically and OMG has responsibility for Heinz outside of America. With the combined company's intent to scale Kraft's U.S.-focused business internationally, global resources and efficiencies will likely determine the outcome of that process.
The merger creates a $28 billion CPG giant that will rank as the third-largest food and beverage company in North America and the fifth-largest in the world. With headquarters in the companies' respective home bases of Chicago and Pittsburgh, Kraft Heinz is the parent of eight $1 billion-plus brands and five brands ringing up between $500 million and $1 billion annually.
Included in that portfolio are Heinz's namesake condiments, sauces, soups beans and Ore-Ida potatoes. Kraft boasts a larger number of big-name brands like Jell-O, Kool-Aid, Lunchables, Maxwell House, Oscar Mayer, Philadelphia, Planters and Velveeta.
When it comes to agencies, Heinz primarily works with Cramer-Krasselt while Kraft has consolidated its creative business at Leo Burnett, McGarryBowen, Taxi and Crispin Porter + Bogusky.
After Kraft's flat earnings in 2014 and flat market share growth,the company announced in February that CMO Deanie Eisner would leave the company, and the job remains unfilled.
"The two companies appear to be very differently positioned with respect to their agencies," observed Brian Wieser, senior analyst at Pivotal Research Group. "Heinz has been willing to assign agencies on creative and media which are strong in the U.S. but not strong abroad. Meanwhile, Kraft has gone for more of a global approach. At the same time, they appear to be in some disarray with the removal of their CMO following a reshuffling of the creative relationships late last year.
"So stability would not appear to be in place. However, the scale of the combined business becomes much larger and so perhaps the benefits of centralization and more consolidation on a regional basis might be more likely to occur."
Some observers wonder if 3G will install a central marketing chief of its own choosing to oversee the two companies' marketing execs and get them focused on the bottom line. "From the viewpoint of 3G, they'll likely bring in new fresh blood to look at [overall] marketing, bringing in someone who will be given a very specific deliverable," said one source.
After 3G acquired Burger King in 2010, for instance, the new owners brought in Flavia Faugeres as CMO, cleaned house in the company's marketing department and launched an agency review. (By early 2014, BK had made three changes in creative and media partners since mid-2011. Faugeres would also exit, succeeded by BK exec Axel Schwan.)
3G observers are sure changes are in store at the new Kraft Heinz, but just how those shifts will affect the two companies' current roster of agency shops obviously remains to be seen.
"Uncertainty," said Pivotal's Wieser, "is the only thing I think we can be certain about."