Lo que opinan del foso de KHC los herederos de Dorsey:
Economic Moat | by Erin Lash Updated Dec 08, 2019
We don’t believe that Kraft Heinz’s intangible assets or scale warrant an economic moat. Our contention is supported by returns on invested capital (including goodwill) that have languished, falling short of our 7% weighted average cost of capital estimate each of the past three years. We attribute these lackluster returns to management’s decision to prioritize near-term cash flow at the expense of protecting its long-term competitive position.
Since the tie-up four years ago, Kraft Heinz has operated as the third-largest food and beverage firm in North America behind PepsiCo and Nestle, boasting more than $20 billion in sales on its home turf in 2018 (and more than $26 billion on a consolidated global basis). But the hallmark of the combination of Kraft and Heinz has resided in its ability to extract a significant degree of costs from its operations (with operating margins that now hover in the low- to mid-20s, materially above the mid- to high-teens its peers boast). However, we don’t posit that this level of profitability reflects a scale edge but rather is derived as it has opted to refrain from investing meaningful resources behind its brands. In this vein, investments in research, development, and marketing have amounted to just 4%-5% of sales annually at Kraft Heinz, generally lagging the mid- to high-single-digit levels at peers.
Further, we don’t believe Kraft Heinz enjoys significant pricing power. As evidence, in its U.S. segment (around 70% of its consolidated sales base), Kraft Heinz volumes have eroded more than 1% on average over the past four years, despite price holding about flat over the same time horizon. Further, some of the categories in which it competes–like packaged meats and cheeses, one third of the firm’s total sales base in aggregate–have become commodified, as consumers tend to consider price rather than brand when making purchase decisions. This is a particular challenge given that switching costs for the end consumer are essentially nonexistent in the consumer product industry. Moreover, we aren’t of the opinion that it will ultimately part ways with its meat or cheese operations, given the legacy and significance each hold as two of the largest product segments in which the firm competes. Overall, our forecast sees little shift in Kraft Heinz’s portfolio mix, calling for packaged meat and cheese to account for around 30% of sales throughout our explicit forecast, suggesting that these lower-margin segments could continue to hamper its competitive positioning and profitability longer term. This mix further limits our confidence in its ability to sustainably out earn its costs of capital over a longer horizon.
Given center-of-the-store grocery categories, such as simple meals and baking offerings, have been losing out to consumers’ desire to shop the perimeter of the store in search of healthier fare, we surmise that maintaining–or even increasing–its brand spend will be crucial in sustaining brand awareness and securing a competitive edge. We view this as even more essential now, relative to several years ago, in light of the rise of the e-commerce channel that has enabled smaller, niche operators to gain a leg up in amassing proof of concept, as retailers aren’t beholden to allocate their inherently limited physical shelf space to unproven suppliers. Further, because of the intensely competitive environment in which it plays (going to bat against other branded peers, lower-priced private-label offerings, and smaller, niche operators), we believe Kraft Heinz will ultimately ramp up its brand spend in order to stave off market share losses, even though this spend would hamper margin gains over time. If this plays out and the firm’s sales and share exhibit stabilization, we would consider re-evaluating our moat rating.
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