Kraft Heinz (NASDAQ: KHC) stock is coming off a down year, battling dual headwinds of consumer shifts to freshly prepared foods, as well as cheaper private-label alternatives. That has put pressure on Kraft's sales figures recently: In 2017, Kraft's revenue was down 0.6%, though adjusted EBITDA grew 3.2% due to 3G Management's signature cost cuts.
In tandem with its Feb. 16 earnings report, the company announced its two-year integration of Kraft and Heinz has officially concluded, releasing an extensive post-integration business update. That means further gains will have to come from new growth initiatives or acquisitions. Since Kraft Heinz got the cold shoulder when it tried to buy Unilever, it seems the company will have to grow on its own.
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Enter "Just Crack an Egg," a ready-to-cook breakfast scramble mix consisting of diced vegetables, Kraft Natural cheese, Oscar Mayer meats, and Ore-Ida potatoes, with the unique wrinkle that customers must crack their own egg into the mix before microwaving. The product will initially come in four flavors; Denver, All-American, Ultimate, and Rustic.
Innovation and reinvention
As I previously wrote, Kraft Heinz is putting dollars saved from the new U.S. corporate tax cuts into accelerated innovation, behind both its 'powerhouse" brands like Kraft and Oscar Mayer, as well as turnaround categories in need of reinvention.
Just Crack an Egg appears to be a nifty mix of both strategies, as it extends the core Kraft, Oscar Mayer, and Ore-Ida brands to a new food category, while also promoting more "natural" ingredients, with the customer adding a fresh egg, and the branded ingredients including no artificial flavors, dyes, or preservatives. It's a clever move by CEO Bernardo Hees that essentially kills multiple birds with one stone. In addition, the format is affordable at only $2.49 per cup, and thus relevant for those who are in a hurry, budget-constrained, and looking for something fresh.
The new brand is part of the company's "Big Bet" portfolio, where Kraft Heinz thinks it's underrepresented or underperforming, but feels it has "the right to win" For instance, last year the company introduced O, That's Good! side dishes, advertised as a healthy take on traditional comfort soups and side dishes promoted by Oprah Winfrey. Since it includes fresh ingredients, Just Crack an Egg will occupy the refrigerated section on the perimeter of the grocery store (near the eggs, of course). That's a relatively new setting for a Kraft Heinz brand, which often occupies the middle aisles.
The Just Crack an Egg campaign is being headed by Greg Guidotti, head of marketing at Oscar Mayer, who was quoted in Fortune as saying the new product is "one of the biggest bets across Kraft Heinz." He also hinted that the company has even bigger ambitions for the brand, with the potential to become a "platform" that can be extended even further beyond the first four flavors.
3G is often known for its aggressive (some would say ruthless) cost-cutting, but Warren Buffett, whose Berkshire Hathaway owns a large stake in Kraft Heinz along with 3G, believes that's a misconception, once gushing, "I've never seen anybody any better about marketing and product development."
With acquisitions seemingly on the back burner, those marketing and product-development chops will be tested in 2018 as the company looks to reignite growth. While consumer packaged-goods companies might consider pulling back on in-store promotions in today's environment, Kraft Heinz actually plans to lean in, investing even more marketing dollars behind these big brand launches like Just Crack an Egg.
Watch and eat
With Kraft's stock down more than 25% over the past 12 months and 3G at the helm, investors may want to consider the stock in an otherwise expensive market. Potential investors should definitely monitor the progress of Just Crack an Egg, and maybe try it themselves. If your tastes are in tune with the broader public's how much you enjoy it could determine whether Kraft Heinz stock is worth your money.
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Billy Duberstein owns shares of The Kraft Heinz Company. His clients may own some of the companies mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.