Kraft Heinz introduced a new hazelnut spread for its Canadian consumers in June 2020 which could turn out to be an invaluable lesson for multinational companies.
A soft introduction was launched when Kraft ran a poll on Twitter asking Kraft Peanut Butter followers whether they would prefer their hazelnut spread with or without palm oil. This was the first mistake they made.
Social media platforms, especially Twitter which facilitates open discussions, are useful for marketing traction if the campaign is solid. The Kraft Peanut Butter poll on its new hazelnut spread ended in a mess as participants weighed in with views ranging from thanking Kraft for not using palm oil to criticism for its high sugar content.
Kraft Heinz knows how powerful social media can be as the brand has lost market share due to viral campaigns against the company but failed in its attempt to generate consumer interest in its new hazelnut spread.
How Kraft Heinz Lost Market Share
Kraft Heinz lost its market share in Canada when it acquired Heinz and according to a report from Canadian Broadcasting Corporation (CBC) in 2015, “ planted the seed for potential troubles when it sold its Leamington processing plant and moved its Canadian ketchup operations to the U.S.”
The brand’s downfall started with a single post on Facebook when a Canadian consumer wrote “Bye.Bye.Heinz.”
“Since Heinz decided to pull the plug on its Canadian plant in Leamington, 740 jobs were lost. Heinz decided to make its ketchup solely in the USA. Then, French’s (known for its mustard) stepped in and decided to make ketchup. They also decided to use those same Leamington tomatoes from Canadian farmers. The result: A ketchup …. free of preservatives. Free of artificial flavours. Also, free of high fructose corn syrup!! We bought a bottle. Absolutely love it!! Bye. Bye. Heinz.”
Despite the protestations of Kraft Heinz that it “continues to be a proud Canadian employer,” that was not the perception of many Canadians who only saw Kraft Heinz leaving some Leamington tomato farmers without a customer.
“They hurt a lot of people there,” said John Skoczen of Leamington, who worked as a labourer at the Heinz plant. “[Farmers] were up in the air, they didn’t know what they were doing.”
Kraft Heinz was further shamed when the Canadian government named the company in retaliatory tariffs. As reported by the Washington Post in 2018, three years after Kraft Heinz moved its ketchup production to the US:
“Representing the United States is Heinz, which put 700 Canadian workers out of work in 2014 when it closed a plant in Canada’s tomato capital, a small southern Ontario town called Leamington. Anger and hand-wringing ensued.
Representing Canada is French’s, the mustard-maker, which began producing ketchup in Canada after the Heinz closure. In its bid for Canadian dollars, French’s even put a maple leaf on the bottle. Canadians rejoiced and bought French’s ketchup.”
Kraft Heinz was dragged into the trade war when the Canadian government retaliated against the US tariffs on Canadian metals by slapping tariffs on $12.6 billion ($16.6 billion Canadian) worth of American-made products, including ketchup.
The trade disagreements between Canada and the US is an on-going love-hate relationship but the mistake that Kraft Heinz made in introducing a No Palm Oil hazelnut spread in Canada should be noted by global brands.
Local Markets Can Create Financial Risks for Global Operations
Understand the consumers. Kraft Heinz should have learnt from the Leamington experience that Canadian consumers care about Canadian farmers and jobs. Palm oil as an ingredient is not an issue that will bring strong sales at full retail price in Canada especially when the no palm oil hazelnut spread is made in Belgium with no declared benefits to Canadian soy farmers.
Full retail prices are essential for Kraft Heinz Co’s (KHC.O) bottom-line as the corporate debt rating was cut to “junk” by global credit ratings agency Fitch earlier in 2020.
The most important lesson for global brands from Kraft Heinz’s decision to test palm oil free marketing in Canada is simply that negative marketing that picks on an ingredient produced by foreign farmers can create a consumer backlash against its foreign divisions.
Following a formal objection to the label by the CPOPC to Kraft, the no palm oil label has created howls of protests in Indonesia with calls to boycott PT Heinz ABC, an Indonesian based food division of the Kraft Heinz company.
Indonesian groups representing palm oil farmers have issued calls for a boycott of PT Heinz ABC. The union representing small independent palm oil farmers in Indonesia, Serikat Petani Kelapa Sawit (SPKS) issued a press release calling upon its members to boycott PT Heinz ABC for what it saw as a discrimination against palm oil farmers. The association SAMADE, Sawitku Masa Depanku ( My Palm oil my future ) issued a similar call to its members to boycott all Kraft Heinz products in Indonesia.
Popular Indonesian blogger, Hariadhi, whose father is a palm oil smallholder wrote a blog on Indonesia’s Independence Day that went viral.
Reputational Risks from No Palm Oil Marketing
It is too early at this time to gauge how much market share PT Heinz ABC may lose because of Kraft Heinz’s no palm oil label in Canada.
What is certain is the additional risk to its reputation as the no palm oil label can be seen as an abandonment of its commitment to source sustainable palm oil as a founding member of the North American Sustainable Palm Oil Network (NASPON). Meanwhile, Kraft Heinz’s consumer relations department continues to associate the company with the RSPO and the Rainforest Alliance even though it has publicly declared itself as anti palm oil with auto responses like:
“Kraft Heinz is an active member of the Roundtable on Sustainable Palm Oil (RSPO) and has recently partnered with the Rainforest Alliance – an international non-profit organization dedicated to conserving biodiversity and ensuring sustainable livelihoods – to support us in the implementation of our sustainable palm oil sourcing policy.”
This sounds very much like the company’s protestations that it was still employing Canadians when the “ketchup wars” eroded its consumer base.
The No Palm Oil label is a clear and direct violation of the Roundtable on Sustainable Palm Oil’s regulations governing members claims that could lead to the termination of Kraft Heinz’s membership.
Kraft Heinz may yet challenge any punitive actions by the RSPO by defending its No Palm Oil label as a health issue rather than an environmental issue, an argument which the RSPO needs to address. This argument should not hold water for the RSPO as it is contradictory for Kraft to remain a member of the RSPO when its decision to market its new hazelnut spread as palm oil free is an obvious effort to profit from anti-palm oil sentiment.
Should the company decide to keep its membership as evidence of corporate intent to use sustainable ingredients with certification groups like the RSPO or Rainforest Alliance, it will have to remove the “No Palm Oil” factor from its marketing in Canada, which would show an embarrassing failure of its hyped up marketing campaign. It is puzzling how a multinational corporation can create a lose-lose situation for itself but this should provide invaluable lessons for multinational companies.