Nation & World

Food companies need innovation to survive: Kraft Heinz operates five test kitchens trying to stay relevant

Chicago Tribune/TNS

Robin Ross (second from left), director of culinary, with team members Colette McCadd (left), Milo Klos and Ellen Cook taste different versions of Just Crack an Egg breakfast scrambles at Kraft Heinz Innovation Center in Glenview, Ill.
Chicago Tribune/TNS Robin Ross (second from left), director of culinary, with team members Colette McCadd (left), Milo Klos and Ellen Cook taste different versions of Just Crack an Egg breakfast scrambles at Kraft Heinz Innovation Center in Glenview, Ill.
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Robin Ross, director of culinary at Kraft Heinz in Glenview, Ill., doesn’t need data to know how much consumer tastes have changed since processed food reigned supreme.

When she was growing up, dinner often meant heating up a can of something on the stove, and when she was raising children she bought a lot of McDonald’s Happy Meals.

But today her adult daughter hand-breads chicken nuggets for her children, part of a broad trend of families opting for more fresh, natural, personalized meals.

That shift has dogged massive prepared food companies such as Kraft Heinz, whose brands became household names at a time when shoppers cared more about consistency, convenience and familiarity than that long list of ingredients on the packaging.

For many of these companies, the fight to stay relevant means rolling out innovative new products that are either developed internally or brought on board as part of the acquisition of start-up food companies.

At Kraft Heinz, which has facilities in Cedar Rapids, it’s Ross’ job to create new products — or new versions of the old standbys — that capture the attention of a modern food shopper with discerning tastes and a plethora of options.

Innovation has not, of late, been what’s been getting attention at Kraft Heinz, which employs some 39,000 people globally.

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Co-headquartered in Chicago and Pittsburgh, the legacy packaged food-maker has been criticized for focusing too much on cost-cutting and not enough on brand building or product development — a concern that resurfaced late last month as the company unleashed a cascade of dismal financial news.

focus on cutting costs

The company reported a $12.6 billion loss for the fourth quarter 2018 and announced it was writing down the value of its Oscar Mayer cold cuts and Kraft natural cheese brands by $15.4 billion — an indication that the sales and earnings potential of those iconic brands aren’t as strong as once thought.

It slashed its dividend by 36 percent, lowered its 2019 outlook and disclosed that it had received a subpoena from the Securities and Exchange Commission related to its procurement operations.

The company launched an internal investigation in response and found it should have recorded a $25 million increase in the cost of products sold in pervious periods.

The company said it plans to sell some brands or business units to strengthen its balance sheet for a future acquisition, a deal some investors have been eager to see since its failed $143 billion bid to buy Unilever two years ago.

And after two years of deep cost-cutting that helped give Kraft Heinz industry-leading profit margins, the company last year boosted brand spending by $300 million and this year plans to launch “record-level innovation,” CEO Bernardo Hees said in the company’s earnings call with analysts.

But, Moody’s analyst Brian Weddington said, “there is still some question on how effective that spend is going to be.”

The market is rife with food start-ups that are laser-focused on the health-conscious consumer and able to use e-commerce to reach an audience no longer loyal to Big Food.

To compete, many of the large companies are acquiring those upstart brands or launching venture capital arms and accelerator programs to invest in their growth.

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Chicago-based ConAgra, maker of Slim Jims and Orville Redenbacher popcorn, added gourmet Mexican to its portfolio by acquiring Frontera Foods’ packaged foods business in 2016 and, a year later, paid $250 million for Angie’s Boomchickapop whole grain popcorn.

Cereal-maker Kellogg paid $600 million for Chicago protein bar company RxBar in 2017. Tyson Foods took a minority stake in plant-based protein start-up Beyond Meat in 2016 through a venture capital fund it launched to invest in food companies pioneering new products and technologies.

Kraft Heinz last year launched Springboard, a venture fund and accelerator program for small craft and natural brands, and paid $200 million to acquire better-for-you condiments-maker Primal Kitchen, which will continue to operate as an independent company.

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