Heinz killed ketchup ads. Twice.

Heinz has run the same experiment twice.

The first time was the 1990s. Their CEO Tony O'Reilly had given Wall Street a decade of roughly 14% annual earnings growth, and Wall Street had come to expect it.

Then a recession hit, store brands got better, and sales stalled around $7 billion.

So to keep earnings growing, Heinz raised prices and cut U.S. brand advertising by 40%.

By the late '90s, Heinz ketchup had been off American TV for more than a decade. It cost 60–70% more than rival brands. Its share of the U.S. ketchup market slid to 43%.

Somewhere in there, salsa passed ketchup in dollar sales.

(Salsa.)

The next CEO narrowed the price gap. Share climbed back to 51%, and ketchup went back on TV. Then Heinz grew organic sales for 30 straight quarters.

In 2013, Warren Buffett and 3G Capital bought it for $28 billion, including debt. Buffett credited "the power of investing behind strong brand equities."

3G ran the company. Cost cutting is 3G's whole playbook. Thousands of jobs went, margins jumped from 18% to 26%, and the CEO called Heinz the most profitable company in the food industry.

Then they merged it with Kraft… and cut ads again.

From 2016 to 2018, Kraft Heinz cut its spending on ad placements from $708 million to $584 million. Organic sales shrank.

In 2019, it wrote down $15.4 billion. A few months later, Buffett pointed out that Costco's Kirkland brand was bigger than all of Kraft Heinz combined.

This year, a new CEO took over. His plan: $700 million for marketing, sales, and R&D.

His words: "The brands have been underinvested."

It’s amazing how often people rediscover the wheel.

Before you cut anything customers feel — think marketing, service, or quality — write down the metric that would tell you it's hurting.

Maybe it’s repeat customers, or referrals, or close rate, or inbound calls. It’s always going to be a lagging indicator.

So check it monthly for a year after the cut. Because while the savings show up right away, the costs will be there. At Heinz, the damage took most of a decade to show up in share price.

The classic on why this happens is a book called How Brands Grow by Byron Sharp.

The core idea: brands grow by staying easy to think of and easy to buy. Go quiet, and people slowly stop thinking of you.

What's a cut you made that came back to bite you? Hit reply. I read them.

Good luck out there.

Thanks,
Michael

P.S. My next lecture is coming up Oct 22nd — How to pay your operator: a talk for business owners. I’m hosting Tighe Burke, who finds and places CEOs. RSVP free today!

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