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Kraft Heinz keeps 5 test kitchens busy to stay relevant | TribLIVE.com
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Kraft Heinz keeps 5 test kitchens busy to stay relevant

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Chicago Tribune
Robin Ross, (second from left) director of culinary, joins team members Colette McCadd, (left) Milo Klos and Ellen Cook to taste versions of Just Crack an Egg breakfast scrambles at Kraft Heinz Innovation Center in Glenview, Ill., on Tuesday, Feb. 26, 2019.
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Chicago Tribune
Robin Ross, (center) director of culinary at Kraft Heinz, joins team members Colette McCadd, left, and Ellen Cook to taste versions of Just Crack an Egg breakfast scrambles at the Kraft Heinz Innovation Center in Glenview, Ill., on Feb. 26, 2019.
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Chicago Tribune
Carrie Conway, (center) Erin Marshall, (left) and Lauren Bayer work in the kitchen to test and revaluate a recipe for Better for You Brownies at Kraft Heinz Innovation Center in Glenview, Ill., on Tuesday, Feb. 26, 2019.

GLENVIEW, Ill. — Robin Ross, director of culinary at Kraft Heinz, doesn’t need data to know how much consumer tastes have changed since processed food reigned supreme.

When she was growing up, dinner often meant heating up a can of something on the stove, and when she was raising kids she bought a lot of McDonald’s Happy Meals. But today her adult daughter hand-breads chicken nuggets for her children, part of a broad trend of families opting for more fresh, natural, personalized meals.

That shift has dogged massive prepared food companies like Kraft Heinz, whose brands became household names at a time when shoppers cared more about consistency, convenience and familiarity than that long list of ingredients on the packaging.

For many of these companies, the fight to stay relevant means rolling out innovative new products that are either developed internally or brought on board as part of the acquisition of startup food companies. At Kraft Heinz, it’s Ross’ job to create new products, or new versions of the old standbys, that capture the attention of a modern food shopper with discerning tastes and a plethora of options.

Innovation has not, of late, been what’s been getting attention at Kraft Heinz, which employs some 2,000 people in the Chicago area and 39,000 globally. Co-headquartered in Chicago and Pittsburgh, the legacy packaged food-maker has been criticized for focusing too much on cost-cutting and not enough on brand building or product development, a concern that resurfaced late last month as the company unleashed a cascade of dismal financial news.

A focus on cutting costs

The company reported a $12.6 billion loss for the fourth quarter of 2018 and announced it was writing down the value of its Oscar Mayer cold cuts and Kraft natural cheese brands by $15.4 billion, an indication that the sales and earnings potential of those iconic brands aren’t as strong as once thought.

It slashed its dividend by 36 percent, lowered its 2019 outlook and disclosed that it had received a subpoena from the Securities and Exchange Commission related to its procurement operations. The company launched an internal investigation in response and found it should have recorded a $25 million increase in the cost of products sold in prior periods.

The company said it plans to sell some brands or business units to strengthen its balance sheet for a future acquisition, a deal some investors have been eager to see since its failed $143 billion bid to buy Unilever two years ago.

And after two years of deep cost-cutting that helped give Kraft Heinz industry-leading profit margins, the company last year boosted brand spending by $300 million and this year plans to launch “record-level innovation,” CEO Bernardo Hees said in the company’s earnings call with analysts.

But, Moody’s analyst Brian Weddington said, “There is still some question on how effective that spend is going to be.”

The budgeting strategy at Kraft Heinz, which requires managers to justify each cost and eliminate nonproductive spending, is to blame for some of the financial volatility, as the company is so lean that it struggles to offset cost inflation with more cuts, Weddington said.

He said that ultimately the strategy will improve profit margins, but other industry watchers said the efficiency comes at the expense of responding to consumer needs.

“If you’re constrained because of cost then the whole organization is less entrepreneurial,” said Donald Fitzgerald, a food sector consultant and adjunct professor of marketing at DePaul University. That’s true both for product development and for the brand salespeople working with retailers to design promotions and shelf displays that pull shoppers in, said Fitzgerald, who until last month was group vice president of merchandising and marketing at grocery chain Mariano’s.

Meanwhile, the market is rife with food startups that are laser-focused on the health-conscious consumer and able to use e-commerce to reach an audience no longer loyal to Big Food.

To compete, many of the large companies are acquiring those upstart brands or launching venture capital arms and accelerator programs to invest in their growth.

Chicago-based Conagra, maker of Slim Jims and Orville Redenbacher popcorn, added gourmet Mexican to its portfolio by acquiring Frontera Foods’ packaged foods business in 2016 and a year later paid $250 million for Angie’s Boomchickapop whole grain popcorn. Cereal-maker Kellogg paid $600 million for Chicago protein bar company RxBar in 2017. Tyson Foods took a minority stake in plant-based protein start-up Beyond Meat in 2016 through a venture capital fund it launched to invest in food companies pioneering new products and technologies.

Kraft Heinz last year launched Springboard, a venture fund and accelerator program for small craft and natural brands, and paid $200 million to acquire better-for-you condiments-maker Primal Kitchen, which will continue to operate as an independent company.

Those efforts are effective if the values align and the smaller companies are nourished and able to maintain their culture and energy — which doesn’t always happen, said consumer trends analyst Phil Lempert, who runs The Supermarket Guru website.

But traditional companies also have to thoughtfully develop their own products, and not just by making incremental changes to existing products, which only overwhelms and confuses consumers faced with more than 40,000 products in a typical supermarket, Lempert said.

“Do we really need 18 different brands of salsa or 100 different types of olive oil?” Lempert said. “I think we have gotten so focused on volume and so unfocused on consumer needs and what consumers really want. This is how these big companies have gotten lost, they haven’t been listening to consumers.”

Catering to healthy eaters

Ross, who heads up the innovation kitchen at Kraft Heinz’s research and development center in Glenview, a northern suburb of Chicago, has a 14-member team dedicated to paying attention to what consumers want. Wearing white chefs coats, they develop and test products and recipes in five open kitchens that ring the lobby’s glass-topped atrium, the sounds and smells on display to visitors like a piece of live art.

The facility is one of two Kraft Heinz innovation kitchens in the United States; the other, in Warrendale, Pa., focuses on Heinz condiments and frozen food. It is stocked to mimic the typical American kitchen, based on a questionnaire circulated to 3,000 households every three years to track what kinds of appliances and foods people are buying.

Ross joined the culinary team at Kraft Foods 25 years ago after she had her second child and it became too difficult to balance her career managing restaurants for the Levy group, and she’s become intimately familiar with how people’s food shopping habits have evolved.

The trends are evident in the test kitchen’s collection of gadgets, including an Instant Pot pressure cooker (in 11 percent of households) and an air fryer (in 5 percent, but growing), which are meant to help get dinner to the table faster. They are evident in the spice cabinet, where ginger powder, cumin and chili powder have gained prominence as Hispanic and Asian influences spread, and in the dairy case, where almond milk sits beside 2 percent.

A third of Americans decide what’s for dinner based on what’s in their kitchens, and the No. 1 reason people decide not to try a recipe is because they don’t have the ingredients, Ross said, so her team develops recipes and products with their pantries in mind. Each test kitchen is equipped with both an electric and gas oven, and microwaves of various wattage levels, to ensure the company’s products cook properly in most homes.

Many of Kraft Heinz’s innovations, like those of other Big Food companies, have focused on catering to what people perceive to be healthy.

In 2015 it reformulated Kraft Mac and Cheese with no artificial colors, flavors or preservatives, and in 2017 it launched Oscar Mayer hot dogs without nitrites and nitrates. That same year it launched the “O, That’s Good!” product line with Oprah Winfrey to bring a nutritious twist to comfort food, including frozen pizza with a cauliflower crust and cheddar-broccoli soup with butternut squash in the base.

Devour, a line of frozen meals marketed to millennial men, took another approach, pushing larger portion sizes and richer flavors to entice a demographic that hasn’t been targeted in the frozen food aisle.

Last year, Kraft Heinz’s big launch was Just Crack an Egg, a microwaveable egg scramble in a cup that contains fresh vegetables, Ore-Ida potatoes, Kraft cheese and Oscar Mayer meat (but not an egg; consumers use their own). The product lives alongside eggs in the refrigerated section of the grocery store, giving the company a foot in the fresh-food perimeter of the store where customers are spending an increasing amount of their time.

Developed in concert with the consumer insights and strategy team, marketing and research and development, Just Crack an Egg aimed to solve a breakfast problem highlighted by survey data: people want portable, portion-controlled protein in the morning to help them feel sated and give them energy to start their day, but many don’t have time to cook before work, Ross said. And people love eggs but normally reserve them for the weekends because of the preparation and cleaning time.

Ready in less than two minutes, Just Crack an Egg “brings the weekend occasion into the workweek,” Ross said. To prove the point, the culinary team timed it against how long it takes to make a fresh egg scramble, and found the packaged meal was ready by the time the skillet was just heating up.

It took two years to develop Just Crack an Egg, in part because the culinary team had to figure out how to use high-pressure processing to keep vegetables fresh for the duration of the product’s shelf life, Ross said. It also ran a battery of tests to ensure food safety in multiple scenarios, including if people use egg whites, two eggs or microwave two bowls at the same time, in microwaves with varying wattage levels.

Just Crack an Egg, which launched in February 2018 and is carried in nearly 74 percent of the market, sold 21.7 million cups last year for $50.7 million in sales, “vastly exceeding expectations,” a spokesman said.

But not every new product performs so well. Fresh Take, a coating mix for meats that contained a mix of breadcrumbs, fresh cheese and herbs, floundered likely because no one thought to look for it in the dairy case at the grocery store, Ross said.

While Kraft Heinz takes criticism for not investing enough in innovation, Ross said: “I feel like as a company and as a culinary group we have made progress with respect to understanding the folks that our company is producing products and services for.”

Fitzgerald, the food-sector consultant and former Mariano’s executive, said Just Crack an Egg is the kind of “true innovation” that begins to reinvent Big Food’s mature legacy categories and offers opportunities for retailer partnerships.

“On that one, kudos,” he said. “There is not enough of that.”

Supermarket Guru’s Lempert also sees the potential, but as he looked at the packaging he was shocked that it didn’t prominently highlight the protein content of the egg dish given consumers’ obsession with protein.

The culinary team may have its finger on the pulse, but what drives success is “the support you have with these products,” he said. “How are you going to market them?

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