Kraft Heinz opposes the painful disadvantage of the austerity approach


New York (AFP) – The American food giant known for its iconic ketchup and hotdog brands faces the downside of austerity as a strategy to increase profits. Kraft Heinz, born from the 49 billion dollar merger of Kraft Foods and Heinz in 2015, had a disastrous fourth quarter, with a net loss of $ 12.6 billion on Thursday, leading to a 27 percent dip in the Friday stock price . A damning article in the Wall Street Journal called that evidence that the "company's experiment failed in radical cost savings." "The management of the company has few good options," it said. Directed by the Swiss-Brazilian billionaire Jorge Paulo Lemann, through the investment firm 3G Capital, and the US billionaire Warren Buffett, who owns 25 percent of the company's capital, Kraft Heinz relied on his famous zero-based budgeting approach to cost savings. – Justify all costs – In short, the system requires that every expense is justified in every period, so that managers drastically reduce expenditure. But that philosophy can lead to the elimination of investments that are needed to generate profit and revenue growth, and it can be undermined by a declining market. The food industry has had to deal with an increase in logistics costs and ingredients and materials for several months. Kraft's strategy worked for two years, allowing it to generate profit margins that made the rivals jealous. But sales growth stalled in the first quarter of 2017 and six consecutive quarters of poor performance led to a $ 15.4 billion asset write-down on two of its competitors. flagship brands, Kraft and the Oscar Mayer meat products. Kenneth Goldman, academy analyst, warned that "the intense cost-saving efforts in the long term will erode some kind of erosion marks … if the belt shortening strategy goes too far." Kraft has built its reputation on products such as ready-to-use macaroni and cheese, while Oscar Mayer is known for meat products and hot dogs and Heinz for his ketchup and other spices. But the taste of the consumer is changing about health problems and a growing shift from processed food to fresh products. "The only thing they've done is lower costs because competing companies like Danone and Nestle invest in products that are more in line with the current demand from the public," said Gregory Volokhine of Meerschaert Capital Markets. -New acquisitions -Many companies in the food industry have responded to the changing trends: McDonald's, the world leader in fast food, stopped selling antibacterial-treated chicken in 2016 and now offers hamburgers made with fresh beef. Volokhine said Kraft Heinz appears to have "applied recipes that worked for a while, but the problem was no longer in spending, but in obsolete products," such as Jell-O desserts. To make up for the shortfall, Kraft Heinz quickly invested $ 300 million last year to strengthen brand marketing, recruiting sales people, improving the supply chain and modernizing the recipes. "We were too optimistic about delivering savings that have not been realized", CEO Bernardo Vieira H He acknowledged it. But when he said in a call with analysts on Thursday: "We still strongly believe that our model works and has a lot of potential for the future." The company is considering dropping failed brands, a move that would enable Hees to pave the way for a merger, which could bring more savings and increase profits. The company approached Unilever, which makes Lipton tea and Dove soap, but withdrew its $ 143 billion offer after the news of the talks with the Anglo-Dutch giant was made public.