Following its Q4 2018 earnings report, Kraft Heinz lost more than $16 billion in market value.
The company fell short of profit estimates, cut its dividend, disclosed an SEC investigation, and announced a writedown of $15.4 billion on assets, including brands like Oscar Mayer and Kraft. While financial backers 3G and Berkshire Hathaway delivered on their main investment thesis of cutting $15 billion in costs, the food giant faces a new reality where consumer tastes and preferences are shifting, and big brands are falling out of favor.
Changes in consumer search trends are emblematic of the larger preference shift that is driving consumers away from established brands and towards those advertising healthy ingredients and natural products. Google searches for terms in the vegan, low-sugar, and low-carb categories increased 64%, 36%, and 18% year over year for the 12-month period ending in April 2018.
This ingredient consciousness among consumers was compounded by a decreasing loyalty to traditional branding. Nonbranded searches grew 10% year over year, doubling the growth rate of branded searches in the same period.
These consumer trends are a poor omen for Kraft Heinz, a company reliant on its historical reputation that has failed to capitalize on the changing headwinds. Without investment in ingredient-focused content on its brand sites or a re-branding of its core suite of products to move away from the reputation of unhealthy, processed snack foods, Kraft Heinz risks serving as a cautionary example to other big brands of the negative consequences associated with diminishing brand equity.
In contrast to Kraft Heinz, some frozen food brands have successfully refurbished their image through rebranding campaigns that focus on health and nutrition. For example, Birds Eye recently relaunched its site to highlight the product sourcing and health benefits associated with its frozen vegetables. This strategy follows the lead of brands like Kind and Nature Valley, which cultivate positive connotations for their brand image with ingredient-focused content.
In fact, frozen food brands outpace the larger food brand landscape when it comes to the ability to filter searches by nutritional value or dietary characteristics. About a fifth of frozen food brands provide each of these options, compared to just 12% and 14% respectively for food brands overall. On the other hand, Kraft Heinz’s disregard for current trends highlights an overreliance on historical branding to stay relevant that could explain the weakened sales results.
Other CPG giants are also facing increased scrutiny. The allegations of J&J’s undisclosed knowledge of the presence of asbestos in its talc-based products and the Reuters accusations that the firm attempted to lobby US regulators to increase the legally allowed level of asbestos in cosmetics are certainly serious issues warranting further inspection. However, while the recent spate of litigation has the potential to dent the CPG giant’s reputation for safety, the brand has gone on the offensive by completely relaunching its babycare products to emphasize their shift to more natural ingredients.
In concert with this rebranding effort, J&J is investing in digital initiatives like content creation and paid search to support its reputational improvement. The first paid search result on Google for the keyword term “J&J Asbestos” returns the site FactsAboutTalc.com, a Johnson & Johnson-owned site outlining the results of studies that have disputed the link between its talcum powder products and cancer as well as educational content related to J&J product safety.
Regardless of the outcomes of these investigations and the long-term impacts on shareholder value, it is clear that complacency is not a winning strategy, even for the most powerful and well-established brands in the CPG space.