The Heinz-Kraft merger from a packaging perspective

Heinz 57 would be an underestimation of the number of issues facing the company resulting from its merger with Kraft Foods.

H.J. Heinz and Kraft Foods have completed what might be dubbed the cheeseburger merger, with Heinz supplying the condiments and Kraft supplying the cheese. The global headlines it generated were easily foreseen, even more so because of the involvement of Warren Buffett. Reading between the headlines, the fate of the merger will depend, in large measure, on the strategic leveraging of packaging. This is unavoidable, given that Heinz and Kraft are consumer packaged goods (CPG) companies.

At its core, the merger is about the structuring of a portfolio of brands. Some of them are category leaders with sales in excess of $1 billion that have endured for generations. While that makes them iconic brands, mergers are more about the future than about nostalgia. A brand can be iconic yet still show unimpressive growth in sales, profits, and market share. Iconic and eternal are not synonyms, provable if a brand is ill-positioned vis-à-vis major trends. One such trend is that of healthful eating, one that some minds stereotypically regard as inconsistent with processed, packaged foods.

Healthful eating is a devotion not practiced equally across demographics and psychographics. Typically it’s associated with younger adults, the so-called millennials. Certain segments of that group are known to have their pet indulgences. Their reasons for not being consumers of an iconic brand might have less to do with healthfulness and more to do with lack of identification: “My parents use that brand.”

So it is that a brand can have relevance, or lack thereof, for a variety of reasons. No brand can be all things to all people, a reality that necessitates target marketing, appealing to a big enough segment to meet the company’s expectations, and by extension, shareholders’ expectations. Particularly when the latter fails, even a heretofore iconic brand can be subject to being discontinued or divested.

Every brand within the Heinz-Kraft merger is an amalgam of tangibles and intangibles, among them: performance, value, messages, promises, perceptions, icons, and symbols—constituting a franchise and tasked with satisfying consumer needs and wants and thereby generating consumer loyalty. Within all that, it’s the packaging that is the proxy, the physical cue of everything that the brand represents.

For the most part, the Heinz and Kraft brands are found in the interior of a retail store, that is to say, in the aisle sections. The significance is that that’s the part of the store most characterized by visual clutter, wherein the packaging has scant seconds in which to arrest the shopper’s attention. As if that weren’t challenging enough, that’s also the part of the store characterized, on average, by smaller margins, compared to the products found along the store’s perimeter. And in this era of retailer consolidation, the margins of national brands can be eroded by a store’s private brands, due to price competition and preferential shelving.

The parties to a merger routinely claim synergy, claiming that one plus one equals three. Theoretically, it’s a credible claim, but it’s subject to contingencies. Analogous to a marriage, a merger can begin as an avowed union, but dissolved under irreconcilable differences. Not that the analogy holds in every respect, for some mergers are formed with an intent to jettison certain parts. Keeping with the concept of synergy, a major part of that pursuit is the streamlining of functions, the cutting of fat but not muscle. For a CPG brand, packaging is muscle, if exercised properly, the bulging-biceps variety. And whereas both Heinz and Kraft process well-staffed packaging departments that house prodigious knowledge, it remains to be seen how effectively and efficiently the two will coexist. No waiting is necessary, however, to be able to state that the nature of that coexistence will factor mightily in whether the merger proves successful.

The Heinz-Kraft combination results in the world’s fifth-largest food & beverage company. The size itself fuels marketplace expectations of big things to come, as evidenced by the rise in each company’s stock price in the wake of the announced merger. By big things we mean not merely product line extensions, but increased innovation, increased productivity, increased cost-efficiency, and increased profitability. But those are not automatic; not only that, in a time when speed-to-market is crucial, mega-size can be a case of an elephant trying to dance.

Any company that’s among the world’s largest, by definition, needs to regard the world as its marketplace; it comes with the territory, or rather, the geography. As Heinz-Kraft goes on to develop offerings targeted at various national, cultural, and ethnic tastes, product formulation will be an essential variable in the equation. Another, just as important, will be the packaging, which will have to differentiate the offerings.

For years, smart packaging, has been a trending topic in the trade media. The definitions include interactive and active; however, actual examples are few and repetitive. Will the vast resources of Heinz-Kraft enable it to advance smart packaging to new levels?

Even if a mega-merger is the biggest of its kind, it’s a distinction to be held only until the next bigger one comes along. Some of these mergers will be intra-industry, others inter-industry, each setting off far-ranging ripples. Whatever names the analysts come up with to describe such mergers, every one of them is, at its most fundamental level, a package deal.

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