Early in his career, serial inventor Dean Kamen made a wheelchair that could climb stairs. While it never gained widespread adoption, he adapted this technology to launch his famous Segway transportation device in 2001.
After Segway’s launch, Kamen began working on a project close to his heart: a water purification device for the developing world. But he needed help getting it distributed. Given its global reach, Coca-Cola was an ideal partner.
In exchange for getting the water purification device out there, Coca-Cola needed Kamen to help with a project of its own that it was working on. This led to the launch of the Coca-Cola Freestyle machine in 2009.
The Freestyle machine was truly revolutionary for Coca-Cola. Whereas consumers had previously been limited to just a handful of fountain-drink options, Freestyle gave them access to over 150 flavor options.
Consumers obviously love having choices. However, the benefit wasn’t only for consumers; there was a hidden benefit to the Freestyle machine for Coca-Cola as well. And it’s a benefit that Kraft Heinz (KHC -0.59%) hopes to exploit with the launch of its own, similar machine in 2024.
Building brands based on data
In May, Kraft Heinz announced a machine called Remix: a digital, touchscreen device that can dispense over 200 different flavored sauces. Although announced some time ago, the machine is only expected to start testing with select partners this year.
In the press release at the time, Kraft Heinz said that the machine was meant to be “an insights engine and business model enabler that will help Kraft Heinz understand and respond to consumer trends and flavor preferences in real time.” While this may sound like managerial hyperbole, the company is serious.
In the meantime, Coca-Cola’s Freestyle machine has led to the development of four new sodas on store shelves. These flavors are Sprite Cherry, Coke with Cherry Vanilla, Coke with Orange Vanilla, and Sprite Strawberry with Lymonade. These products were launched based on years of extensive consumer data from the Freestyle machines.
In an interview with Food Dive, Coca-Cola Freestyle vice president of equipment strategy Felicia Hale said that the consumer data “really helps to inform our pipeline and how we think about innovation.” The same would likely be true for Kraft Heinz’s Remix machine.
What this means for Kraft Heinz investors
Kraft Heinz is a large consumer staples company and offers a variety of products, including Mac & Cheese, Singles, Kool-Aid, Oscar Mayer, and Maxwell House coffee. But while this is a diverse business, condiments and sauces are the biggest part of it. The company won’t report financial results for 2023 until Feb. 14. But through the first three quarters of 2023, it’s generated $6.7 billion in net sales for condiments and sauces — a whopping 34% of total net sales.
Those $6.7 billion in year-to-date net sales are up 12% year over year, so Kraft Heinz is obviously doing something right. It’s unclear how much of the increase is due to higher prices rather than sales volume. But it’s safe to assume higher prices are a large part.
It would be better if Kraft Heinz could grow volume for its condiments and sauces, since this is the largest part of the business. Having its Remix machines on location, with foodservice partners collecting consumer data, would help. But for now, investors must await the official launch and see if it even gains any traction.
For nearly five years, Kraft Heinz stock has barely moved. But then again, as the chart shows, the company’s revenue has been stuck in neutral as well.
Kraft Heinz will likely need to grow at a better rate if the stock is going to be a winning investment from here. Perhaps its Remix machine is one path toward unlocking better growth. That said, it would likely take a couple of years or more before it starts to pay off.
For now, I could see reason for shareholders to hold Kraft Heinz stock — the company isn’t going anywhere, and it does pay a dividend. But for those wondering if they should buy the stock, I’d wait for now. But definitely keep an eye on its Remix machine, because Coca-Cola has already shown that can be a viable path to expanding its product portfolio.
