A quarantined America is opting for tried and true comfort food found inside cardboard boxes, metal cans and plastic wrappers as they deal with tough times stemming from the coronavirus pandemic.
Besides Hormel’s iconic Spam seeing red-hot sales (as the CEO recently told Yahoo Finance), good old-fashioned Kraft Macaroni and Cheese appears to be flying off the shelves and into over-stuffed cupboards.
So much for those keto diets.
“The champion for sure is Kraft Mac & Cheese,” remarked Kraft Heinz CEO Miguel Patricio in an interview with Yahoo Finance, when asked about top-selling products right now. Patricio said Kraft Heinz brands such as Oscar Mayer, Capri Sun and Philadelphia Cream Cheese are also experiencing brisk sales.
“People are looking for comfort and for familiarity. And so these are all brands that have been with consumers for a long time and brands that they love,” Patricio said.
Kraft Heinz (KHC) said Monday first quarter organic sales are expected to increase 6%, a marked reversal from a 2.2% drop in the fourth quarter as consumers stock up on staples. The lift to earnings from the sales jolt will be non-existent, however, due to costs associated with meeting the unexpected demand.
For Patricio, the pickup in business couldn’t come at a better time.
The former Anheuser-Busch marketing wizard officially took over as Kraft Heinz CEO last year on July 4. By the account of most sources Yahoo Finance has talked with, Patricio assumed a house on fire.
The company for years reportedly cut investments in big brands in order to meet aggressive operating profit targets by backer 3G Capital. Key talent left the company. Billionaire investor and Kraft Heinz’s largest shareholder Warren Buffett expressed displeasure in his investment.
One of the final black eyes came in February 2019, when Kraft Heinz took a $15.4 billion write-down on its natural cheese, Oscar Meyer cold cuts and Canadian retail businesses. Keep in mind all of this has transpired as consumers ditched packaged foods for fresh food and organic offerings — that has made the situation more precarious for Kraft Heinz.
Kraft Heinz shares are down 65% over the past five years.
Times of uncertainty may be beneficial
Enter Patricio, who has moved quickly to fill out his executive team and attract new talent across the organization. Patricio is widely expected by Wall Street to unveil a more disciplined company at an investor day later this year (the meeting was postponed from May due to the coronavirus outbreak) — one that takes bolder bets on new products and invests in top brands. The Street also expects Kraft Heinz to pare down its product portfolio to get costs under control and work off billions of dollars in debt dating back to the Kraft Heinz merger.
“Recognizing that the coronavirus outbreak is taking a significant personal toll on many, we think it could also provide CEO Patricio with a rare occasion to rally the organization around the central purpose of supplying food to the world, especially during a time of such extreme need. While many of the brands remain challenged, in our view, we see evidence in a recent survey we conducted to suggest that consumers are preferring brands over private label during times of uncertainty that could translate to sustained increasing household penetration for Kraft Heinz brands,” long-time Kraft Heinz bear Laurent Grandet of Guggenheim wrote in a new note to clients on Tuesday.
Patricio told Yahoo Finance that Kraft Heinz’s transformation is well underway even as the coronavirus adds a high level of uncertainty into Corporate America. There are no plans to cut Kraft Heinz’s renewed media budget and insight into the company’s future initiatives will be shared at an investor day later this year, Patricio confirmed.