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Focus on operating model is working for The Kraft Heinz Company KHC. The company’s effective pricing actions and efficiency-building plans are yielding. Let’s discuss further.
Strength in Operating Model
Last year in September, Kraft Heinz laid out a new operating model that incorporates five key elements — People with Purpose, Consumer Platforms, Ops Center, the Partner Program and Fuel Our Growth. The Consumer Platforms comprise a portfolio of six consumer-driven platforms — Taste Elevation, Easy Meals Made Better as well as Real Food Snacking among others.
The company is leaving no stones unturned to accelerate its international growth strategy. Recently, the company acquired sauces-focused business — Assan Foods — from privately-held Turkish conglomerate, Kibar Holding. In September 2021, it signed an agreement to buy the Brazil-based condiments and sauces company — Companhia Hemmer Indústria e Comércio ("Hemmer"). The move will diversify Kraft Heinz’s product portfolio. The buyout will further accelerate growth in the condiments and sauces category.
Well, several other companies in the food space have been benefiting from their focus on undertaking strategic acquisitions. This has been working well for players like Tyson Foods Inc. TSN and The Hershey Company HSY.
Moving on, Kraft Heinz’s Ops Center element will enable it to establish an efficient, fast and integrated supply chain network. Management is on track to achieve $2 billion of gross productivity efficiencies through 2024. The Partner Program element is designed to create solid customer partnerships and develop new strategies. The Fuel Our Growth strategy is aimed toward investing in growth opportunities; solidifying its long-term market position as well as staying committed to boost shareholders’ returns. This strategy will help the company manage its portfolio and accelerate its strategic plan, augment geographic presence, increase focus on growth areas as well as undertake sustainable pricing actions. Keeping this in mind, Kraft Heinz sold its nuts business to Hormel Foods Corporation HRL in June 2021. Management believes that the sale of the nuts portfolio is a step closer to achieving its objectives laid out in the transformation plan.
What Else is Working?
Solid pricing initiatives have been aiding Kraft Heinz for a while now. In second-quarter 2021, pricing rose 1.5 percentage points year over year with growth in all reporting segments. The upside can be attributed to favorable trade expenses timing in the United States along with higher inflation-justified pricing in the foodservice as well as retail channels. During the quarter, pricing in the United States moved up 1.3 percentage points. In Canada and International markets, pricing moved up 1.9 percentage points each.
In terms of cost savings, the company has been increasing visibility on cost components. The company is also on track with examining its SKU’s to remove complexities and boost mix. In this regard, the company’s Ops Center platform is driving efficiency gains via simplification and waste reduction.
We believe that these upsides coupled with the well-chalked out operating model are likely to keep fueling Kraft Heinz’s growth story.
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