Is Kraft Heinz Split a Warning?
- Kraft Heinz is reportedly planning a significant business split
- This rumoured split aligns with restructuring trends in the food and beverage industry, including moves by Unilever and The Kellogg Company
- Experts caution that mergers and acquisitions (M&A) need improved brand and culture strategies
- Emerging health trends negatively impact ultra-processed brands
In July, it was revealed that Kraft Heinz is preparing to spin off a substantial part of its business, including its well-known Kraft products. Industry insiders predict that this transaction, which would leave the company focused primarily on sauces, condiments, and spreads, could be finalized within weeks.
Kraft Heinz emerged in 2015 when Warren Buffett’s Berkshire Hathaway collaborated with Brazilian private equity firm 3G Capital to merge Kraft Foods with H. J. Heinz.
However, challenges arose in 2019 when Kraft Heinz slashed the value of its Kraft and Oscar Mayer meat brands by $15 billion. Nonetheless, the company remains highly profitable, with an estimated value of $31 billion.
Speculation surrounding the split follows similar patterns observed in other multinational corporations. For example, Unilever is offloading its ice cream sector and has also sold other major food brands. Similarly, The Kellogg Company has recently divided into Kellanova and WK Kellogg.
Interestingly, Kellanova and WK Kellogg did not remain independent for long; Kellanova is currently merging with Mars, Inc., while WK Kellogg is set to merge with Ferrero.
Recently, there have also been circulating rumors regarding an imminent Hovis-Kingsmill merger.
Therefore, it appears manufacturers are not deterred by recent high-profile merger failures.
That raises a critical question: should the challenges faced by major mergers like Kraft Heinz serve as a warning to manufacturers?
Are Mergers Always the Solution?
“The main takeaway from the potential Kraft Heinz split is that companies can no longer rely on the conventional M&A playbook in the food and beverage industry,” says Jenn Szekely, president of the branding agency Coley Porter Bell. “Short-term capital and promises of efficiency are insufficient; a comprehensive strategy to develop the new brand post-M&A is essential.”
Szekely emphasizes that the potential split serves as a cautionary tale not just for food manufacturers, but for any company contemplating an M&A without careful consideration of future branding strategies.
“Just because an acquisition fills a gap in a portfolio doesn’t imply that M&A is the optimal course of action,” she states. “Excessive diversification may lead to a lack of focus. Businesses must assess their growth strategies for brands that complement their existing portfolios before making any commitments.”
Additionally, an often-overlooked yet vital factor in the merger process is the compatibility of company cultures.
“Heinz and Kraft had distinct cultural identities, which posed challenges from the outset,” Szekely explains. “Kraft Heinz’s setbacks should alert organizations not to underestimate the importance of cultural compatibility during M&A.”
Why Did the Kraft Heinz Merger Fail?
One of the most significant challenges Kraft Heinz has faced, which was arguably unforeseen, is the ascent of health and wellness trends.
“Consumers are increasingly health-focused and cautious about ultra-processed foods,” states Szekely. “While these products weren’t viewed negatively before, consumers now realize they can significantly impact their health.”
This growing awareness has contributed to declining sales for Kraft Heinz, a company largely defined by its ultra-processed food portfolio.
“The heritage brands within the Kraft portfolio fail to resonate with today’s consumers,” Szekely remarks.
What Could Kraft Heinz Have Done Differently?
“Kraft Heinz has refreshed several brands since the merger, like Jello, Kraft Singles, and Ore-Ida, but that approach proved insufficient,” says Szekely. “A thorough examination of its product lines is necessary.”
Many brands within the Kraft Heinz portfolio, along with those of other consumer packaged goods companies, have undergone years of ingredient evolution, resulting in products that are now mere shadows of their previous selves.
Ingredient lists have swelled over the years, and the nature of these ingredients has notably changed.
“Consider Velveeta,” Szekely notes. “It was originally made with real cheese and consisted of 4-5 core ingredients. Today, it has over 30 distinct components, rendering it unable to be labeled cheese and instead classified as a ‘cheese product’.”
The modern consumer has become savvy to such distinctions, interpreting them as indicative of a product’s lack of genuine cheese content.
Kraft Heinz is not alone in facing this dilemma; other major brands, such as Nestlé and Pladis, have similarly had to eliminate the term ‘chocolate’ from some products due to cocoa levels dropping below legal thresholds.
The Future of M&A in Big Food
The anticipated Kraft Heinz split signifies not only a pivotal change within the food and beverage industry but also serves as an important wake-up call.
Mergers driven by short-term gains and portfolio gaps are no longer viable. As consumer expectations evolve towards healthier options, food manufacturers must reevaluate their strategies. Prioritizing brand clarity, cultural alignment, and long-term vision over quick wins is essential. The future of the food and drink industry isn’t solely about scale; it is fundamentally about relevance.
