KETCHUP!

March 7, 2019

“OK, three tomatoes are walking down the street - Papa Tomato, Mama Tomato and Baby Tomato. Baby Tomato starts lagging behind and Papa Tomato gets really angry, goes back and squishes him, says ‘Ketchup!’.”

   

As Uma Thurman says to John Travolta in Pulp Fiction, after getting an adrenalin shot to her heart as a result of snorting heroin thinking it was cocaine, “you won’t laugh because it’s not funny”.

   

I can’t imagine anyone at Berkshire Hathaway or 3G would be laughing either, not since the announcement of Kraft Heinz’s final quarter results, which showed a net loss of $12,6bn.

   

Everyone dived in with their one-shot theories: 

 

  • It’s the 'Buy Squeeze Repeat' business approach of 3G, which has closed plants, cut jobs and relentlessly focused on costs.

 

  • It’s the zero-based budgeting they have applied across the merged company. 

 

  • It’s all down to the write-down of value of the Oscar Mayer and Kraft brands because of how out of step they are with consumer tastes.

 

  •  It’s the continuing squeeze on margins from the big retailers. 

 

  • It’s the growth of all those disruptive upstarts on shelf and online.

 

  • It’s the fact that people are turning away from packaged goods to eat “fresh”.

 

As Mark Ritson said in his Marketing Week article, the answer is probably all of the above and more.

 

One of the more intriguing explanations relates to Warren Buffett himself. Although revered in investment circles as the Oracle of Omaha, this is a man who every single day takes a morning trip to McDonalds and drinks five regular Cokes. At 88.

 

So the argument goes that, when weighing up this mega-merger, he was partially blinded by his own child-like food preferences - that and presumably an incredibly strong constitution.

 

If you dig back, you find that Warren Buffett’s personal tastes played a part in the Kraft Heinz story from the start.  

 

Berkshire Hathaway and 3G bought Heinz back in 2013. As he said at the time, “it is our type of company”. By that he meant dividend-paying, slow-growth, making consumable products, classically American. But he also meant food products with an unchanging and much-loved taste. And the epitome of that in the portfolio was Heinz Tomato Ketchup.

 

If you dig back into that story, you find a renegade band of ketchup makers, led by an entrepreneur from Pittsburgh called Henry J. Heinz. 

 

You also find tales of neophobia - the fear or dislike of anything new. Ketchup is one of the ways young children make the unfamiliar familiar.

 

But above all, you find the story of a unique taste. Malcolm Gladwell in his New Yorker article in 2004 described it like this: “The taste of Heinz’s ketchup began at the tip of the tongue, where our receptors for sweet and salty first appear, moved along the sides, where sour notes seem the strongest, then hit the back of the tongue, for umami and bitter, in one long crescendo.”

 

Apparently, the idea of a tongue map is a misconception. But that sense of a sensory spectrum gave birth to lines like “There’s no taste like Heinz” and ‘It has to be Heinz’. The inner-child need for Familiarity when wanting to make the food you eat more enjoyable and the outer-parent need to get your children to eat their food, Harmony. 

 

But here’s the catch. Well, one of them

 

A 460g bottle of Heinz Top Down Tomato Ketchup today costs £2.00 in Tesco (down from £2.80).

 

A 480g bottle of Tesco Top Down Tomato Ketchup costs £0.65.

 

So what do you get for that 200% premium?

 

Of course, arguably you do get a superior tasting product and that counts for a lot. You also get all the alternatives in the Heinz range - 50% Less Sugar And Salt, No Added Sugar And Salt, Organic - to resolve some of that parental Harmony tension.

 

But how much for all that? Maybe 100% at most? 

 

The thing is you never eat ketchup on its own. A big part of Heinz’s problem has nothing to with the sauce itself, it’s the fact that people are eating fewer ketchup-type meals.

 

What you also get is a brand. A brand that may well mean a great deal to you. A brand you’ve grown up with, an ever-present on the kitchen table, a beacon of continuity in your life. A brand that helps you meet your deep needs around mealtimes. Your implicit goals.

 

What’s that worth? Shall we agree on the other 100%? We can debate the exact split in the comments below.

 

But what happens if you cut your costs so that your product’s superior taste becomes a bit less superior?

 

Or you stop investing in long-term brand-building, so those fond memory structures start ever-so-slightly to weaken?

 

I tell you what happens. Pass the Heinz Ketchup becomes pass the ketchup. Or pass the chilli sauce. Or who’d want sauce with this anyway?

 

And that’s no laughing matter for a brand, even one with notes of umami, Uma.

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