Kraft Heinz (NASDAQ:KHC) stock needs a jump start. The beleaguered company has been on a downward slide almost from the moment Heinz merged with Kraft in 2015. It’s really not hard to see why. Kraft Heinz has made its money on the convenience of packaged food.
Adults of a certain age know what it was like to live on Kraft Macaroni & Cheese in college. Brands such as Oscar Mayer were staples in children’s lunches. But we live in different times. Consumers are demanding healthier options, and Kraft Heinz is behind the curve.
At first, the newly merged Kraft Heinz thought it could acquire its way into new, healthier markets. But a rebuff by Unilever (NYSE:UL)in 2017 put an end to KHC’s vision of growth through acquisition.
Since arriving on the scene last year, however, Kraft’s new CEO, CEO Miguel Patricio, is trying to reverse the course of a company whose stock has plunged over 70% in the last three years. One of the bolder moves the company is making is a multi-year partnership with Six Flags (NYSE:SIX). The initiative gives Kraft Heinz an opportunity to engage with consumers in a new and very different way.
Why the Partnership Might Work
One of the problems that Kraft has to overcome is buyers’ behavior. Kraft Heinz’s products are already seen as being behind the curve, so its products are often not prominently displayed at supermarkets. And even if they are, it can be tough to get consumers to switch to the company’s brands.
That brings me to my point about why the partnership with Six Flags might be a great idea. Under the deal, Kraft will sponsor special events at Six Flags’ parks. At the events, attendees will be able to sample Kraft’s products.
“We are very excited to partner with Six Flags and to allow those who visit Six Flags locations to enjoy some of our recognizable products, such as HEINZ Ketchup and KRAFT Singles,” said Daniel Haskell, Vice President of Kraft Heinz US Foodservice.
The company plans to use Six Flags as a test market for new products that it will offer for a limited time at some Six Flags dining locations. Think of it as a gigantic focus group consisting of thousands of consumers every year. It’s a bold idea. I don’t know if it has any chance of working. And Six Flags has its own problems to contend with.
That said, Kraft Heinz is trying to reverse a trend. And in the world of packaged food, “if they try it, they may buy it” is not a bad strategy. In some ways, it’s a variation on a direct-to-consumer model that is putting Kraft Heinz’s products front-and-center with consumers.
But Is the Company Taking One Step Forward and One Step Back?
On the other hand, it’s been rumored for some time that Kraft Heinz may be ditching what some would say is a premium sponsorship. The company is said to be walking away from the naming rights for Heinz Field, the home of the National Football League’s Pittsburgh Steelers.
In 2001, Heinz bought the naming rights for 20 years., so the deal is set to expire in 2021. But Kraft Heinz has let it be known that it would be willing to exit the deal early if the Steelers find a new partner. One reason the company is willing to terminate the deal is that, since Heinz was bought by Kraft, Heinz is no longer headquartered in Pittsburgh.
However the primary issue is the price. Kraft Heinz currently is paying an average of just $2.85 million per year for the naming rights. The Steelers have already said they are looking for $10 million per year in a new deal. And that is several million more than Kraft Heinz says that it’s willing to pay.
And from the Steelers’ standpoint, a partnership with a company whose sales are declining and whose credit was downgraded by S&P Global is not good optics.
And for a company whose stock price is deteriorating, not overpaying for naming rights makes sense.
Will the Six Flags Partnership Be a Catalyst for Kraft Heinz stock?
By itself, the Six Flags deal will not move the needle for the shares. I’m not going to describe the woes of Kraft Heinz in detail. Several other InvestorPlace columnists, such as Vince Martin, have written extensively about the company’s precarious situation. However, as many InvestorPlace contributors, including Josh Enomoto, have observed, the company is still likely to pay a good dividend that may make Kraft Heinz stock attractive to value investors.
Kraft’s partnership with Six Flags is a bold move that shows the company is trying to make an old brand relevant to younger consumers. That may not work, but it’s a bit of entertaining news at a time when the company desperately needs some.
As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.
