Kraft Heinz Slashing Ad Agency Dollars as Part of Cost Cutting

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Newly formed Kraft Heinz is looking to change the way it produces its advertising, as part of its goal in wringing $1.5 billion in annual savings out of the combined company.

After merging on July 2, 2015, Kraft Heinz is now third-largest food and beverage company in North America and ranked number five world-wide. The company has eight $1 billion+ brands.

The merger left Heinz’s ad agency out in the cold. In late August, management shifted the Heinz accounts that had been handled by Interpublic’s UM to Kraft’s agency Starcom MediaVest Group’s Starcom. In addition, Kraft Heinz is now reviewing all of its creative accounts, according to Ad Age.

Ad Age reports that all the creative agencies have been asked to provide information and those chosen will be responsible for creative ideas, but will no longer provide the actual production of the ads, which will go directly to production houses.

Cost-Cutting Across the Board

Kraft Heinz’s chief executive Bernardo Hees is a partner in 3G Capital, which teamed with Berkshire Hathaway take over both companies and merge them together. He came to the helm of the combined company after a stint as the chief executive at A.J. Heinz where he slashed 7,000 jobs and brought a tight-fisted approach that made no expenditure too small to be examined.

At Heinz, Hees imposed cost controls big and small that include cuts to travel expenses, limits on the number of printer copies that can be made each month, the elimination of snacks in break rooms, and new mandates on cutting electricity usage. After assuming the helm of Kraft Heinz he immediately cut 2,500 jobs in his first week.

Among the management changes Hees has made was the appointment of Nina Barton to Senior VP of Marketing Innovation, Research and Development. Ms. Barton first joined Kraft in 2011 and was most recently the VP of Marketing for Coffee. She reports directly to George Zoghbi who was appointed Chief Operating Officer of U.S. commercial business.

Gone were Tom Bick, who was Heinz’s senior director-integrated marketing communications and advertising for the Oscar Mayer business, and Kara Henry, who was Heinz’s senior marketing director, communications and agency relations.

Warren and Charlie Agree

Warren Buffett and Charlie Munger’s have both supported Hees’s approach, believing that these legacy food companies, which both date back to the 1800s, need cost-cutting to be competitive in the 21 century.

“3G has been buying businesses that have too many people,” Buffett explained at the 2015 Berkshire Hathaway annual meeting. “You will have never found a statement from Charlie or me saying that a business should have more people than needed.”

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.