Two food giants are merging to form The Kraft Heinz Company. The merger likely means brand expansion into Latin America, tighter screws on media agencies, and account reviews.
According to the press release, the newly combined company will have eight brands each worth more than $1 billion, as well as five brands worth between $500 million and $1 billion. Berkshire Hathaway and 3G Capital, engineers of the deal, promise “substantial opportunity for synergies, which will result in increased investments in marketing and innovation.”
Basil T. Maglaris, director of corporate affairs for Kraft Foods Group, tells Portada, “This is a transformative deal that brings together a powerful combination of iconic brands and great talent. We are excited about the opportunity that this new company can offer for our consumers and customers. However, we can’t speculate on any changes after the transaction is completed. In the meantime, it’s business as usual at Kraft.”
Kraft Heinz says the synergy potential could add up to an estimated $1.5 billion in annual cost savings implemented by the end of 2017 from increased scale, the sharing of best practices and cost reductions.
There will certainly be economies of scale when it comes to media buying. But there are also interesting ways that the new company can get more bang out of its creative and media bucks, according to Xavier Mantilla, GM Latin America for Gravity4. For example, two brands can go in together, splitting a 30-second TV spot.
Mantilla worked on the Heinz business while he was at Universal McCann, and found significant lift for both brands when advertising Heinz Ketchup and Ore Ida together.
“In people’s minds, ketchup goes with potatoes. It was a smart way of buying a spot for Heinz but having two brands showcased,” he says – and the pairing created better brand lift. “With this acquisition, I think there’s the possibility to do more of that.”
In this regard, 3G Capital could be a big help, according to Marcelo M. Bicudo, CEO of Brand Union, Brazil. Bicudo says, “Traditionally, companies owned by 3G Capital are successful marketing across all disciplines. Tactics such as implementing integrated communication projects and maintaining a strong presence in traditional media, digital, brand activations and sponsorships are important. As leaders in the industry, they are great strategists when it comes to sales channels and point of sales.”
Agencies put to the test
When Berkshire Hathaway and 3G Capital acquired Heinz in 2014, it shifted its global media account, worth $250 million, to OMG, and gave U.S. media to IPG’s Universal McCann, shutting out incumbent Cramer-Krasselt. Also last year, Kraft consolidated its agencies, narrowing them down to four: mcgarrybowen, Leo Burnett, Taxi and Crispin Porter + Bogusky.
“All companies bought and administered by 3G face similar cost-reduction processes and need to find operational synergies, financial and marketing,” says Bicudo. “In marketing, they usually review projects, services and global strategy to strengthen and improve the presence of their brands along consumer journey. After a merger like this, 3G Capital often change marketing agencies or look for their own culture in service providers.”
When clients merge, they do take the opportunity to pit agencies against each other.
Mantilla, who left a post as SVP for UM in New York last month to join Gravity4, says that, in his experience, when clients merge, they do take the opportunity to pit agencies against each other. There’s danger here for both the incumbent and the wannabees. During the creative phase, it’s all glamor and excitement. But, during the procurement phase, he says, “Sometimes agencies promise great stuff, but they can’t deliver because they’ve cut their margins or don’t have enough people to service the account.”
Mantilla has seen his own agencies lose out in account reviews by being undercut on price. “We lost … when it came to the procurement phase, because, as incumbent, we came with a very real proposal. Our competition said, ‘We believe this is what it would take.'”
When it comes to reaching Hispanic consumers, Mantilla sees Kraft and Heinz as pioneers and leaders in the space. He also gives kudos to LatinWorks, Heinz’s multicultural agency. LatinWorks did not respond to a request for comment. Mantilla says, “The creative executions at LatinWorks have been great. The tactical work and content development by Kraft is great. When you have two good pieces that can come together and create a bigger whole, that’s what should happen in this merger.”
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